Exhibit 10.5
STANDBY EQUITY DISTRIBUTION AGREEMENT
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THIS AGREEMENT dated as of the 7th day of September 2005 (the "Agreement")
between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"), and IN VERITAS MEDICAL DIAGNOSTICS, INC., a corporation organized
and existing under the laws of the State of Colorado (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 from the
Company up to Ten Million Dollars ($10,000,000) of the Company's common stock,
par value $.001 per share (the "Common Stock"); and
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
WHEREAS, the Company has engaged Monitor Capital, Inc. (the "Placement
Agent"), to act as the Company's exclusive placement agent in connection with
the sale of the Company's Common Stock to the Investor hereunder pursuant to the
Placement Agent Agreement dated the date hereof by and among the Company, the
Placement Agent and the Investor (the "Placement Agent Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Certain Definitions
Section 1.1. "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.2. "Advance Date" shall mean the date the Xxxxx Xxxxxxxx Attorney
Trust Account is in receipt of the funds from the Investor and Xxxxx Xxxxxxxx,
Esq., is in possession of free trading shares from the Company and therefore an
Advance by the Investor to the Company can be made and Xxxxx Xxxxxxxx, Esq. can
release the free trading shares to the Investor. The Advance Date shall be the
first (1st) Trading Day after expiration of the applicable Pricing Period for
each Advance.
Section 1.3. "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date.
Section 1.4. "Advance Notice Date" shall mean each date the Company
delivers (in accordance with Section 2.2(b) of this Agreement) to the Investor
an Advance Notice requiring the Investor to advance funds to the Company,
subject to the terms of this Agreement. No Advance Notice Date shall be less
than five (5) Trading Days after the prior Advance Notice Date.
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Section 1.5. "Bid Price" shall mean, on any date, the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if
the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.6. "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate amount of up to
Ten Million Dollars ($10,000,000) which the Investor has agreed to provide to
the Company in order to purchase the Company's Common Stock pursuant to the
terms and conditions of this Agreement.
Section 1.8. "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 made payment
of Advances pursuant to this Agreement in the aggregate amount of Ten Million
Dollars ($10,000,000), (y) the date this Agreement is terminated pursuant to
Section 2.4, or (z) the date occurring twenty-four (24) months after the
Effective Date.
Section 1.9. "Common Stock" shall mean the Company's common stock, par
value $.001 per share.
Section 1.10. "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.11. "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's 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 the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13. "Escrow Agreement" shall mean the escrow agreement among the
Company, the Investor, and Xxxxx Xxxxxxxx, Esq., dated the date hereof.
Section 1.14. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.15. "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement in any material
respect.
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Section 1.16. "Market Price" shall mean the lowest closing Bid Price of the
Common Stock during the Pricing Period.
Section 1.17. "Maximum Advance Amount" shall be Five Hundred Thousand
Dollars ($500,000) per Advance Notice.
Section 1.18. "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19. "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 1.20. "Placement Agent" shall mean Monitor Capital, Inc., a
registered broker-dealer.
Section 1.21. "Pricing Period" shall mean the five (5) consecutive Trading
Days after the Advance Notice Date.
Section 1.22. "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.23. "Purchase Price" shall be set at ninety eight percent (97%)
of the Market Price during the Pricing Period.
Section 1.24. "Registrable Securities" shall mean the shares of Common
Stock to be issued hereunder (i) in respect of which the Registration Statement
has not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") or (iii)
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
Section 1.25. "Registration Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.
Section 1.26. "Registration Statement" shall mean a registration statement
on Form S-1 or SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
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Section 1.27. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.28. "SEC" shall mean the Securities and Exchange Commission.
Section 1.29. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.30. "SEC Documents" shall mean Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.31. "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.32. "VWAP" shall mean the volume weighted average price of the
Company's Common Stock as quoted by Bloomberg, LP.
ARTICLE II.
Advances
Section 2.1. Investments.
(a) Advances. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Advance Notice
Date the Company may request an Advance by the Investor by the delivery of an
Advance Notice. The number of shares of Common Stock that the Investor shall
receive for each Advance shall be determined by dividing the amount of the
Advance by the Purchase Price. No fractional shares shall be issued. Fractional
shares shall be rounded to the next higher whole number of shares. The aggregate
maximum amount of all Advances that the Investor shall be obligated to make
under this Agreement shall not exceed the Commitment Amount.
Section 2.2. Mechanics.
(a) Advance Notice. At any time during the Commitment Period, the Company
may deliver an Advance Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, the amount for each Advance as
designated by the Company in the applicable Advance Notice, shall not be more
than the Maximum Advance Amount. The aggregate amount of the Advances pursuant
to this Agreement shall not exceed the Commitment Amount. The Company
acknowledges that the Investor may sell shares of the Company's Common Stock
corresponding with a particular Advance Notice on the day the Advance Notice is
received by the Investor. There shall be a minimum of five (5) Trading Days
between each Advance Notice Date.
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(b) Date of Delivery of Advance Notice. An Advance 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 5:00 pm Eastern Time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 5:00 pm Eastern Time on a Trading Day or at any time on a day which is not
a Trading Day. No Advance Notice may be deemed delivered on a day that is not a
Trading Day.
Section 2.3. Closings. On each Advance Date, which shall be the first (1st)
Trading Day after expiration of the applicable Pricing Period for each Advance,
(i) the Company shall deliver to Xxxxx Xxxxxxxx, Esq. (the "Escrow Agent")
shares of the Company's Common Stock, representing the amount of the Advance by
the Investor pursuant to Section 2.1 herein, registered in the name of the
Investor which shall be delivered to the Investor, or otherwise in accordance
with the Escrow Agreement and (ii) the Investor shall deliver to Escrow Agent
the amount of the Advance specified in the Advance Notice by wire transfer of
immediately available funds which shall be delivered to the Company, or
otherwise in accordance with the Escrow Agreement. In addition, on or prior to
the Advance Date, each of the Company and the Investor shall deliver to the
other through the Investor's counsel, all documents, instruments and writings
required to be delivered 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 Company's Common Stock to the Investor shall
occur in accordance with the conditions set forth above and those contained in
the Escrow Agreement; provided, however, that to the extent the Company has not
paid the fees, expenses, and disbursements of the Investor, the Investor's
counsel, or the Company's counsel in accordance with Section 12.4, the amount of
such fees, expenses, and disbursements may be deducted by the Investor (and
shall be paid to the relevant party) from the amount of the Advance with no
reduction in the amount of shares of the Company's Common Stock to be delivered
on such Advance Date.
Section 2.4. Termination of Investment. The obligation of the Investor to
make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of fifty
(50) Trading Days, other than due to the acts of the Investor, during the
Commitment Period, or (ii) the Company shall at any time fail materially to
comply with the requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written notice from the Investor, provided,
however, that this termination provision shall not apply to any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is
declared effective by the SEC.
Section 2.5. Agreement to Advance Funds. The Investor agrees to advance the
amount specified in the Advance Notice to the Company after the completion of
each of the following conditions and the other conditions set forth in this
Agreement:
(a) the execution and delivery by the Company, and the Investor, of this
Agreement and the Exhibits hereto;
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(b) The Escrow Agent shall have received the shares of Common Stock
applicable to the Advance in accordance with Section 2.3. Such shares shall be
free of restrictive legends.
(c) the Company's Registration Statement with respect to the resale of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement shall have been declared effective by the SEC;
(d) the Company shall have obtained all material permits and qualifications
required by any applicable state for the offer and sale of the Registrable
Securities, or shall have the availability of exemptions therefrom. The sale and
issuance of the Registrable Securities shall be legally permitted by all laws
and regulations to which the Company is subject;
(e) the Company shall have filed with the Commission in a timely manner all
reports, notices and other documents required of a "reporting company" under the
Exchange Act and applicable Commission regulations;
(f) the fees as set forth in Section 12.4 below shall have been paid or can
be withheld as provided in Section 2.3; and
(g) the conditions set forth in Section 7.2 shall have been satisfied.
(h) the Company shall have provided to the Investor an acknowledgement,
from the Company's independent certified public accountants as to its ability to
provide all consents required in order to file a registration statement in
connection with this transaction;
(i) The Company's transfer agent shall be DWAC eligible.
Section 2.6. Lock Up Period. On the date hereof, the Company shall obtain
from each officer and director a lock-up agreement, as defined below, in the
form annexed hereto as Schedule 2.6 agreeing to only sell in compliance with the
volume limitation of Rule 144.
Section 2.7. Hardship. In the event the Investor sells shares of the
Company's Common Stock after receipt of an Advance Notice and the Company fails
to perform its obligations as mandated in Section 2.3, and specifically the
Company fails to deliver to the Escrow Agent on the Advance Date the shares of
Common Stock corresponding to the applicable Advance, the Company acknowledges
that the Investor shall suffer financial hardship and therefore shall be liable
for any and all losses, commissions, fees, or financial hardship caused to the
Investor.
ARTICLE III.
Representations and Warranties of Investor
Investor hereby represents and warrants to, and agrees with, the Company
that the following are true and correct as of the date hereof and as of each
Advance Date:
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Section 3.1. Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.
Section 3.2. Evaluation of Risks. The Investor has such knowledge and
experience in financial, tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
Section 3.3. No Legal Advice From the Company. The Investor acknowledges
that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors. The Investor is relying solely on such counsel and advisors
and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
Section 3.4. Investment Purpose. The securities are being purchased by the
Investor for its own account, and for investment purposes. The Investor agrees
not to assign or in any way transfer the Investor's rights to the securities or
any interest therein and acknowledges that the Company will not recognize any
purported assignment or transfer except in accordance with applicable Federal
and state securities laws. No other person has or will have a direct or indirect
beneficial interest in the securities. The Investor agrees not to sell,
hypothecate or otherwise transfer the Investor's securities unless the
securities are registered under Federal and applicable state securities laws or
unless, in the opinion of counsel satisfactory to the Company, an exemption from
such laws is available.
Section 3.5. Accredited Investor. The Investor is an "Accredited Investor"
as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.
Section 3.6. Information. The Investor and its advisors (and its counsel),
if any, have been furnished with all materials relating to the business,
finances and operations of the Company and information it deemed material to
making an informed investment decision. The Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in this Agreement. The Investor
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understands that its investment involves a high degree of risk. The Investor is
in a position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Investor to
obtain information from the Company in order to evaluate the merits and risks of
this investment. The Investor has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to this transaction.
Section 3.7. Receipt of Documents. The Investor and its counsel have
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-KSB for the year ended July 31, 2004 and Form 10-QSB
for the period ended April 30, 2005; and (iv) answers to all questions the
Investor submitted to the Company regarding an investment in the Company; and
the Investor has relied on the information contained therein and has not been
furnished any other documents, literature, memorandum or prospectus.
Section 3.8. Registration Rights Agreement and Escrow Agreement. The
parties have entered into the Registration Rights Agreement and the Escrow
Agreement, each dated the date hereof.
Section 3.9. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the shares of Common Stock offered hereby.
Section 3.10. Not an Affiliate. The Investor is not an officer, director or
a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company or any
"Affiliate" of the Company (as that term is defined in Rule 405 of the
Securities Act).
Section 3.11. Trading Activities. The Investor's trading activities with
respect to the Company's Common Stock shall be in compliance with all applicable
federal and state securities laws, rules and regulations and the rules and
regulations of the Principal Market on which the Company's Common Stock is
listed or traded. Neither the Investor nor its affiliates has an open short
position in the Common Stock of the Company, the Investor agrees that it shall
not, and that it will cause its affiliates not to, engage in any short sales of
or hedging transactions with respect to the Common Stock, provided that the
Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor has the right to sell the shares to be issued to the Investor pursuant
to the Advance Notice during the applicable Pricing Period.
ARTICLE IV.
Representations and Warranties of the Company
Except as stated below, on the disclosure schedules attached hereto or in
the SEC Documents (as defined herein), the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
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Section 4.1. Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite corporate power to own its
properties and to carry on its business as now being conducted. Each of the
Company and its subsidiaries 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 by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect on the Company and its subsidiaries taken as a whole.
Section 4.2. Authorization, Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Placement Agent Agreement and any related agreements, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements have
been duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Placement Agent
Agreement and assuming the execution and delivery thereof and acceptance by the
Investor and any related agreements constitute the valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
Section 4.3. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 500,000,000 shares of Common Stock and
50,000,000 shares of Preferred Stock, $0.01 par value per share ("Preferred
Stock"), of which 52,978,517 shares of Common Stock and 34,343,662 and 23,076
shares of Series A and Series B Preferred Stock, respectively, were issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in the SEC Documents, no
shares of Common Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company. Except
as disclosed in the SEC Documents, as of the date hereof, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities (iii) there are no outstanding registration
statements other than on Form S-8 and (iv) except as set forth on Schedule 4.3
to this Agreement, there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
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their securities under the Securities Act (except pursuant to the Registration
Rights Agreement). Except as set forth on Schedule 4.3 to this Agreement, there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by this Agreement or any related agreement or the
consummation of the transactions described herein or therein. The Company has
furnished to the Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and as in effect on the date hereof (the
"Certificate of Incorporation"), and the Company's By-laws, as in effect on the
date hereof (the "By-laws"), and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.
Section 4.4. No Conflict. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with or constitute a
default (or an event which 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 agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which would cause a
Material Adverse Effect. Except as disclosed in the SEC Documents, neither the
Company nor its subsidiaries is in violation of any term of or in default under
its Articles of Incorporation or By-laws or their organizational charter or
by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries. The business
of the Company and its subsidiaries is not being conducted in violation of any
material law, ordinance, regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required 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 or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any fact or circumstance which might
give rise to any of the foregoing.
Section 4.5. SEC Documents; Financial Statements. Since January 1, 2003,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under the Exchange Act. The
Company has delivered to the Investor or its representatives, or made available
through the SEC's website at xxxx://xxx.xxx.xxx, true and complete copies of the
SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "Financial Statements") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
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principles, consistently applied, 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 exclude
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 its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Investor which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 4.6. 10b-5. The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 4.7. No Default. Except as disclosed in the SEC Documents, the
Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its property is bound and neither the execution,
nor the delivery by the Company, nor the performance by the Company of its
obligations under this Agreement or any of the exhibits or attachments hereto
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under its
Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of
trust or other material agreement applicable to the Company or instrument to
which the Company is a party or by which it is bound, or any statute, or any
decree, judgment, order, rules or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, in each case
which default, lien or charge is likely to cause a Material Adverse Effect on
the Company's business or financial condition.
Section 4.8. Absence of Events of Default. Except for matters described in
the SEC Documents and/or this Agreement, no Event of Default, as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (as so defined), has occurred and is continuing, which would have a
Material Adverse Effect on the Company's business, properties, prospects,
financial condition or results of operations.
Section 4.9. Intellectual Property Rights. The Company and its subsidiaries
own or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company, there is no
11
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service xxxx registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
Section 4.10. Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
Section 4.11. Environmental Laws. To the best of the Company's knowledge,
the Company and its subsidiaries are (i) in compliance with any and all
applicable material foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval.
Section 4.12. Title. Except as set forth in the SEC Documents, the Company
has good and marketable title to its properties and material assets owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company. Any real property and facilities held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
Section 4.13. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
Section 4.14. Regulatory Permits. The Company and its subsidiaries possess
all material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
12
Section 4.15. Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 4.16. No Material Adverse Breaches, etc. Except as set forth in the
SEC Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers has or is
expected in the future to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
Section 4.17. Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a Material Adverse Effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
Section 4.18. Subsidiaries. Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
Section 4.19. Tax Status. Except as disclosed in the SEC Documents, the
Company and each of its subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
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Section 4.20. Certain Transactions. Except as set forth in the SEC
Documents none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
Section 4.21. Fees and Rights of First Refusal. The Company is not
obligated to offer the securities offered hereunder on a right of first refusal
basis or otherwise to any third parties including, but not limited to, current
or former shareholders of the Company, underwriters, brokers, agents or other
third parties.
Section 4.22. Use of Proceeds. The Company shall use the net proceeds from
this offering for general corporate purposes, including, without limitation, the
payment of loans incurred by the Company. However, in no event shall the Company
use the net proceeds from this offering for the payment (or loan to any such
person for the payment) of any judgment, or other liability, incurred by any
executive officer, officer, director or employee of the Company, except for any
liability owed to such person for services rendered, or if any judgment or other
liability is incurred by such person originating from services rendered to the
Company, or the Company has indemnified such person from liability.
Section 4.23. Further Representation and Warranties of the Company. For so
long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will maintain the listing of its Common Stock on the Principal Market.
Section 4.24. Opinion of Counsel. Investor shall receive an opinion letter
from counsel to the Company on the date hereof.
Section 4.25. Opinion of Counsel. The Company will obtain for the Investor,
at the Company's expense, any and all opinions of counsel which may be
reasonably required in order to sell the securities issuable hereunder without
restriction.
Section 4.26. Dilution. The Company is aware and acknowledges that issuance
of shares of the Company's Common Stock could cause dilution to existing
shareholders and could significantly increase the outstanding number of shares
of Common Stock.
ARTICLE V.
Indemnification
The Investor and the Company represent to the other the following with
respect to itself:
Section 5.1. Indemnification.
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(a) In consideration of the Investor's execution and delivery of this
Agreement, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Investor, and all of its officers, directors, partners, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Investor
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Investor Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by the Investor Indemnitees or any of them as a result
of, or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Investor Indemnitee not arising out of any action or inaction of an
Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Investor's other obligations under this
Agreement, the Investor shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, shareholders, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Company
Indemnitees") from and against any and all Indemnified Liabilities incurred by
the Company Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Investor in this Agreement, the Registration Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant, agreement or obligation of the
Investor(s) contained in this Agreement, the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor, or (c) any cause of action, suit or claim brought or
made against such Company Indemnitee based on misrepresentations or due to a
breach by the Investor and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(c) The obligations of the parties to indemnify or make contribution under
this Section 5.1 shall survive termination.
15
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 material respects with the terms thereof.
Section 6.2. Listing of Common Stock. The Company shall maintain the Common
Stock's authorization for quotation on the National Association of Securities
Dealers Inc.'s Over the Counter Bulletin Board.
Section 6.3. Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
file in a timely manner all reports and other documents required of it as a
reporting company under the Exchange Act and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Exchange Act.
Section 6.4. Transfer Agent Instructions. Upon effectiveness of the
Registration Statement the Company shall deliver instructions to its transfer
agent to issue shares of Common Stock to the Investor free of restrictive
legends on or before each Advance Date
Section 6.5. Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.6. Notice of Certain Events Affecting Registration; Suspension of
Right to Make an Advance. The Company will immediately notify the Investor upon
its becoming aware of the occurrence of any of the following events in respect
of a registration statement or related prospectus relating to 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 the Registration Statement or related
prospectus of 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 Advance Notice during the
continuation of any of the foregoing events.
16
Section 6.7. Restriction on Sale of Capital Stock. Except as set forth in
Schedule 6.7 to this Agreement, during the Commitment Period, the Company shall
not, without the prior written consent of the Investor, (i) issue or sell any
Common Stock or Preferred Stock without consideration or for a consideration per
share less than the Bid Price of the Common Stock determined immediately prior
to its issuance, (ii) issue or sell any Preferred Stock warrant, option, right,
contract, call, or other security or instrument granting the holder thereof the
right to acquire Common Stock without consideration or for a consideration per
share less than such Common Stock's Bid Price determined immediately prior to
its issuance, or (iii) file any registration statement on Form S-8.
Section 6.8. 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 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 6.9. Issuance of the Company's Common Stock. The sale of the shares
of Common Stock shall be made in accordance with the provisions and requirements
of Regulation D and any applicable state securities law.
ARTICLE VII.
Conditions for Advance and Conditions to Closing
Section 7.1. Conditions Precedent to the Obligations of the Company. The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.
(a) Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects.
(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 and the Registration Rights 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
Advance Notice and the Obligation of the Investor to Purchase Shares of Common
Stock. The right of the Company to deliver an Advance Notice and the obligation
of the Investor hereunder to acquire and pay for shares of the Company's Common
Stock incident to a Closing is subject to the fulfillment by the Company, on (i)
the date of delivery of such Advance Notice and (ii) the applicable Advance Date
(each a "Condition Satisfaction Date"), of each of the following conditions:
17
(a) Registration of the Common Stock with the SEC. The Company shall have
filed with the SEC a Registration Statement with respect to the resale of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement. 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 (unless the
SEC's concerns have been addressed and the Investor is reasonably satisfied that
the SEC no longer is considering or intends to take such action), and (ii) no
other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first
Advance Notice Date.
(b) Authority. The Company shall have obtained all permits and
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(c) Fundamental Changes. There shall not exist any fundamental changes to
the information set forth in the Registration Statement which would require the
Company to file a post-effective amendment to the Registration Statement.
(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 (including, without limitation, the
conditions specified in Section 2.5 hereof) 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) No Suspension of Trading in or Delisting of Common Stock. The trading
of the Common Stock is not suspended by the SEC or the Principal Market (if the
Common Stock is traded on a 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 (if the Common Stock
is traded on a Principal Market). The Company shall not have received any notice
threatening the continued listing of the Common Stock on the Principal Market
(if the Common Stock is traded on a Principal Market).
18
(g) Maximum Advance Amount. The amount of an Advance requested by the
Company shall not exceed the Maximum Advance Amount. In addition, in no event
shall the number of shares issuable to the Investor pursuant to an Advance cause
the aggregate number of shares of Common Stock beneficially owned by the
Investor and its affiliates to exceed nine and 9/10 percent (9.9%) of the then
outstanding Common Stock of the Company. For the purposes of this section
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act.
(h) No Knowledge. The Company has no knowledge of any event which would be
more likely than not to have the effect of causing such Registration Statement
to be suspended or otherwise ineffective.
(i) Other. On each Condition Satisfaction Date, the Investor shall have
received the certificate executed by an officer of the Company in the form of
Exhibit A attached hereto.
ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1. Due Diligence Review. Prior to the filing of the Registration
Statement the Company shall make available for inspection and review by the
Investor, its advisors and representatives, and 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 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 shall not disclose non-public information to the Investor,
its advisors, or its representatives, 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.
19
(b) 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 investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
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 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.
ARTICLE IX.
Choice of Law/Jurisdiction
Section 9.1. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New Jersey without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Xxxxxx County, New Jersey, and expressly
consent to the jurisdiction and venue of the Superior Court of New Jersey,
sitting in Xxxxxx County, New Jersey and the United States District Court of New
Jersey, sitting in Newark, New Jersey, for the adjudication of any civil action
asserted pursuant to this paragraph.
ARTICLE X.
Assignment; Termination
Section 10.1. Assignment. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.
Section 10.2. Termination. The obligations of the Investor to make Advances
under Article II hereof shall terminate twenty-four (24) months after the
Effective Date.
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ARTICLE XI.
Notices
Section 11.1. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: In Veritas Medical Diagnostics, inc.
The Green House
Beechwood Business Park North
Inverness - Scotland L2 XX0 0XX
Telephone: x00 (0) 0000000000
Facsimile: x00 (0) 0000000000
With a copy to: Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investor(s): Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx -Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a Copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
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ARTICLE XII.
Miscellaneous
Section 12.1. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof, though failure to deliver such copies shall not affect the
validity of this Agreement.
Section 12.2. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
Section 12.3. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on 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 12.4. Fees and Expenses. The Company hereby agrees to pay the
following fees:
(a) Structuring Fees. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby, except that the Company will pay a structuring fee of Ten
Thousand Dollars ($10,000) to Yorkville Advisors Management, LLC, which shall be
paid on the date hereof. Subsequently on each Advance Date, the Company will pay
Yorkville Advisors Management, LLC a structuring fee of Five Hundred Dollars
($500) directly out the proceeds of any Advances hereunder.
(b) Commitment Fees.
(i) On each Advance Date the Company shall pay to the Investor, directly
from the gross proceeds held in escrow, an amount equal to five percent (5%) of
the amount of each Advance. The Company hereby agrees that if such payment, as
is described above, is not made by the Company on the Advance Date, such payment
will be made at the direction of the Investor as outlined and mandated by
Section 2.3 of this Agreement.
(ii) Upon the execution of this Agreement the Company shall issue to the
Investor 472,000 shares of the Company's Common Stock (the "Investor's Shares").
22
(iii) Fully Earned. The Investor's Shares shall be deemed fully earned as
of the date hereof.
(iv) Registration Rights. The Investor's Shares will have "piggy-back"
registration rights.
Section 12.5. Brokerage. 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 other party. 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 person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 12.6. Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
COMPANY:
IN VERITAS MEDICAL DIAGNOSTICS, INC.
By: /s/ Xxxx Xxxxxx
----------------------------
Name: Xxxx Xxxxxx
Title: Chief Executive Officer
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Xxxx Xxxxxx
----------------------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
24
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
IN VERITAS MEDICAL DIAGNOSTICS, INC.
The undersigned, _______________________ hereby certifies, with respect to
the sale of shares of Common Stock of IN VERITAS MEDICAL DIAGNOSTICS, INC. (the
"Company"), issuable in connection with this Advance Notice and Compliance
Certificate dated ___________________ (the "Notice"), delivered pursuant to the
Standby Equity Distribution Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected ______________ of the Company.
2. There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The undersigned hereby represents, warrants and covenants that it has
made all filings ("SEC Filings") required to be made by it pursuant to
applicable securities laws (including, without limitation, all filings required
under the Securities Exchange Act of 1934, which include Forms 10-Q, 10-K, 8-K,
etc. All SEC Filings and other public disclosures made by the Company,
including, without limitation, all press releases, analysts meetings and calls,
etc. (collectively, the "Public Disclosures"), have been reviewed and approved
for release by the Company's attorneys and, if containing financial information,
the Company's independent certified public accountants. None of the Company's
Public Disclosures 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.
5. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of
_________________.
IN VERITAS MEDICAL DIAGNOSTICS, INC.
By:
-----------------------------------------
Name:
Title:
25
SCHEDULE 2.6
IN VERITAS MEDICAL DIAGNOSTICS, INC.
The undersigned hereby agrees that for a period commencing on July ___,
2005 and expiring on the later of (a) the date that all amounts owed to
Xxxxxxxxxx Equity Partners, LTD ( "Xxxxxxxxxx"), or any successors or assigns,
under the Convertible Debentures issued to Xxxxxxxxxx pursuant to the Securities
Purchase Agreement between In Veritas Medical Diagnostics, Inc. (the "Company")
and Xxxxxxxxxx dated July___, 2005 have been paid or (b) the termination of the
Standby Equity Distribution Agreement dated July ___, 2005 between the Company
and the Investor (the "Lock-up Period"), he, she or it will not, directly or
indirectly, without the prior written consent of the Investor, issue, offer,
agree or offer to sell, sell, grant an option for the purchase or sale of,
transfer, pledge, assign, hypothecate, distribute or otherwise encumber or
dispose of any securities of the Company, including common stock or options,
rights, warrants or other securities underlying, convertible into, exchangeable
or exercisable for or evidencing any right to purchase or subscribe for any
common stock (whether or not beneficially owned by the undersigned), or any
beneficial interest therein (collectively, the "Securities") except in
accordance with the volume limitations set forth in Rule 144(e) of the General
Rules and Regulations under the Securities Act of 1933, as amended.
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Company's securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned's investment in
the Company.
Dated: _______________, 2005
Signature
------------------------------------------------
Name:
------------------------------------------------
Address:
------------------------------------------------
City, State, Zip Code:
------------------------------------
Print Social Security Number
or Taxpayer I.D. Number
------------------------------------------------
26
DISCLOSURE SCHEDULES
4.3
---
A. Agreements to resister the resale of securities under the Securities
Act.
Form SB-2
---------
An aggregate of 1,162,791 shares of common stock issued to NITE Capital, L.P.
pursuant to a Registration Rights Agreement dated as of December 22, 2004.
An aggregate of (i) 61,769 shares upon conversion of 5% convertible preferred
stock of the Company issuable upon exercise of Unit Warrants (as defined below),
and (iii) 61,769 shares underlying Warrants issuable upon exercise of the Unit
Warrants. The 5% convertible preferred stock will be adjusted into such number
of shares of common stock as may be determined by dividing the stated value
($0.65) by the new issuance price.
Up to such number of shares of common stock for the following accredited
investors and in the following amounts of 5% convertible preferred stock in the
Company's April 2005 private placement who are rolling over into this offering:
o Whalehaven Capital Fund Limited - $201,500;
o Longview Fund Ltd. - $200,000;
o Triumph Research Partners, LLC - $140,000; and
o The Xxxxx Family Irrevocable Stock Trust - $15,000.
Up to 805,000 shares of common stock issuable to Sichenzia Xxxx Xxxxxxxx Xxxxxxx
LLP.
Form S-8
--------
An aggregate of 14,659,154 shares of common stock or stock options pursuant to
the Company's 2005 Stock Incentive Plan (the "Plan") issuable to employees,
directors, officers or consultants to the Company; including the following
shares of common stock and/or stock options which the Company has issued or has
agreed to issue:
o incentive stock options to purchase up to an aggregate of 9,659,154 shares
of common stock to Xxxx Xxxxxx and Xxxxx Xxxxxxx;
o an aggregate of 55,000 shares of common stock pursuant to a Consulting
Agreement dated May 13, 2004, between the Company and Xxxxxx X. Xxxxx &
Company, Inc.;
o an aggregate of 750,000 shares of common stock pursuant to a Consulting
Agreement dated July 21, 2005, between the Company and CLX & Associates,
Inc.
o an aggregate of 1,000,000 shares of common stock underlying warrants to be
issued to CynDel & Company, Inc. pursuant to a Consulting Agreement; and
27
o an aggregate of 810,810 shares of common stock pursuant to a Consulting
Agreement between the Company and UTEK-EKMS, Inc.
B. Securities containing anti-dilution or similar provisions.
In connection with the private placement of units (the "Units"), each Unit
consisting of one share of 5% convertible preferred stock of the Company, $.001
par value per share (the "Preferred Stock"), and one warrant to purchase one
share of the Company's common stock (the "Warrants"), Westor Capital Group, Inc.
was issued 61,769 warrants to purchase an additional Unit (the "Unit Warrants").
6.7
---
C. The Company shall be permitted to file registration statements, in its
discretion, on Form S-8 for the following stock and stock options without the
prior written consent of the Buyer:
1. An aggregate of up to 5,000,000 shares of common stock or stock options
pursuant to the Company's Plan issuable to employees, directors, officers or
consultants to the Company, including the following common stock and/or stock
options:
o an aggregate of 55,000 shares of common stock pursuant a Consulting
Agreement dated May 13, 2004, between the Company and Xxxxxx X. Xxxxx &
Company, Inc.;
o an aggregate of 750,000 shares of common stock pursuant a Consulting
Agreement dated July 21, 2005, between the Company and CLX & Associates,
Inc.;
o an aggregate of 1,000,000 shares of common stock underlying warrants to be
issued to CynDel & Company, Inc. pursuant to a Consulting Agreement; and
o an aggregate of 810,810 shares of common stock pursuant to a Consulting
Agreement between the Company and UTEK-EKMS, Inc.
2. Incentive stock options to purchase up to an aggregate of 9,659,154 shares of
common stock to Xxxx Xxxxxx and Xxxxx Xxxxxxx, provided that Xxxx Xxxxxx and
Xxxxx Xxxxxxx agree to sell such shares in accordance with the volume
limitations set forth in Rule 144(e) of the General Rules and Regulations under
the Securities Act of 1933, as amended.
28
