EXHIBIT 10.1
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
August 14, 2002 by and between Lumenon Innovative Lightwave Technology, Inc., a
Delaware corporation (the "Company") and Crossover Ventures, Inc. (the
"Purchaser").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall have the right to issue and sell
to Purchaser from time to time as provided herein, and Purchaser shall be
obligated to purchase up to $14,000,000 worth of shares of Common Stock subject
to the terms herein; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
SECTION 1.1. Purchase and Sale of Stock. Upon the terms and subject to
the conditions of this Agreement, the Company may sell and issue to the
Purchaser and the Purchaser shall be obligated to purchase from the Company, up
to an aggregate of $14,000,000 worth of shares of Common Stock (the "Commitment
Amount").
SECTION 1.2. Purchase Price and Initial Closing. In consideration of and
in express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Company agrees to issue and sell to the
Purchaser and the Purchaser agrees to purchase from the Company that number of
the Draw Down Shares to be issued in connection with each Draw Down. The
execution and delivery of this Agreement and the other agreements referred to
herein and the payment of the fees set forth in Article I of the Escrow
Agreement, attached as Exhibit B hereto, (the "Initial Closing") shall take
place at the offices of Xxxxxxx Xxxxxxxxx LLP, 000 Xxxxxxxxx Xxxxxx, Xxxxx 0000,
Xxx Xxxx, Xxx Xxxx 00000 (i) at 10:00 a.m. local time on August 14, 2002, or
(ii) at such other time and place or on such date as the Purchaser and the
Company may agree upon (the "Initial Closing Date"). Each party shall deliver
all documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Initial Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser, in
each case except as set forth in the SEC Documents, in the Disclosure Letter
prepared by the Company and delivered concurrently herewith or as contemplated
by this Agreement:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware and has all requisite corporate authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted, except where the failure to be so incorporated or in good
standing or to have such corporate authority would not have a Material
Adverse Effect. The Company does not have any subsidiaries and does not own
or control more than fifty percent (50%) of any other business entity. The
Company is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of
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the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure so to
qualify would not have a Material Adverse Effect.
(b) Authorization, Enforcement. (i) The Company has the requisite
corporate power and corporate authority to enter into and perform its
obligations under the Transaction Documents and to issue the Draw Down
Shares, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby
and thereby 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) the Transaction Documents
have been duly executed and delivered by the Company and shall 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, reorganization, fraudulent
transfer, moratorium, liquidation, conservatorship, receivership or similar
laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized capital stock of the Company consists
of 100,000,000 shares of Common Stock of which 40,984,375 shares were
issued and outstanding as of July 15, 2002 and 5,000,000 preferred shares,
none of which are issued and outstanding. All of the outstanding shares of
the Common Stock have been duly and validly authorized and are fully paid
and non-assessable. No shares of Common Stock are entitled to preemptive
rights or registration rights and 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. Furthermore, there are no
contracts, commitments, understandings, or arrangements by which the
Company is bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of Common
Stock. The Company is not a party to any agreement granting registration
rights to any person with respect to any of its equity or debt securities.
The Company is not a party to, and it has no knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of
the Company. The offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued prior to the
Initial Closing complied in all material respects with all applicable
federal and state securities laws, and no stockholder has a right of
rescission or damages with respect thereto which would have a Material
Adverse Effect. The Company has made available to the Purchaser true and
correct copies of the Company's certificate of incorporation as in effect
on the date hereof (the "Charter"), and the Company's bylaws as in effect
on the date hereof (the "Bylaws"). The Company has not received any notice
from the Principal Market questioning or threatening the continued
inclusion of the Common Stock on such market.
(d) Issuance of Shares. The Warrant Shares to be issued upon exercise of
the Initial Warrant (the "Initial Warrant Shares") have been duly
authorized by all necessary corporate action and, when paid for and issued
in accordance with the terms hereof and the Initial Warrant, the Initial
Warrant Shares shall be validly issued and outstanding, fully paid and
non-assessable, and the Purchaser shall be entitled to all rights accorded
to a holder of Common Stock, when the Initial Warrant is exercised in
accordance with its terms.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not and will not (i) violate any
provision of the Company's Charter or Bylaws, (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,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party, (iii) create or
impose a lien, charge or encumbrance on any property of the Company under
any agreement or any commitment to which the Company is a party or by which
the Company is bound or by which any of its respective properties or assets
are bound, or (iv) result in a violation of any federal, state or local
statute, rule, regulation, order, judgment or decree (including any federal
or state securities laws and regulations) applicable to the Company or any
of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries are bound, except, in all cases, for such conflicts,
defaults,
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termination, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse
Effect. No consent, authorization or order of, or make any filing or
registration with, any court or governmental agency is required by the
Company in order for it to execute, deliver or perform any of its
obligations under this Agreement, or issue and sell the Shares in
accordance with the terms hereof (other than any filings which may be
required to be made by the Company with the SEC, the Nasdaq Stock Market,
Inc. or state securities administrators subsequent to the Initial Closing
and any registration statement which may be filed pursuant hereto and such
consents, authorizations, orders or filings which, if not obtained or made,
would not be reasonably likely to have a Material Adverse Effect);
provided, however, that for purpose of the representations made in this
sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock is registered
pursuant to Section 12(g) of the Exchange Act, and the Company has timely
filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act. The Company has not provided to
the Purchaser any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which
has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective filing dates, the
SEC Documents complied in all material respects with the applicable
requirements of the Exchange Act or the Securities Act, as applicable, and
the rules and regulations of the SEC promulgated thereunder applicable to
such documents, and, as of their respective filing dates after giving
effect to the information disclosed and incorporated by reference therein,
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. As of their
respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements under GAAP and the published rules and regulations
of the SEC. Such financial statements have been prepared in accordance with
GAAP 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, except as may
be permitted by the SEC on Form 10-Q under the Exchange Act), and fairly
present in all material respects the consolidated financial position of the
Company and its subsidiaries as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. The SEC Documents set forth each subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of the Company's ownership of the outstanding stock
or other interests of such subsidiary. For the purposes of this Agreement,
"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interests having ordinary
voting power (absolutely or contingently) for the election of directors or
other persons performing similar functions are at the time owned directly
or indirectly by the Company and/or any of its other subsidiaries. All of
the issued and outstanding shares of capital stock of each subsidiary have
been duly authorized and validly issued, and are fully paid and
non-assessable. Neither the Company nor any subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the
preceding sentence.
(h) No Material Adverse Effect. Since March 31, 2002, no change, event,
circumstance, development or effect that would have a Material Adverse
Effect has occurred with respect to the Company.
(i) No Undisclosed Liabilities. Since March 31, 2002, neither the
Company nor any of its subsidiaries has incurred any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured
or unsecured, absolute, accrued, contingent or otherwise) that would be
required to be disclosed on a balance sheet of the Company or any
subsidiary (including the notes thereto) in conformity with
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GAAP or which would be required to be disclosed in the SEC Documents, other
than those incurred in the ordinary course of the Company's or its
subsidiaries' respective businesses since such date and which, individually
or in the aggregate, do not or would not have a Material Adverse Effect.
(j) No Undisclosed Events or Circumstances. Since March 31, 2002, no
event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, 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 and which
individually or in the aggregate, do not or would not have a Material
Adverse Effect.
(k) Indebtedness. The SEC Documents or the Disclosure Letter sets forth
as of the date hereof all outstanding secured and unsecured Indebtedness of
the Company or any subsidiary, or for which the Company or any subsidiary
has commitments. For the purposes of this Agreement, "Indebtedness" shall
mean (A) any liabilities for borrowed money or amounts owed in excess of
$500,000 (other than trade accounts payable incurred in the ordinary course
of business), (B) all guaranties, endorsements and contingent obligations
in respect of Indebtedness of others, whether or not the same are or should
be reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(C) the present value of any lease payments in excess of $500,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any subsidiary is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has good
and marketable title to all of its real and personal property reflected in
the SEC Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those that do not have a
Material Adverse Effect. All said leases with respect to real property
leased by the Company and each of its subsidiaries as set forth in the SEC
Documents are valid and subsisting and in full force and effect.
(m) Actions Pending. As of the date hereof, there is no action, suit,
claim, investigation or proceeding pending or, to the knowledge of the
Company, threatened against the Company or any subsidiary which questions
the validity of this Agreement or the transactions contemplated hereby or
any action taken or to be taken pursuant hereto or thereto. There is no
action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened, against or involving the Company, any
subsidiary or any of their respective properties or assets, except as would
not have a Material Adverse Effect. Except as would not have a Material
Adverse Effect, there are no outstanding orders, judgments, injunctions,
awards or decrees of any court, arbitrator or governmental or regulatory
body against the Company or any subsidiary.
(n) Compliance with Law. The Company and each of its subsidiaries has
complied with and is not in violation of any applicable provision of any
statute, law or regulation with respect to the conduct of its business
except for failures to comply or violations that would not have a Material
Adverse Effect and have all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals necessary for
the conduct of their respective businesses as now being conducted by them
except for franchises, permits, licenses, consents and other governmental
or regulatory authorizations and approvals, the failure to possess which,
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
(o) Taxes. The Company and each subsidiary has filed all material Tax
Returns which it is required to file under applicable laws and the Company
or a subsidiary has paid all material Taxes due and owing by it or any
subsidiary (whether or not such material Taxes are required to be shown on
a Tax Return) and has withheld and paid over to the appropriate taxing
authorities all material Taxes which it is required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
parties; and since December 31, 2001, the charges, accruals and reserves
for material Taxes with respect to the Company (including any provisions
for deferred income taxes) reflected on the books of the
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Company are in the aggregate adequate to cover any material Tax liabilities
of the Company if its current tax year were treated as ending on the date
hereof.
No material written claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that the Company
or any subsidiary is or may be subject to taxation by that jurisdiction.
Except as would not have a Material Adverse Effect, (i) to the best of the
Company's knowledge there are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being conducted
with respect to the Company or any subsidiary; (ii) no information related
to Tax matters has been requested by any foreign, federal, state or local
taxing authority; and, (iii) except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by
the Company or any subsidiary from any foreign, federal, state or local
taxing authority.
For purposes of this Section 2.1(o):
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or
other withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other taxes of
any kind whatsoever (including, without limitation, deficiencies,
penalties, additions to tax, and interest attributable thereto) whether
disputed or not.
"Tax Return" means any return, information report or filing with respect
to Taxes, including any schedules attached thereto and including any
amendment thereof.
(p) Certain Fees. No brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary with respect
to the transactions contemplated by this Agreement.
(q) Operation of Business. The Company and each of the subsidiaries owns
or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the SEC Documents
or on the Disclosure Letter hereto, and all rights with respect to the
foregoing, which are necessary for the conduct of its business as now
conducted and, to the Company's knowledge, without any conflict with the
rights of others.
(r) Insurance. The Company maintains insurance in such amounts and
covering such risks as is adequate in all material respects for the conduct
of its business and the value of its properties and as is customary for
companies engaging in similar businesses and similar industries.
(s) Books and Records. The financial records of the Company and its
subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the subsidiaries, the location
and collection of their assets, and the nature of all transactions giving
rise to the obligations or accounts receivable of the Company or any
subsidiary.
(t) Material Agreements. Neither the Company nor any subsidiary is a
party to any Material Agreement. Except as would not have a Material
Adverse Effect, the Company and each of its subsidiaries has performed all
the obligations required to be performed by them to date under the Material
Agreements, have received no notice of default and, to the best of the
Company's knowledge are not in default under any Material Agreement now in
effect, the result of which would cause a Material Adverse Effect. No
written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement of the Company or of any subsidiary limits the payment
of dividends on the Common Stock.
(u) Transactions with Affiliates. There are no material loans, leases,
agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $100,000 between
(A) the Company or any subsidiary on the one hand, and (B) on the other
hand, any officer, employee, consultant or director of the Company, or any
of its subsidiaries, or any person owning 5% or more of the capital stock
of the Company or any subsidiary or any member of the immediate family of
such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a member of the immediate family of
such officer, employee, consultant, director or stockholder.
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(v) Securities Laws. The Company has complied in all material respects
with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has sold, offered
to sell or solicited offers to buy the Shares or similar securities to, or
solicited offers with respect thereto from, or entered into any preliminary
conversations or negotiations relating thereto with, any person (other than
the Purchaser), so as to bring the issuance and sale of the Shares under
the registration provisions of the Securities Act and applicable state
securities laws. 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.
(w) Employees. Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees.
Neither the Company nor any subsidiary is in breach of any employment
contract, agreement regarding proprietary information, noncompetition
agreement, nonsolicitation agreement, confidentiality agreement, or any
other similar contract or restrictive covenant to which the Company is a
party, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary, except for any such
breach which would not reasonably be expected to have a Material Adverse
Effect. Since June 30, 2001, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect,
has terminated or, to the knowledge of the Company, has any present
intention of terminating his or her employment or engagement with the
Company or any subsidiary.
(x) Absence of Certain Developments. Except as would not have a Material
Adverse Effect, since March 31, 2002, neither the Company nor any
subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto (other than pursuant to
equity incentive plans or arrangements adopted by the Company) or upon
conversion of convertible securities issued prior to March 31, 2002;
(ii) borrowed any material amount or incurred or become subject to
any material liabilities (absolute or contingent) except liabilities
incurred in the ordinary course of business;
(iii) discharged or satisfied any lien or encumbrance or paid any
material obligation or liability (absolute or contingent), other than
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of
its capital stock;
(v) suffered any material losses (except for anticipated losses
consistent with prior quarters) or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
(vi) made any material changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(vii) made capital expenditures or commitments therefor that
aggregate in excess of $500,000;
(viii) entered into any other Material Agreements, whether or not in
the ordinary course of business;
(ix) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(x) experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
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(xi) effected any two or more events of the foregoing kind which in
the aggregate would be material to the Company and its subsidiaries,
taken as a whole.
(aa) Acknowledgment Regarding the Purchaser's Purchase of Shares.
Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of arm's length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that
the Purchaser is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereunder.
SECTION 2.2. Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under
the laws of the Cayman Islands.
(b) Authorization and Power. The Purchaser has the requisite power and
authority and financial resources to enter into and perform the Transaction
Documents and to purchase the Shares being sold to it hereunder. The
execution, delivery and performance of the Transaction Documents by the
Purchaser and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate
action. The Transaction Documents have been duly executed and delivered by
the Purchaser, and constitute valid and binding obligations of the
Purchaser enforceable against the Purchaser in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application.
(c) No Conflicts. The execution, delivery and performance of this
Agreement by the Purchaser and the consummation by the Purchaser of the
transactions contemplated herein do not and will not (i) violate any
provision of the Purchaser's charter or bylaws, (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,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Purchaser is a party, (iii) create or
impose a lien, charge or encumbrance on any property of the Purchaser under
any agreement or any commitment to which the Purchaser is a party or by
which the Purchaser is bound or by which any of its respective properties
or assets are bound, or (iv) result in a violation of any federal, state or
local statute, rule, regulation, order, judgment or decree (including any
federal or state securities laws and regulations) applicable to the
Purchaser or any of its subsidiaries or by which any property or asset of
the Purchaser or any of its subsidiaries are bound, except, in all cases,
for such conflicts, defaults, termination, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Purchaser Material Adverse Effect on the Purchaser. No
consent, authorization or order of, or make any filing or registration
with, any court or governmental agency is required by the Purchaser in
order for it to execute, deliver or perform any of its obligations under
this Agreement, or purchase the Shares in accordance with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is able to bear
the financial risks associated with an investment in the Shares and the
Warrants and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation. The Purchaser is capable of evaluating the risks
and merits of an investment in the Shares and the Warrants by virtue of its
experience as an investor and its knowledge, experience, and sophistication
in financial and business matters and the Purchaser is capable of bearing
the entire loss of its investment in the Shares and the Warrants.
(e) Accredited Investor. The Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
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(f) General. The Purchaser understands that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in
order to determine the suitability of the Purchaser to acquire the Shares.
(g) Litigation; Claims. There are no lawsuits or proceedings pending or,
to the knowledge of the Purchaser, threatened, against the Purchaser or any
subsidiary, nor has the Purchaser received any written or oral notice of
any action, suit, proceeding or investigation. No judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of
the Purchaser, requested of any court, arbitrator or governmental agency.
(h) Investment Intent. The Purchaser is acquiring the Shares and the
Warrants as principal for its own account for investment purposes only and
not with a view to or for distributing or reselling such securities or any
part thereof, without prejudice, however, to the Purchaser's right, subject
to the provisions of this Agreement, at all times to sell or otherwise
dispose of all or any part of the Shares and the Warrants pursuant to an
effective registration statement under the Securities Act or under an
exemption from such registration and in compliance with applicable federal
and state securities laws. Nothing contained herein shall be deemed a
representation or warranty by such Purchaser to hold the Shares or Warrants
for any period of time.
ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
SECTION 3.1. The Shares. As of the date of each applicable Draw Down
Notice, the Company will have authorized and reserved, free of preemptive rights
and other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock to cover the Draw Down Shares
to be issued in connection with such Draw Down requested under this Agreement.
The Draw Down Shares to be issued under this Agreement, when paid for and issued
in accordance with the terms hereof, shall be duly and validly issued and
outstanding, fully paid and non-assessable, and the Purchaser shall be entitled
to all rights accorded to a holder of Common Stock. Anything in this Agreement
to the contrary notwithstanding, (i) at no time will the Company request a Draw
Down which would result in the issuance of an aggregate number of shares of
Common Stock pursuant to this Agreement which exceeds 19.9% of the number of
shares of Common Stock issued and outstanding on the date hereof without first
obtaining stockholder approval of such excess issuance, or such other amount as
would require stockholder approval under rules of the Principal Market or
otherwise without first obtaining stockholder approval of such excess issuance,
and (ii) the Company may not make a Draw Down to the extent that, after such
purchase by the Purchaser, the sum of the number of shares of Common Stock
beneficially owned by the Purchaser and its affiliates would result in
beneficial ownership by the Purchaser and its affiliates of more than 9.999% of
the then outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act.
SECTION 3.2. Securities Compliance. If applicable, the Company shall
notify the Principal Market, in accordance with its rules and regulations, of
the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Shares and the
Warrants to the Purchaser.
SECTION 3.3. Registration and Listing. The Company will use its
commercially reasonable best efforts to cause its Common Stock to continue to be
registered under Section 12(g) of the Exchange Act, will comply in all respects
with its reporting and filing obligations under the Exchange Act, will comply
with all requirements related to any registration statement filed pursuant to
this Agreement, and will not voluntarily take any action or file any document
(whether or not permitted by the Securities Act or the Exchange Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company will use its
commercially reasonable best efforts to continue the listing or trading of its
Common
8
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 and shall provide the Purchaser's counsel with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within three (3) Trading Days of the Company's
receipt thereof.
SECTION 3.4. Escrow Arrangement. The Company and the Purchaser shall
enter into an escrow arrangement with Xxxxxxx Xxxxxxxxx, LLP (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery of
the Draw Down Shares.
SECTION 3.5. Registration Rights Agreement. The Company and the Purchaser
shall enter into the Registration Rights Agreement in the Form of Exhibit A
hereto. Before the Purchaser shall be obligated to accept a Draw Down request
from the Company, the Company shall have caused a sufficient number of shares of
Common Stock to be registered to cover the Draw Down Shares to be issued in
connection with such Draw Down.
SECTION 3.6. Accuracy of Registration Statement. On each Settlement Date,
the Registration Statement and the prospectus therein shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made; and on such
Settlement Date the Registration Statement and the prospectus therein will not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however, the
Company makes no representations or warranties as to the information contained
in or omitted from the Registration Statement and the prospectus therein in
reliance upon and in conformity with the information furnished in writing to the
Company by the Purchaser specifically for inclusion in the Registration
Statement and the prospectus therein.
SECTION 3.7. Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which would reasonably be expected to have a Material
Adverse Effect.
SECTION 3.8. Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which entries that are complete in all material respects will be made in
accordance with GAAP consistently applied, reflecting all financial transactions
of the Company and its subsidiaries, and in which, for each fiscal year, all
proper reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its business shall be made.
SECTION 3.9. Notice of Certain Events Affecting Registration; Suspension
of Right to Request a Draw Down. THE COMPANY WILL PROMPTLY NOTIFY THE PURCHASER
IN WRITING UPON THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS IN RESPECT OF THE
REGISTRATION STATEMENT OR RELATED PROSPECTUS IN RESPECT OF THE SHARES: (i)
receipt of any request for additional information from the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement the response to which would require any 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 Shares for sale in any jurisdiction in which
the Purchaser is entitled to sell the Shares hereunder or the receipt of notice
with respect to the initiation of any proceeding for such purpose; (iv) becoming
aware that any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference is untrue in any material respect or 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
9
the circumstances under which they were made, not misleading; and (v) the
Company's determination that the filing of a post-effective amendment or
withdrawal to the Registration Statement is required. The Company shall not
deliver to the Purchaser any Draw Down Notice during the continuation of any of
the foregoing events. The Company shall promptly make available to the Purchaser
any such supplements or amendments to the related prospectus, at which time,
provided that the registration statement and any supplements and amendments
thereto are then effective, the Company may recommence the delivery of Draw Down
Notices.
SECTION 3.10. Consolidation; Merger. The Company shall not, at any time
prior to the termination of this Agreement, 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 or by operation of law the obligation to deliver to the Purchaser
such shares of Common Stock and/or securities as the Purchaser is entitled to
receive pursuant to this Agreement.
SECTION 3.11. Minimum Commitment Amount. During the Commitment Period,
the Company shall make Draw Downs of at least $250,000, in the aggregate,
pursuant to this Agreement. In the event that the Company fails to make Draw
Downs of at least $250,000, in the aggregate, during the Commitment Period, the
Company shall pay the Purchaser, as liquidated damages, within five (5) days
from the end of the Commitment Period, an amount equal to $250,000 minus the
aggregate Purchase Price of all Draw Downs.
SECTION 3.12. Non-Public Information. The Company covenants and agrees
that neither it nor any other Person acting on its behalf will provide the
Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
The Purchaser covenants with the Company as follows:
SECTION 3.13. No Short Provision. The Purchaser shall not engage in short
sales of the Common Stock (as defined in applicable SEC rules and the Principal
Market rules) during the term of this Agreement.
SECTION 3.14. Prospectus Delivery Requirements. The Purchaser agrees that
it will, whenever required by federal securities laws, deliver the Prospectus
included in the Registration Statement to any purchaser of Draw Down Shares from
the Purchaser in such manner as is required under the federal securities laws.
SECTION 3.15. Authorization. Within 30 days of the Initial Closing Date,
the Purchaser shall deliver to the Company a certified copy of the resolution of
the board of directors of the Purchaser authorizing the Purchaser's signatory to
the Transaction Documents to execute such documents.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
SECTION 4.1. Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser is subject to the
satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company in writing at
any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing and as of each Settlement Date as though made at that time (except
for representations and warranties that speak as of a particular date,
which shall be true and correct in all material respects as of such dates).
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be
10
performed, satisfied or complied with by the Purchaser at or prior to the
Initial Closing and as of each Settlement Date.
(c) 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 which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No material action, suit or proceeding
before any arbitrator or any governmental authority shall have been
commenced against the Purchaser or the Company or any subsidiary, or any of
the officers, directors or affiliates of the Company or any subsidiary,
seeking to restrain, prevent or change the transactions contemplated by
this Agreement, or seeking damages in connection with such transactions.
SECTION 4.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser in writing at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing as though made at that time (except for representations and
warranties that speak as of a particular date, which shall be true and
correct in all material respects as of such date).
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all material
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Initial Closing.
(c) 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 which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No material action, suit or proceeding
before any arbitrator or any governmental authority shall have been
commenced, against the Purchaser or the Company or any subsidiary, or any
of the officers, directors or affiliates of the Company or any subsidiary
seeking to restrain, prevent or change the transactions contemplated by
this Agreement, or seeking damages in connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser shall
have received an opinion of counsel to the Company, dated as of the Initial
Closing Date, in the form of Exhibit C hereto.
(f) Warrants. On the Initial Closing Date, the Company shall issue to
the Purchaser a warrant to purchase 140,000 shares of Common Stock (the
"Initial Warrant") and within 30 days of the Initial Closing Date, the
Company shall issue to the Purchaser an additional warrant to purchase
140,000 shares of Common Stock (together with the Initial Warrant, the
"Warrants"). The Warrants shall be exercisable for the period of 3 years
beginning 6 months after the Initial Closing Date. The exercise price of
the Warrants shall be 125% of the average of the 20 VWAPs immediately prior
to the Initial Closing Date. The Common Stock underlying the Warrants will
be registered in the Registration Statement referred to in Section 4.3
hereof. The Warrants shall be in the form of Exhibit E hereto.
SECTION 4.3. Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
11
(a) Satisfaction of Conditions to Initial Closing. The Company shall
have satisfied at the Initial Closing, or the Purchaser shall have waived
at the Initial Closing, the conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration Statement
registering the Shares to be delivered in connection with the applicable
Draw Down shall have been declared effective by the SEC and shall remain
effective during the applicable Draw Down Pricing Period and on the
applicable Settlement Date.
(c) No Suspension. Trading in the Common Stock shall not have been
suspended by the SEC or the Principal Market (except for any suspension of
trading of limited duration agreed to by the Company, which suspension
shall be terminated prior to the delivery of each Draw Down Notice), and,
at any time prior to such Draw Down Notice, trading in securities generally
as reported on the Principal Market shall not have been suspended or
limited, or minimum prices shall not have been established on securities
whose trades are reported on the Principal Market unless the general
suspension or limitation shall have been terminated prior to the delivery
of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to deliver to
the Purchaser such shares of stock and/or securities as the Purchaser is
entitled to receive pursuant to this Agreement, such occurrences to be
determined in accordance with Section 8.9 herein.
(e) Opinion of Counsel. The Purchaser shall have received a "bring-down"
letter from the Company's counsel, confirming that the Registration
Statement is effective.
ARTICLE 5
DRAW DOWN TERMS
SECTION 5.1. Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue and exercise draw
downs against the Commitment Amount (each a "Draw Down") during the
Commitment Period, which Draw Downs the Purchaser shall be obligated to
accept, subject to the terms and conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing Period
and the Company may not exercise a Draw Down until the applicable Trading
Cushion has elapsed since the end of the previous Draw Down Pricing Period.
The number of shares of Common Stock purchased by the Purchaser with
respect to each Draw Down shall be determined as set forth in Section
5.1(e) herein and settled on or before the 3rd Trading Day immediately
after the Draw Down Pricing Period (each such settlement period and each
such settlement date referred to as a "Settlement Period" and a "Settlement
Date", respectively).
(c) In connection with each Draw Down Pricing Period, the Company may
set the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be $50,000 and
the maximum Investment Amount as to each Draw Down shall be equal to 10% of
the average of the VWAPs for the 60 Trading Days immediately prior to the
applicable Commencement Date (defined below) multiplied by the total
aggregate trading volume in respect of the Common Stock for such period.
Notwithstanding anything herein to the contrary, in the event the minimum
Investment Amount is greater than the maximum Investment Amount, as to such
Draw Down only, the minimum Investment Amount shall equal the maximum
Investment Amount, but in no event shall the minimum Investment Amount be
less than $25,000, such that if the maximum Investment Amount is less than
$25,000, then the Company shall be precluded from exercising a Draw Down at
such time.
12
(e) The number of Shares of Common Stock to be issued on each Settlement
Date shall be a number of shares equal to the sum of the quotients (for
each Trading Day within the Draw Down Pricing Period) of (x) 1/20th of the
Investment Amount, and (y) the Purchase Price on each Trading Day within
the Draw Down Pricing Period, subject to the following adjustments:
(i) if the VWAP on a given Trading Day is less than the Threshold
Price, then that portion of the Investment Amount to be paid on the
immediately pending Settlement Date shall be reduced by 1/20th of the
Investment Amount and such Trading Day shall be withdrawn from the Draw
Down Pricing Period; and
(ii) if during any Trading Day during the Draw Down Pricing Period
trading of the Common Stock on the Principal Market is suspended for
more than 3 hours, in the aggregate, or if any Trading Day during the
Draw Down Pricing Period is shortened because of a public holiday, then
that portion of the Investment Amount to be paid on the immediately
pending Settlement Date shall be reduced by 1/20th of the Investment
Amount for each such suspension and such Trading Days shall be withdrawn
from the Draw Down Pricing Period; and
(iii) if during any Trading Day during the Draw Down Pricing Period
sales of Draw Down Shares pursuant to the Registration Statement are
suspended by the Company in accordance with Sections 3(d) or 5(e) of the
Registration Rights Agreement for more than three (3) hours, in the
aggregate, during the Draw Down Pricing Period, then that portion of the
Investment Amount to be paid on the immediately pending Settlement Date
shall be reduced by 1/20th of the Investment Amount and such Trading
Days shall be withdrawn from the Draw Down Pricing Period.
(f) The Company must inform the Purchaser by delivering a draw down
notice, in the form of Exhibit D hereto (the "Draw Down Notice"), via
facsimile transmission in accordance with Section 8.4 as to the amount of
the Draw Down (the "Investment Amount") the Company wishes to exercise. The
Draw Down Notice shall also inform the Purchaser the first day of the Draw
Down Pricing Period (the "Commencement Date"); provided; however, if the
Commencement Date shall be the date on which the Draw Down Notice is
delivered, the Draw Down Notice must delivered to the Purchaser at least 1
hour before trading commences on such Trading Day date. At no time shall
the Purchaser be required to purchase more than the maximum Investment
Amount for a given Draw Down Pricing Period.
(g) On or before each Settlement Date, the Shares purchased by the
Purchaser shall be delivered to The Depository Trust Company ("DTC") on the
Purchaser's behalf. Upon the Company electronically delivering whole shares
of Common Stock to the Purchaser or its designees via DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system prior to 1:00 p.m. ET,
the Purchaser shall wire transfer immediately available funds to the
Company's designated account on such day. Upon the Company electronically
delivering whole shares of Common Stock to the Purchaser or its designee's
DTC account via DWAC after 1:00 p.m. ET, the Purchaser shall wire transfer
next day available funds to the Company's designated account on such day.
In the event that either party elects to use the Escrow Agent, the Shares
shall be credited by the Company to the DTC account designated by the
Purchaser via DWAC upon receipt by the Escrow Agent of payment for the Draw
Down Shares into the Escrow Agent's master escrow account and notice to the
Company thereof, all as further set forth in the Escrow Agreement. The
Escrow Agent shall be directed to pay the purchase price to the Company.
(h) The Company understands that a delay in the delivery of the Draw
Down Shares into the Purchaser's DTC account beyond 5 Trading Days after
the dates set forth herein or in the Escrow Agreement, as may be
applicable, could result in economic loss to the Purchaser. Notwithstanding
anything herein to the contrary, as compensation to the Purchaser for such
loss, the Company agrees to pay late payments to the Purchaser for late
delivery after 5 Trading Days from such dates in accordance with the
following schedule (where "No. Trading Days Late" is defined as the number
of Trading Days beyond 5 Trading Days from the dates set forth herein or in
the Escrow Agreement, as applicable, on
13
which such Draw Down Shares are to be delivered into the Purchaser's DTC
account via the DWAC system):
LATE PAYMENT FOR EACH $5,000 OF DRAW DOWN
NO. TRADING DAYS LATE SHARES BEING PURCHASED
--------------------- -----------------------------------------
1 $50
2 $100
3 $150
4 $200
5 $250
6 $300
7 $350
8 $400
9 $450
10 $500
More than 10 $500 +$100 for each Trading Day Late
beyond 10 Trading Days
The Company shall pay any payments incurred under this Section 5.1(h) in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue injunctive relief and/or actual damages for the
Company's failure to issue and deliver the Draw Down Shares to the Company.
ARTICLE 6
TERMINATION
SECTION 6.1. Term. The term of this Agreement shall begin on the date
hereof and shall end 36 months from the Effective Date or as otherwise set forth
in Section 6.2.
SECTION 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading Day's notice if
(i) an event resulting in a Material Adverse Effect has occurred and has
not been cured for a period of ninety (90) days after giving notice
thereof, (ii) the Common Stock is de-listed from the Principal Market
unless such de-listing is in connection with the Company's subsequent
listing of the Common Stock on the Nasdaq National Market, Nasdaq SmallCap
Market, the American Stock Exchange or the
New York Stock Exchange, or
(iii) the Company files for protection from creditors under any applicable
law.
(b) The Company may terminate this Agreement upon 1 Trading Day's notice
if the Purchaser shall fail to fund a properly noticed Draw Down within 5
Trading Days of the end of the applicable Settlement Period.
SECTION 6.3. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 6.2 herein, written notice thereof shall forthwith
be given to the other party and the transactions contemplated by this Agreement
shall be terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 or 6.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 8.1, 8.2 and 8.9,
and Article 7 herein, which shall survive the termination of this Agreement.
Nothing in this Section 6.3 shall be deemed to release the Company or the
Purchaser from any liability for any breach under this Agreement, or to impair
the rights of the Company or the Purchaser to compel specific performance by the
other party of its obligations under this Agreement.
14
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the Purchaser (and
its directors, officers, affiliates, agents, successors and assigns) from
and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) ("Damages") incurred by the Purchaser as a
result of any breach of the representations, warranties or covenants made
by the Company herein.
(b) The Purchaser agrees to indemnify and hold harmless the Company and
its directors, officers, affiliates, agents, successors and assigns from
and against any and all Damages) incurred by the Company as result of any
breach of the representations, warranties or covenants made by the
Purchaser herein. Notwithstanding anything to the contrary herein, the
Purchaser shall be liable under this Section 7.1(b) for only that amount as
does not exceed the gross proceeds to the Purchaser as a result of the sale
of the Shares.
(c) An indemnifying party shall not be liable under this Article 7 to
the extent that it is finally judicially determined that such Damages
resulted or arose from the breach by the Indemnified Party of any
representation or warranty of the Indemnified Party contained in this
Agreement or the willful misconduct or gross negligence of the Indemnified
Party.
SECTION 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give prompt
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification, describing the claim in reasonable detail; provided, that
the failure of any party entitled to indemnification hereunder to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Article 7 except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an Indemnified Party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
assume the defense thereof with counsel reasonably satisfactory to the
Indemnified Party. In the event that the indemnifying party advises an
Indemnified Party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, the Indemnified Party of its election to defend,
settle or compromise, at its sole cost and expense, any action, proceeding or
claim (or discontinues its defense at any time after it commences such defense),
then the Indemnified Party may, at its option, defend, settle or otherwise
compromise or pay such action or claim. In any event, unless and until the
indemnifying party elects in writing to assume and does so assume the defense of
any such claim, proceeding or action, the Indemnified Party's costs (including
reasonable attorneys' fees, charges and disbursements) and expenses arising out
of the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The Indemnified Party
shall cooperate fully with the indemnifying party in connection with any
settlement negotiations or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party, which relates to such action or
claim. The indemnifying party shall keep the Indemnified Party apprised as to
the status of the defense or any settlement negotiations with respect thereto.
If the indemnifying party elects to defend any such action or claim, then the
Indemnified Party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article 7 to the
contrary, the indemnifying party shall not, without the Indemnified Party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
Indemnified Party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the Indemnified Party of a
release from all liability in respect of such claim. The indemnification
required by this Article 7 shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, within ten (10)
Trading Days of written notice thereof to the indemnifying party so long
15
as the Indemnified Party irrevocably agrees to refund such moneys, with
interest, if it is ultimately determined by a court of competent jurisdiction
that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the Indemnified Party against the indemnifying party or others, and
(b) any liabilities to which the indemnifying party may be subject.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Fees and Expenses. Each of the parties to this Agreement
shall pay its own fees and expenses related to the transactions contemplated by
this Agreement; except that, the Company shall pay, within 45 days of the
Initial Closing, a non-accountable expense allowance of $10,000 for the
Purchaser's, administrative, legal and due diligence costs and expenses and any
other additional fees as set forth in the Escrow Agreement. The Company shall
pay all stamp or other similar taxes and duties levied in connection with
issuance of the Shares pursuant hereto.
SECTION 8.2. Tax Witholding. Notwithstanding any other provision in this
Agreement, the Company shall have the right to withhold from any amounts payable
by the Company any Taxes required by law to be withheld.
SECTION 8.3. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
SECTION 8.4. Entire Agreement; Amendment. The Transaction Documents
contain the entire understanding of the parties with respect to the matters
covered in the Transaction Documents. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought and no condition to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.
SECTION 8.5. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile 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 the Company: Lumenon Innovative Lightwave Technology, Inc.
0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxx Xx-Xxxxxxx X0X 0X0
Attn: Xxxx X. Xxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
16
with copies to: Xxxx and Xxxx LLP
(which shall not constitute notice) 00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxx X. Xxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Purchaser: As set forth on the signature page hereto.
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith.
SECTION 8.6. Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
SECTION 8.7. Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
SECTION 8.8. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and the Purchaser.
This Agreement may not be assigned by either party without the prior written
consent of the other party.
SECTION 8.9. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
SECTION 8.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of
New York, without
giving effect to the choice of law provisions. The Company and the Purchaser
agree to exclusively submit themselves to the in personam jurisdiction of the
state and federal courts situated within the Southern District of the State of
New York with regard to any controversy arising out of or relating to this
Agreement. Any party shall have the right to seek injunctive relief from any
court of competent jurisdiction in any case where such relief is available.
SECTION 8.11. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
SECTION 8.12. Publicity. Neither the Company nor the Purchaser 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 written consent of the other
party. After the Initial Closing, the Company may issue a press release or
otherwise make a public statement or announcement with respect to this Agreement
or the transactions contemplated hereby or the existence of this Agreement;
provided, however, that prior to issuing any such press release, making any such
public statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
SECTION 8.13. Severability. The provisions of this Agreement are
severable and, in the event that The Board of Arbitration or any court or
officials of any regulatory agency of competent jurisdiction shall determine
that any one or more of the provisions or part of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
and this Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of
17
such provision, had never been contained herein, so that such provisions would
be valid, legal and enforceable to the maximum extent possible, so long as such
construction does not materially adversely affect the economic rights of either
party hereto.
SECTION 8.14. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
SECTION 8.15. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
ARTICLE 9
DEFINITIONS
SECTION 9.1. Certain Definitions.
(a) "Affiliate" shall mean any person who is an "affiliate" of the
applicable party within the meaning of Rule 405 promulgated under the
Securities Act.
(b) "Commencement Date" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(c) "Commitment Amount" shall have the meaning assigned to such term in
Section 1.1 hereof.
(d) "Commitment Period" shall mean the period of 36 consecutive months
commencing immediately after the Effective Date.
(e) "Common Stock" shall mean the Company's common stock, $0.001 par
value per share.
(f) "Consolidation Event" shall mean a sale of all or substantially all
of the Company's assets or a merger pursuant to which the holders of the
voting securities of the Company prior to the merger do not own a majority
of the voting securities of the surviving entity.
(g) "Disclosure Letter" shall mean the separate disclosure letter
prepared by the Company and delivered concurrently herewith.
(h) "Draw Down" shall have the meaning assigned to such term in Section
5.1(a) hereof.
(i) "Draw Down Notice" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(j) "Draw Down Pricing Period" shall mean a period of 20 consecutive
Trading Days beginning on the date specified in the Draw Down Notice;
provided, however, the Draw Down Pricing Period shall not begin before the
day on which receipt of such notice is delivered to Purchaser pursuant to
Section 8.4 herein.
(k) "DTC" shall have the meaning assigned to such term in Section
5.1(g).
(l) "DWAC" shall have the meaning assigned to such term in Section
5.1(g).
(m) "Effective Date" shall mean the date the Registration Statement of
the Company covering the Shares being subscribed for hereby is declared
effective by the SEC.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(o) "GAAP" shall mean the United States Generally Accepted Accounting
Principles as those conventions, rules and procedures are determined by the
Financial Accounting Standards Board and its predecessor agencies.
(p) "Initial Closing" shall have the meaning assigned to such term in
Section 1.2 hereof.
(q) "Initial Closing Date" shall have the meaning assigned to such term
in Section 1.2 hereof.
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(r) "Investment Amount" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(s) "Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties 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 materially interfere with the ability of the
Company to perform any of its material obligations under this Agreement or
the Registration Rights Agreement.
(t) "Material Agreement" shall mean any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy
of which is required to be filed with the SEC as an exhibit to any of the
SEC Documents.
(u) "Principal Market" shall mean initially the Nasdaq Small Cap Market
and shall include the Nasdaq National Market, the American Stock Exchange
and the
New York Stock Exchange if the Company becomes listed and trades on
such market or exchange after the date hereof.
(v) "Purchase Price" shall mean, with respect to Draw Down Shares
purchased during each applicable Settlement Period, if the average of the
VWAPs during the 20 Trading Days immediately prior to the applicable Draw
Down Notice is less than $2.00 per share, 90% of the VWAP on the date in
question during such Draw Down Pricing Period and if the average of the
VWAPs during the 20 Trading Days immediately prior to the applicable Draw
Down Notice is greater than $2 per share, 92% of the VWAP on the date in
question during such Draw Down Pricing Period. Notwithstanding anything
herein to the contrary, in the event any Draw Downs are exercised during
any periods the Trading Cushion is reduced because of a Special Activity,
the Purchase Price Percentage, as to such Draw Downs, shall be reduced by
an additional 3% from the amount specified above.
(w) "Purchaser Material Adverse Effect" shall mean any adverse effect on
the business, operations, prospects or financial condition of the Purchaser
that is material and adverse to the Purchaser and/or any condition,
circumstance or situation that would prohibit or otherwise materially
interfere with the ability of the Purchaser to perform any of its material
obligations under this Agreement or the Registration Rights Agreement.
(x) "Registration Statement" shall mean the registration statement under
the Securities Act, to be filed with the Securities and Exchange Commission
for the registration of the Shares pursuant to the Registration Rights
Agreement attached hereto as Exhibit A (the "Registration Rights
Agreement").
(y) "SEC" shall mean the Securities and Exchange Commission.
(z) "SEC Documents" shall mean all reports, schedules, forms, statements
and other documents required to be filed by the Company with the SEC
pursuant to the requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(c) of the Exchange Act, in each case,
together with all exhibits, supplements, amendments and schedules thereto,
and all documents incorporated by reference therein.
(aa) "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
(bb) "Settlement" shall mean the delivery of the Draw Down Shares into
the Purchaser's DTC account via DTC's DWAC system in exchange for payment
therefor.
(cc) "Settlement Date" shall have the meaning assigned to such term in
Section 5.1(b).
(dd) "Settlement Period" shall have the meaning assigned to such term in
Section 5.1(b).
(ee) "Shares" shall mean, collectively, the shares of Common Stock of
the Company being subscribed for hereunder (the "Draw Down Shares") and the
shares of Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares").
19
(ff) "Special Activity" shall mean any one-time charge the Company
expects to incur for any reason, including, without limitation, in
connection with the acquisition of another business. Only the Company may
declare a Special Activity Period.
(gg) "Threshold Price" shall mean the price per Share designated by the
Company as the lowest VWAP during any Draw Down Pricing Period at which the
Company shall sell its Common Stock in accordance with this Agreement.
(hh) "Trading Cushion" shall mean the mandatory 6 Trading Days between
Draw Down Pricing Periods; except that, in the event the Company gives the
Purchaser 21 days notice of a Special Activity, the Trading Cushion shall
be adjusted to 2 Trading Days for a period of 7 consecutive weeks.
(jj) "Trading Day" shall mean any day on which the Principal Market is
open for business.
(kk) "Transaction Documents" shall mean this Agreement, the Registration
Rights Agreement and the Escrow Agreement.
(ll) "VWAP" shall mean, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Principal Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on
the primary Principal Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a trading day from
9:30 a.m. ET to 4:02 p.m. Eastern Time) using the VAP function; (b) if the
Common Stock is not then listed or quoted on a Principal Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board, the
volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock
is not then listed or quoted on the OTC Bulletin Board and if prices for
the Common Stock are then reported in the "Pink Sheets" published by the
National Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent closing
price per share of the Common Stock so reported; or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Purchasers.
(mm) "Warrants" shall mean the warrants issued to the Purchaser pursuant
to Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
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[SIGNATURE PAGE TO
COMMON STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of this 14th day of
August, 2002.
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY,
INC.
By: /s/ XXXX X. XXXXXXXXX
---------------------------------------
Xxxx X. Xxxxxxxxx, President and CEO
CROSSOVER VENTURES, INC.
By: Navigator Management Ltd., its
director
By: /s/ XXXXX XXXX
---------------------------------------
Name: Xxxxx Xxxx
Title: Director
Address:
x/x Xxxxxx Xxxxxxx Xxxxxxxxxx
Xxxxxxx Xxxxx, 0(xx) Floor
Waterfront Drive
Road Town, Tortola
British Virgin Islands
Attn: Director
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