EX-4.10 INVESTMENT AGREEMENT
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of September
22, 2003 by and between Sonic Jet Performance, Inc, a Colorado
corporation (the "Company"), and Dutchess Private Equities Fund, L.P.,
a Delaware limited partnership (the "Investor").
Whereas, the parties desire that, upon the terms and subject to
the conditions contained herein, the Investor shall invest up to
$3,500,000 to purchase the Company's Common Stock, .no par value per
share (the "Common Stock");
Whereas, such investments will be made in reliance upon the
provisions of Section 4(2) under the Securities Act of 1933, as
amended (the "1933 Act"), Rule 506 of Regulation D, and the rules and
regulations promulgated thereunder, and/or upon such other exemption
from the registration requirements of the 1933 Act as may be available
with respect to any or all of the investments in Common Stock to be
made hereunder; and
Whereas, contemporaneously with the execution and delivery of
this Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement substantially in the form attached
hereto as Exhibit A (as amended from time to time, the "Registration
Rights Agreement") pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration of the foregoing recitals, which
shall be considered an integral part of this Agreement, the covenants
and agreements set forth hereafter, and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Investor hereby agree as follows:
Section 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings specified or indicated, and such meanings shall be
equally applicable to the singular and plural forms of the defined
terms.
"1933 Act" shall have the meaning set forth in the preamble, above.
"1934 Act" shall mean the Securities Exchange Act of 1934, as it
may be amended.
"Affiliate" shall have the meaning specified in Section 5(h), below.
"Agreed Upon Procedures Report" shall have the meaning specified
in Section 2(o), below.
"Agreement" shall mean this Investment Agreement.
"Best Bid" shall mean the highest posted bid price of the Common Stock.
"Bring Down Cold Comfort Letter" shall have the meaning specified
in Section 2(n), below.
"Buy In" shall have the meaning specified in Section 6, below.
"Buy In Adjustment Amount" shall have the meaning specified in
Section 6.
"Closing" shall have the meaning specified in Section 2(h).
"Closing Date" shall mean seven (7) Trading Days following the
Put Notice Date.
"Common Stock" shall have the meaning set forth in the preamble
to this Agreement.
"Control" or "Controls" shall have the meaning specified in
Section 5(h).
"Covering Shares" shall have the meaning specified in Section 6.
"Effective Date" shall mean the date the SEC declares effective
under the 1933 Act the Registration Statement covering the Securities.
"Environmental Laws" shall have the meaning specified in Section
4(m), below.
"Execution Date" shall mean the date first indicated above.
"Indemnitiees" shall have the meaning specified in Section 10, below.
"Indemnified Liabilities" shall have the meaning specified in
Section 10, below.
"Ineffective Period" shall mean any period of time that the
Registration Statement or any Supplemental Registration Statement (as
defined in the Registration Rights Agreement) becomes ineffective or
unavailable for use for the sale or resale, as applicable, of any or
all of the Registrable Securities (as defined in the Registration
Rights Agreement) for any reason (or in the event the prospectus under
either of the above is not current and deliverable) during any time
period required under the Registration Rights Agreement.
"Investor" shall have the meaning indicated above.
"Major Transaction" shall have the meaning specified in Section
2(g), above.
"Material Adverse Effect" shall have the meaning specified in
Section 4(a).
"Material Facts" shall have the meaning specified in Section 2(m).
"Maximum Common Stock Issuance" shall have the meaning specified
in Section 2(j).
"Minimum Acceptable Price" with respect to any Put Notice Date
shall mean 75% of the average of the closing bid prices for the
fifteen Trading Day period immediately preceding such Put Notice Date.
"Open Period" shall mean the period beginning on and including
the Trading Day immediately following the Effective Date and ending on
the earlier to occur of (i) the date which is 36 months from the
Effective Date; and (ii) termination of the Agreement in accordance
with Section 9, below.
"Payment Amount" shall have the meaning specified in Section
2(p), below.
"Partial Release Form" shall have the meaning specified in
Section 2(i), below.
"Pricing Period" shall mean the period beginning on the Put
Notice Date and ending on and including the date that is five Trading
Days after such Put Notice Date.
"Principal Market" shall mean the American Stock Exchange, Inc.,
the National Association of Securities Dealers, Inc. Over-the-Counter
Bulletin Board, the Nasdaq National Market System or the Nasdaq
SmallCap Market, whichever is the principal market on which the Common
Stock is listed.
"Prospectus" shall mean the prospectus, preliminary prospectus
and supplemental prospectus used in connection with the Registration
Statement.
"Purchase Amount" shall mean the total amount being paid by the
Investor on a particular Closing Date to purchase the Securities.
"Purchase Price" shall mean 93% of the lowest closing Best Bid
price of the Common Stock during the Pricing Period.
"Put Amount" shall have the meaning set forth in Section 2(b)
hereof.
"Put Notice" shall mean a written notice sent to the Investor by
the Company stating the Put Amount of Shares the Company intends to
sell to the Investor pursuant to the terms of the Agreement and
stating the current number of Shares issued and outstanding on such date.
"Put Notice Date" shall mean the Trading Day immediately
following the day on which the Investor receives a Put Notice, however
a Put Notice shall be deemed delivered on (x) the Trading Day it is
received by facsimile or otherwise by the Investor if such notice is
received prior to 9:00 am Eastern Time, or (y) the immediately
succeeding Trading Day if it is received by facsimile or otherwise
after 9:00 am Eastern Time on a Trading Day. No Put Notice may be
deemed delivered on a day that is not a Trading Day.
"Put Restriction" shall mean the days between the end of the
Pricing Period and the date on which the Investor deems the Put
closed. During this time, the Company shall not be entitled to
deliver another Put Notice.
"Registration Period" shall have the meaning specified in Section
5(c), below.
"Registration Rights Agreement" shall have the meaning set forth
in the recitals, above.
"Registration Statement" means the registration statement of the
Company filed under the 1933 Act covering the Common Stock issuable
hereunder.
"Related Party" shall have the meaning specified in Section 5(h).
"Repurchase Event" shall have the meaning specified in Section 2(p).
"Resolution" shall have the meaning specified in Section 8(f).
"SEC" shall mean the U.S. Securities & Exchange Commission.
"SEC Documents" shall have the meaning specified in Section 4(f).
"Securities" shall mean the shares of Common Stock issued
pursuant to the terms of the Agreement.
"Shares" shall mean the shares of the Company's Common Stock.
"Sold Shares" shall have the meaning specified in Section 6.
"Subsidiaries" shall have the meaning specified in Section 4(a).
"Trading Day" shall mean any day on which the Principal Market
for the Common Stock is open for trading, from the hours of 9:30 am
until 4:00 pm.
"Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement, and each of the other agreements
entered into by the parties hereto in connection with this Agreement.
"Valuation Event" shall have the meaning specified in Section 2(k).
Section 2. PURCHASE AND SALE OF COMMON STOCK.
(a) Purchase and Sale of Common Stock. Subject to the terms and
conditions set forth herein, the Company shall issue and sell to the
Investor, and the Investor shall purchase from the Company, up to that
number of Shares having an aggregate Purchase Price of $3,500,000.
(b) Delivery of Put Notices.
(i) Subject to the terms and conditions of the Transaction
Documents, and from time to time during the Open Period, the
Company may, in its sole discretion, deliver a Put Notice to the
Investor which states the Put Amount (designated in shares of
Common Stock) which the Company intends to sell to the Investor
on a Closing Date. The Put Notice shall be in the form attached
hereto as Exhibit B and incorporated herein by reference. The
amount that the Company shall be entitled to Put to the Investor
(the "Put Amount") shall be equal to, at the Company's election,
either: (a) 200% of the average daily volume (U.S. market only)
of the Common Stock for the 10 Trading Days prior to the
applicable Put Notice Date, multiplied by the average of the
three daily closing Best Bid prices immediately preceding the Put
Date, or (b) $10,000; provided that in no event will the Put
Amount be more than $1,000,000 with respect to any single Put.
During the Open Period, the Company shall not be entitled to
submit a Put Notice until after the previous Closing has been
completed. The Purchase Price for the Common Stock identified in
the Put Notice shall be equal to 93% of the lowest closing Best
Bid price of the Common Stock during the Pricing Period.
(ii) If any closing bid price during the applicable Pricing
Period with respect to that Put Notice is less than 75% of the
any closing Best Bid prices of the Common Stock for the fifteen
Trading Days prior to the Put Notice Date (the "Minimum
Acceptable Price"), the Put Notice will terminate at the
Company's request sent in accordance with Section 9 of this
Agreement. In the event that the closing bid price for the
applicable Pricing Period is less than the Minimum Acceptable
Price, the Company may elect, by sending written notice to the
Investor to cancel the Put Notice.
(iii) Within seven calendar days after the commencement of
each calendar quarter occurring subsequent to the commencement of
the Open Period, the Company undertakes to notify Investor as to
its reasonable expectations as to the Put Amount it intends to
raise during such calendar quarter, if any, through the issuance
of Put Notices. Such notification shall constitute only the
Company's good faith estimate with respect to such calendar
quarter and shall in no way obligate the Company to raise such
amount during such calendar quarter or otherwise limit its
ability to deliver Put Notices during such calendar quarter. The
failure by the Company to comply with this provision may be cured
by the Company's notification Investor at any time as to its
reasonable expectations with respect to the current calendar quarter.
(c) Interest. It is the intention of the parties that any
interest that may be deemed to be payable under this Agreement shall
not exceed the maximum amount permitted under applicable law. If any
applicable law sets the maximum interest amount, and any payment
required under this Agreement exceeds such limit, then: (i) any such
interest shall be reduced by the amount necessary to reduce the
interest to the legally permitted limit; and (ii) any sums already
collected (if any) from a party which exceed the legally permitted
limits will be refunded to such party.
(d) Investor's Obligation to Purchase Shares. Subject to the
conditions set forth in this Agreement, following the Investor's
receipt of a validly delivered Put Notice, the Investor shall be
required to purchase from the Company during the related Pricing
Period that number of Shares having an aggregate Purchase Price equal
to the lesser of (i) the Put Amount set forth in the Put Notice, and
(ii) 200% of the aggregate trading volume of the Common Stock during
the applicable Pricing Period times (x) 93% of the average of the
three (3) lowest closing bid prices of the Company's Common Stock
during the specified Pricing Period, but only if said Shares bear no
restrictive legend, are not subject to stop transfer instructions and
are being held in escrow, pursuant to Section 2(h), prior to the
applicable Closing Date.
(e) Limitation on Investor's Obligation to Purchase Shares. In
no event shall the Investor purchase Shares (whether from the Company
or in public or private secondary transactions) other than pursuant to
this Agreement until such date as this Agreement is terminated.
(f) Conditions to Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, the
Company shall not be entitled to deliver a Put Notice and the Investor
shall not be obligated to purchase any Shares at a Closing (as defined
in Section 2(h)) unless each of the following conditions are
satisfied:
(i) a Registration Statement shall have been declared
effective and shall remain effective and available for the resale
of all the Registrable Securities (as defined in the Registration
Rights Agreement) at all times until the Closing with respect to
the subject Put Notice;
(ii) at all times during the period beginning on the related
Put Notice Date and ending on and including the related Closing
Date, the Common Stock shall have been listed on the Principal
Market and shall not have been suspended from trading thereon for
a period of five consecutive Trading Days during the Open Period
and the Company shall not have been notified of any pending or
threatened proceeding or other action to delist or suspend the
Common Stock;
(iii) the Company has complied with its obligations and is
otherwise not in breach of a material provision of, or in default
under, this Agreement, the Registration Rights Agreement or any
other agreement executed in connection herewith which has not
been corrected prior to delivery of the Put Notice Date;
(iv) no injunction shall have been issued and remain in
force, or action commenced by a governmental authority which has
not been stayed or abandoned, prohibiting the purchase or the
issuance of the Securities; and
(v) the issuance of the Securities will not violate any
shareholder approval requirements of the Principal Market.
If any of the events described in clauses (i) through (v) above occurs
during a Pricing Period, then the Investor shall have no obligation to
purchase the Put Amount of Common Stock set forth in the applicable
Put Notice.
(g) Major Transaction. For purposes of this Agreement, a "Major
Transaction" shall be deemed to have occurred upon the closing of any
of the following events: (i) the consolidation, merger or other
business combination of the Company with or into another person (other
than pursuant to a migratory merger effected solely for the purposes
of changing the jurisdiction of incorporation of the Company or other
than a transaction in which the Company is the surviving corporation);
(ii) the sale or transfer of all or substantially all of the Company's
assets; or (iii) the consummation of a purchase, tender or exchange
offer made to, and accepted by, the holders of more than 50% of the
economic interest in, or the combined voting power of all classes of
voting stock of, the Company.
(h) Mechanics of Purchase of Shares by Investor. Subject to the
satisfaction of the conditions set forth in Sections 2(f), 7 and 8,
the closing of the purchase by the Investor of Shares or the Investor
deeming a Put closed (a "Closing") shall occur on the date which is no
later than seven Trading Days following the applicable Put Notice Date
or when the Investor deems a Put closed (each a "Closing Date").
Prior to each Closing Date, (i) the Company shall deliver to the
Investor pursuant to the this Agreement, certificates representing the
Shares to be issued to the Investor on such date and registered in the
name of the Investor; and (ii) the Investor shall deliver to the
Company the Purchase Price to be paid for such Shares, determined as
set forth in Sections 2(b) and 2(d). In lieu of delivering physical
certificates representing the Securities and provided that the
Company's transfer agent then is participating in The Depository Trust
Company ("DTC") Fast Automated Securities Transfer ("FAST") program,
upon request of the Investor, the Company shall use its commercially
reasonable efforts to cause its transfer agent to electronically
transmit the Securities by crediting the account of the Investor's
prime broker (which shall be specified by the Investor a reasonably
sufficient time in advance) with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system.
The Company understands that a delay in the issuance of
Securities beyond the Closing Date could result in economic loss to
the Investor. After the Effective Date, as compensation to the
Investor for such loss, the Company agrees to pay late payments to the
Investor for late issuance of Securities (delivery of Securities after
the applicable Closing Date) in accordance with the following schedule
(where "No. of Days Late" is defined as the number of days beyond the
Closing Date):
Late Payment For Each
No. of Days Late $10,000 of Common Stock
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Over 10 $1,000 + $200 for each
Business Day late beyond 10 days
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit
the Investor's right to pursue actual damages for the Company's
failure to issue and deliver the Securities to the Investor, except to
the extent that such late payments shall constitute payment for and
offset any such actual damages alleged by the Investor, and any Buy In
Adjustment Amount.
(i) reserved.
(j) Overall Limit on Common Stock Issuable. Notwithstanding
anything contained herein to the contrary, if during the Open Period
the Company becomes listed on an exchange that limits the number of
shares of Common Stock that may be issued without shareholder
approval, then the number of Shares issuable by the Company and
purchasable by the Investor, including the shares of Common Stock
issuable to the Investors pursuant to Section 11(b), shall not exceed
that number of the shares of Common Stock that may be issuable without
shareholder approval, subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar
recapitalization affecting the Common Stock (the "Maximum Common Stock
Issuance"), unless the issuance of Shares, including any Common Stock
to be issued to the Investors pursuant to Section 11(b), in excess of
the Maximum Common Stock Issuance shall first be approved by the
Company's shareholders in accordance with applicable law and the By-
laws and Amended and Restated Certificate of Incorporation of the
Company, if such issuance of shares of Common Stock could cause a
delisting on the Principal Market. The parties understand and agree
that the Company's failure to seek or obtain such shareholder approval
shall in no way adversely affect the validity and due authorization of
the issuance and sale of Securities or the Investor's obligation in
accordance with the terms and conditions hereof to purchase a number
of Shares in the aggregate up to the Maximum Common Stock Issuance
limitation, and that such approval pertains only to the applicability
of the Maximum Common Stock Issuance limitation provided in this
Section 2(j).
(k) For the purpose of this Agreement, the term "Valuation
Event" means the Company taking any of the following actions at any
time during a Pricing Period:
(i) the subdivision or combinations of the Company's Common Stock;
(ii) the payment of a dividend or any other distribution
with respect to shares of the Company's Common Stock;
(iii) the issuance of any options or other rights to
subscribe for or purchase Common Stock ("Options") or any
securities convertible into or exchangeable for Common Stock
("Convertible Securities"), the price per share for which Common
Stock is shall be less than the bid price in effect immediately
prior to such issuance of such Options or Convertible Securities;
(iv) the issuance of shares of Common Stock other than as
provided in the foregoing subsections (i) through (iii), at a
price per share less, or for other consideration lower, than the
bid price in effect immediately prior to such issuance, or
without consideration; or
(v) the distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a dividend in
liquidation or by way of return of capital or other than as a
dividend payable out of earnings or surplus legally available for
dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all
of the Company's assets (other than under the circumstances
provided for in the foregoing subsections (i) through (iv)).
(l) The Company agrees that it shall not take any action that
would result in a Valuation Event occurring during a Pricing Period.
(m) reserved.
(n) Audit.
(i) Whenever reasonably requested by Investor, the Company
shall engage its independent auditors to prepare in accordance
with the provisions of Statement on Auditing Standards No. 71, as
amended, such written report (the "Bring Down Cold Comfort
Letters") with respect to the financial information contained in
the Registration Statement and shall have delivered to the
Investor such a report addressed to the Investor, on or prior to
each Registration Opinion Deadline;
(ii) in the event that the Investor shall have requested
delivery of an Agreed Upon Procedures Report pursuant to Section
2(o), the Company shall engage its independent auditors to
perform certain agreed upon procedures and report thereon as
shall have been reasonably requested by the Investor with respect
to certain financial information of the Company and the Company
shall deliver to the Investor a copy of such report addressed to
the Investor. In the event that the report required by this
Section 2(n) cannot be delivered by the Company's independent
auditors, the Company shall, if necessary, promptly revise the
Registration Statement and the Company shall not deliver a Put
Notice to Investor until such report is delivered.
(o) Procedure if Material Facts are Reasonably Believed to be
Untrue or are Omitted. In the event after such consultation the
Investor or the Investor's counsel reasonably believes that the
Registration Statement contains an untrue statement or a material fact
or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading,
(i) the Company shall file with the SEC an amendment to the
Registration Statement responsive to such alleged untrue statement or
omission and provide the Investor, as promptly as practicable, with
copies of the Registration Statement and related Prospectus, as so
amended, or (ii) if the Company disputes the existence of any such
material misstatement or omission, and in the event the dispute
relates to the adequacy of financial disclosure and the Investor shall
reasonably request, the Company's independent auditors shall provide
to the Company a letter ("Agreed Upon Procedures Report") outlining
the performance of such "agreed upon procedures," which shall not
require any more than the SAS 71 review described above as shall be
reasonably requested by the Investor and the Company shall provide the
Investor with a copy of such letter.
(p) Delisting; Suspension. If at any time during the Open
Period or within 30 calendar days after the end of the Open Period;
(i) the Registration Statement, after it has been declared effective,
shall not remain effective and available for sale of all the
Registrable Securities for a period exceeding 10 calendar days; (ii)
the Common Stock shall not be listed on the Principal Market or shall
have been suspended from trading thereon (excluding suspensions of not
more than one trading day resulting from business announcements by the
Company) or the Company shall have been notified of any pending or
threatened proceeding or other action to delist or suspend the Common
Stock; (iii) there shall have occurred a Major Transaction (as defined
in Section 2(g)) or the public announcement of a pending Major
Transaction which has not been abandoned or terminated; or (iv) the
Registration Statement is no longer effective or stale for a period of
more than five Trading Days as a result of the Company's failure to
timely file its financial statements or for any other reason, the
Company shall repurchase, within 30 calendar days of the occurrence of
one of the events listed in clauses (i), (ii), (iii) or (iv) above
(each a "Repurchase Event") and subject to the limitations imposed by
applicable federal and state law, all or any part of the Securities
issued to the Investor within the 60 Trading Days preceding the
occurrence of the Repurchase Event and then held by the Investor at a
price per Share equal to the highest closing bid price during the
period beginning on the date of the Repurchase Event and ending on and
including the date on which the Investor is paid by the Company for
the repurchase of the Shares (the "Payment Amount"). If the Company
fails to pay to the Investor the full aggregate Payment Amount within
ten calendar days of the occurrence of a Repurchase Event, the Company
shall pay to the Investor, on the first Trading Day following such
tenth calendar day, in addition to and not in lieu of the Payment
Amount payable by the Company to the Investor, an amount equal to 2%
of the aggregate Payment Amount then due and payable to the Investor,
in cash by wire transfer, plus compounded annual interest of 18% on
such Payment.
Amount during the period, beginning on the day following such tenth
calendar day, during which such Payment Amount, or any portion
thereof, is outstanding.
Section 3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Investor represents and warrants to the Company, and
covenants, that:
(a) Sophisticated Investor. The Investor has, by reason of its
business and financial experience, such knowledge, sophistication and
experience in financial and business matters and in making investment
decisions of this type that it is capable of (i) evaluating the merits
and risks of an investment in the Securities and making an informed
investment decision; (ii) protecting its own interest; and (iii)
bearing the economic risk of such investment for an indefinite period
of time.
(b) Authorization; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of the
Investor and is a valid and binding agreement of the Investor
enforceable against the Investor in accordance with its terms, subject
as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(c) Section 9 of the 1934 Act. During the term of this
Agreement, the Investor will comply with the provisions of Section 9
of the 1934 Act, and the rules promulgated thereunder, with respect to
transactions involving the Common Stock. The Investor agrees not to
short, either directly or indirectly through its affiliates,
principals or advisors, the Company's common stock during the term of
this Agreement.
(d) Accredited Investor. Investor is an "Accredited Investor"
as that term is defined in Rule 501(a)(3) of Regulation D of the 1933 Act.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Investor and the consummation by the
Investor of the transactions contemplated hereby and thereby will not
result in a violation of Partnership Agreement or other organizational
documents of the Investor.
(f) Opportunity to Discuss. The Investor has had an
opportunity to discuss the business, management and financial affairs
of the Company with the Company's management.
(g) Investment Purposes. The Investor is purchasing the
Securities for its own account for investment purposes and not with a
view towards distribution and agrees to resell or otherwise dispose of
the Securities solely in accordance with the registration provisions
of the 1933 Act (or pursuant to an exemption from such registration
provisions).
(h) No Registration as a Dealer. The Investor is not and will
not be required to be registered as a "dealer" under the 1934 Act,
either as a result of its execution and performance of its obligations
under this Agreement or otherwise.
(i) The Investor is a Limited Partnership, duly organized,
validly existing and in good standing in the State of Delaware.
(j) The Investor understands that it is liable for its own tax
liabilities.
(k) The Investor will comply with Regulation M under the 1934
Act, if applicable
Section 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, or as
disclosed on the Company's SEC Documents, the Company represents and
warrants to the Investor that:
(a) Organization and Qualification. The Company is a
corporation duly organized and validly existing in good standing under
the laws of the State of Colorado, and has the requisite corporate
power and authorization 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 its ownership
of property or 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. As used in this Agreement, "Material Adverse Effect" means any
material adverse effect on the business, properties, assets,
operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments
to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 1 and 4(b), below).
(b) 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, and each of the other agreements
entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the
"Transaction Documents"), and to issue the Securities in
accordance with the terms hereof and thereof.
(ii) The execution and delivery of the Transaction Documents
by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the
reservation for issuance and the issuance of the Securities
pursuant to this Agreement, have been duly and validly 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 shareholders.
(iii) The Transaction Documents have been duly and validly
executed and delivered by the Company.
(iv) The Transaction Documents 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.
(c) Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 300,000,000 shares of
Common Stock, no par value per share, of which as of the date hereof,
109,187,156 shares are issued and outstanding; 10 shares of Class B
Preferred Stock, no par value are issued and outstanding; 32 shares of
Class C Preferred Stock, no par value per share are issued and
outstanding; (as of June 30, 2003) 692,226 shares of reserved for
issuance pursuant to options, warrants and other convertible
securities. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in the Company's publicly available filings with
Periodic Filings, (i) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company; (ii) there are
no outstanding debt securities; (iii) there are no outstanding shares
of capital stock, 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; (iv) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (v) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to redeem a security of
the Company or any of its Subsidiaries; (vi) there are no securities
or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities as described in
this Agreement; (vii) the Company does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or
agreement; and (viii) there is no dispute as to the classification of
any shares of the Company's capital stock. The Company has furnished
to the Investor, or the Investor has had access through XXXXX to, true
and correct copies of the Company's Amended and Restated Certificate
of Incorporation, 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.
(d) Issuance of Shares. The Company has reserved 30,000,000
Shares for issuance pursuant to this Agreement has been duly
authorized and reserved for issuance (subject to adjustment pursuant
to the Company's covenant set forth in Section 5(f) below) pursuant to
this Agreement. Upon issuance in accordance with this Agreement, the
Securities will be validly issued, fully paid and non-assessable and
free from all taxes, liens and charges with respect to the issue
thereof. In the event the Company cannot register a sufficient number
of Shares for issuance pursuant to this Agreement, the Company will
use its best efforts to authorize and reserve for issuance the number
of Shares required for the Company to perform its obligations
hereunder as soon as reasonably practicable.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby will not
(i) result in a violation of the Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding
series of preferred stock of the Company or the By-laws; or (ii)
conflict with, or constitute a material default (or an event which
with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, contract,
indenture mortgage, indebtedness 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 United
States federal and state securities laws and regulations and the rules
and regulations of the Principal Market or principal securities
exchange or trading market on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries
is bound or affected. Except as disclosed in Schedule 4(e), neither
the Company nor its Subsidiaries is in violation of any term of, or in
default under, the Certificate of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the By-laws or their organizational
charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations
that would not individually or in the aggregate have a Material
Adverse Effect. The business of the Company and its Subsidiaries is
not being conducted, and shall not be conducted, in violation of any
law, statute, ordinance, rule, order or regulation of any governmental
authority or agency, regulatory or self-regulatory agency, or court,
except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act, the Company is not required to obtain any
consent, authorization, permit or order of, or make any filing or
registration (except the filing of a registration statement) with, any
court, governmental authority or agency, regulatory or self-regulatory
agency or other third party in order for it to execute, deliver or
perform any of its obligations under, or contemplated by, the
Transaction Documents in accordance with the terms hereof or thereof.
All consents, authorizations, permits, 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 and are in full force and effect as of the date hereof.
Except as disclosed in Schedule 4(e), the Company and its Subsidiaries
are unaware of any facts or circumstances which might give rise to any
of the foregoing. The Company is not, and will not be, in violation of
the listing requirements of the Principal Market as in effect on the
date hereof and on each of the Closing Dates and is not aware of any
facts which would reasonably lead to delisting of the Common Stock by
the Principal Market in the foreseeable future.
(f) SEC Documents; Financial Statements. Since at least
September 1st, 2003, the Company has 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 1934 Act (all of
the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). The Company has delivered to the Investor or its
representatives, or they have had access through XXXXX to, true and
complete copies of the SEC Documents. As of their respective dates,
the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of
the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. 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 and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally
accepted accounting 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 written information
provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation,
information referred to in Section 4(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material
fact necessary to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Investor
with any material, nonpublic information which was not publicly
disclosed prior to the date hereof and any material, nonpublic
information provided to the Investor by the Company or its
Subsidiaries or any of their officers, directors, employees or agents
prior to any Closing Date shall be publicly disclosed by the Company
prior to such Closing Date.
(g) Absence of Certain Changes. Except as set forth in the SEC
Documents, the Company does not intend to change the business
operations of the Company. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its
Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
(h) 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 or, to the knowledge of
the executive officers of Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any
of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, in
which an adverse decision could have a Material Adverse Effect.
(i) Acknowledgment Regarding Investor's Purchase of Shares. The
Company acknowledges and agrees that the Investor is acting solely in
the capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The
Company further acknowledges that the Investor is not acting as a
financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by
the Investor or any of its respective representatives or agents in
connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to the Investor's
purchase of the Securities. The Company further represents to the
Investor that the Company's decision to enter into the Transaction
Documents has been based solely on the independent evaluation by the
Company and its representatives.
(j) No Undisclosed Events, Liabilities, Developments or
Circumstances. Except as set forth in the SEC Documents, since June
30th, 2003, no event, liability, development or circumstance has
occurred or exists, or to the Company's knowledge is contemplated to
occur, with respect to the Company or its Subsidiaries or their
respective business, properties, assets, prospects, operations or
financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement
filed with the SEC relating to an issuance and sale by the Company of
its Common Stock and which has not been publicly announced.
(k) Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such
dispute threatened. Neither the Company nor any of its Subsidiaries is
a party to a collective bargaining agreement, and the Company and its
Subsidiaries believe that relations with their employees are good. No
executive officer (as defined in Rule 501(f) of the 0000 Xxx) has
notified the Company that such officer intends to leave the Company's
employ or otherwise terminate such officer's employment with the
Company.
(l) Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all
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. Except as set forth the SEC Documents, none of the
Company's trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade
secrets or other intellectual property rights necessary to conduct its
business as now or as proposed to be conducted have expired or
terminated, or are expected to expire or terminate within two years
from the date of this Agreement. 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, or of any such development of similar or identical trade
secrets or technical information by others and, except as set forth on
the SEC Documents, there is no 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. The Company and its Subsidiaries have taken commercially
reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
(m) Environmental Laws. The Company and its Subsidiaries (i)
are, to the knowledge of management of the Company, in compliance with
any and all applicable 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, to the knowledge of
management of the Company, received all permits, licenses or other
approvals required of them under applicable Environmental Laws to
conduct their respective businesses; and (iii) are in compliance, to
the knowledge of the Company, with all terms and conditions of any
such permit, license or approval where, in each of the three foregoing
cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
(n) Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are described in the SEC Documents or such as do not materially
affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of
its Subsidiaries. Any real property and facilities held under lease by
the Company or any of 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.
(o) 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
reasonably 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 have a Material
Adverse Effect.
(p) Regulatory Permits. The Company and its Subsidiaries have
in full force and effect all certificates, approvals, authorizations
and permits from the appropriate federal, state, local or foreign
regulatory authorities and comparable foreign regulatory agencies,
necessary to own, lease or operate their respective properties and
assets and 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,
approval, authorization or permit, except for such certificates,
approvals, authorizations or permits which if not obtained, or such
revocations or modifications which, would not have a Material Adverse
Effect.
(q) 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.
(r) No Materially Adverse Contracts, Etc. 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. Neither the
Company nor any of its Subsidiaries is a party to any contract or
agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
(s) Tax Status. The Company and each of its Subsidiaries has
made or filed all United States federal and state income and all other
tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company
and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on
such returns, reports and declarations, except those being contested
in good faith and has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.
(t) Certain Transactions. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof and except
for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other
than the grant of stock options disclosed in the SEC Documents, none
of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries
(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.
(u) Dilutive Effect. The Company understands and acknowledges
that the number of shares of Common Stock issuable upon purchases
pursuant to this Agreement will increase in certain circumstances
including, but not necessarily limited to, the circumstance wherein
the trading price of the Common Stock declines during the period
between the Effective Date and the end of the Open Period. The
Company's executive officers and directors have studied and fully
understand the nature of the transactions contemplated by this
Agreement and recognize that they have a potential dilutive effect.
The Board of Directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents,
its obligation to issue shares of Common Stock upon purchases pursuant
to this Agreement is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests
of other shareholders of the Company.
(v) Right of First Refusal. The Company shall not, directly or
indirectly, without the prior written consent of Investor offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition) any
of its Common Stock or securities convertible into Common Stock at a
price that is less than the market price of the Common Stock at the
time of issuance of such security or investment (a "Subsequent
Financing") for a period of one year after the Effective Date, except
(i) the granting of options or warrants to employees, officers,
directors and consultants, and the issuance of shares upon exercise of
options granted, under any stock option plan heretofore or hereafter
duly adopted by the Company or for services rendered or to be
rendered; (ii) shares issued upon exercise of any currently
outstanding warrants or options and upon conversion of any currently
outstanding convertible debenture or convertible preferred stock, in
each case disclosed pursuant to Section 4(c); (iii) securities issued
in connection with the capitalization or creation of a joint venture
with a strategic partner; (iv) shares issued to pay part or all of the
purchase price for the acquisition by the Company of another entity
(which, for purposes of this clause (iv), shall not include an
individual or group of individuals); and (v) shares issued in a bona
fide public offering by the Company of its securities, unless (A) the
Company delivers to Investor a written notice (the "Subsequent
Financing Notice") of its intention to effect such Subsequent
Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the
amount of proceeds intended to be raised thereunder, the person with
whom such Subsequent Financing shall be effected, and attached to
which shall be a term sheet or similar document relating thereto; and (B)
Investor shall not have notified the Company by 5:00 p.m. (New York time) on
the fifth Trading Day after its receipt of the Subsequent Financing Notice of
its willingness to provide, subject to completion of mutually acceptable
documentation, financing to the Company on substantially the terms set
forth in the Subsequent Financing Notice. If Investor shall fail to
notify the Company of its intention to enter into such negotiations
within such time period, then the Company may effect the Subsequent
Financing substantially upon the terms set forth in the Subsequent
Financing Notice; provided that the Company shall provide Investor
with a second Subsequent Financing Notice, and Investor shall again
have the right of first refusal set forth above in this Section, if
the Subsequent Financing subject to the initial Subsequent Financing
Notice shall not have been consummated for any reason on the terms set
forth in such Subsequent Financing Notice within thirty Trading Days
after the date of the initial Subsequent Financing Notice. The rights
granted to Investor in this Section are not subject to any prior right
of first refusal given to any other person disclosed on Schedule 4(c).
(w) Lock-up. The Company shall cause its officers, insiders,
directors, affiliates or other related parties to refrain from selling
Common Stock during each Pricing Period.
(x) No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its behalf, has engaged in
any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the
Common Stock offered hereby.
(y) No brokers, finders or financial advisory fees or
commissions will be payable by the Company with respect to the
transaction contemplated by this Agreement excepted as outlined in
Section 11 (m).
Section 5. COVENANTS OF THE COMPANY
(a) Best Efforts. The Company shall use commercially reasonable
efforts timely to satisfy each of the conditions to be satisfied by it
as provided in Section 7 of this Agreement.
(b) Blue Sky. The Company shall, at its sole cost and expense,
on or before each of the Closing Dates, take such action as the
Company shall reasonably determine is necessary to qualify the
Securities for, or obtain exemption for the Securities for, sale to
the Investor at each of the Closings pursuant to this Agreement under
applicable securities or "Blue Sky" laws of such states of the United
States, as reasonably specified by Investor, and shall provide
evidence of any such action so taken to the Investor on or prior to
the Closing Date.
(c) Reporting Status. Until the earlier to occur of (i) the
first date which is after the date this Agreement is terminated
pursuant to Section 9 and on which the Holders (as that term is
defined in the Registration Rights Agreement) may sell all of the
Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto); and (ii) the date on which
(A) the Holders shall have sold all the Securities; and (B) this
Agreement has been terminated pursuant to Section 9 (the "Registration
Period"), the Company shall file all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as a reporting company under the 1934 Act.
(d) Use of Proceeds. The Company will use the proceeds from the
sale of the Shares (excluding amounts paid by the Company for fees as
set forth in the Transaction Documents) for general corporate and
working capital purposes
(e) Financial Information. The Company agrees to make available
to the Investor via XXXXX or other electronic means the following to
the Investor during the Registration Period: (i) within five Trading
Days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any
Current Reports on Form 8-K and any Registration Statements or
amendments filed pursuant to the 1933 Act; (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the
Company or any of its Subsidiaries; (iii) copies of any notices and
other information made available or given to the shareholders of the
Company generally, contemporaneously with the making available or
giving thereof to the shareholders; and (iv) within two calendar days
of filing or delivery thereof, copies of all documents filed with, and
all correspondence sent to, the Principal Market, any securities
exchange or market, or the National Association of Securities Dealers,
Inc., unless such information is material nonpublic information.
(f) Reservation of Shares. Subject to the following sentence,
the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the issuance of the
Securities hereunder. In the event that the Company determines that it
does not have a sufficient number of authorized shares of Common Stock
to reserve and keep available for issuance as described in this
Section 5(f), the Company shall use its best efforts to increase the
number of authorized shares of Common Stock by seeking shareholder
approval for the authorization of such additional shares.
(g) Listing. The Company shall promptly secure and maintain the
listing of all of the Registrable Securities (as defined in the
Registration Rights Agreement) upon the Principal Market and each
other national securities exchange and automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, such listing of all
Registrable Securities from time to time issuable under the terms of
the Transaction Documents. The Company shall maintain the Common
Stock's authorization for quotation on the Principal Market. Neither
the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension
of the Common Stock on the Principal Market (excluding suspensions of
not more than one trading day resulting from business announcements by
the Company). The Company shall promptly provide to the Investor
copies of any notices it receives from the Principal Market regarding
the continued eligibility of the Common Stock for listing on such
automated quotation system or securities exchange. The Company shall
pay all fees and expenses in connection with satisfying its
obligations under this Section 5(g).
(h) Transactions With Affiliates. The Company shall not, and
shall cause each of its Subsidiaries not to, enter into, amend, modify
or supplement, or permit any Subsidiary to enter into, amend, modify
or supplement, any agreement, transaction, commitment or arrangement
with any of its or any Subsidiary's officers, directors, persons who
were officers or directors at any time during the previous two years,
shareholders who beneficially own 5% or more of the Common Stock, or
affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest (each a
"Related Party"), except for (i) customary employment arrangements and
benefit programs on reasonable terms, (ii) any agreement, transaction,
commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person
other than such Related Party, or (iii) any agreement, transaction,
commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any
director who is also an officer of the Company or any Subsidiary of
the Company shall not be a disinterested director with respect to any
such agreement, transaction, commitment or arrangement. "Affiliate"
for purposes hereof means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a 5% or
more equity interest in that person or entity, (ii) has 5% or more
common ownership with that person or entity, (iii) controls that
person or entity, or (iv) is under common control with that person or
entity. "Control" or "Controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or
govern the policies of another person or entity.
(i) Filing of Form 8-K. On or before the date which is three
Trading Days after the Execution Date, the Company shall file a
Current Report on Form 8-K with the SEC describing the terms of the
transaction contemplated by the Transaction Documents in the form
required by the 1934 Act, if such filing is required.
(j) Corporate Existence. The Company shall use its best efforts
to preserve and continue the corporate existence of the Company.
(k) Notice of Certain Events Affecting Registration; Suspension
of Right to Make a Put. The Company shall promptly notify Investor
upon the occurrence of any of the following events in respect of a
Registration Statement or related prospectus in respect of an offering
of the 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 any 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 Securities for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose; (iv)
the happening of any event that makes any statement made in such
Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in
the Registration Statement, related prospectus or documents so that,
in the case of a Registration Statement, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the
Company's reasonable determination that a post-effective amendment to
the Registration Statement would be appropriate, and the Company shall
promptly make available to Investor any such supplement or amendment
to the related prospectus. The Company shall not deliver to Investor
any Put Notice during the continuation of any of the foregoing events.
(l) Reimbursement. If (i) Investor, other than by reason of its
gross negligence or willful misconduct, becomes involved in any
capacity in any action, proceeding or investigation brought by any
shareholder of the Company, in connection with or as a result of the
consummation of the transactions contemplated by the Transaction
Documents, or if Investor is impleaded in any such action, proceeding
or investigation by any person (other than as a result of a breach of
the Investor's representations and warranties set forth in this
Agreement); or (ii) Investor, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in
any action, proceeding or investigation brought by the SEC against or
involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by the Transaction
Documents (other than as a result of a breach of the Investor's
representations and warranties set forth in this Agreement), or if
Investor is impleaded in any such action, proceeding or investigation
by any person, then in any such case, the Company will reimburse
Investor for its reasonable legal and other expenses (including the
cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with
respect to any matter in which Investor is a named party, the Company
will pay to Investor the charges, as reasonably determined by
Investor, for the time of any officers or employees of Investor
devoted to appearing and preparing to appear as witnesses, assisting
in preparation for hearings, trials or pretrial matters, or otherwise
with respect to inquiries, hearing, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement
obligations of the Company under this section shall be in addition to
any liability which the Company may otherwise have, shall extend upon
the same terms and conditions to any affiliates of Investor that are
actually named in such action, proceeding or investigation, and
partners, directors, agents, employees, attorneys, accountants,
auditors and controlling persons (if any), as the case may be, of
Investor and any such affiliate, and shall be binding upon and inure
to the benefit of any successors of the Company, Investor and any such
affiliate and any such person.
Section 6. COVER. If the number of Shares represented by any Put
Notices become restricted or are no longer freely trading for any
reason, and after the applicable Closing Date, the Investor purchases,
in an open market transaction or otherwise, the Company's Common Stock
(the "Covering Shares") in order to make delivery in satisfaction of a
sale of Common Stock by the Investor (the "Sold Shares"), which
delivery such Investor anticipated to make using the Shares
represented by the Put Notice (a "Buy-In"), the Company shall pay to
the Investor the Buy-In Adjustment Amount (as defined below). The
"Buy-In Adjustment Amount" is the amount equal to the excess, if any,
of (a) the Investor's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (b) the net proceeds
(after brokerage commissions, if any) received by the Investor from
the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Investor in immediately available funds
immediately upon demand by the Investor. By way of illustration and
not in limitation of the foregoing, if the Investor purchases Common
Stock having a total purchase price (including brokerage commissions)
of $11,000 to cover a Buy-In with respect to the Common Stock it sold
for net proceeds of $10,000, the Buy-In Adjustment Amount which the
Company will be required to pay to the Investor will be $1,000.
Section 7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the
Securities to the Investor is further subject to the satisfaction, at
or before each Closing Date, of each of the following conditions set
forth below. These conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.
(a) The Investor shall have executed each of this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
(b) The Investor shall have delivered to the Company the
Purchase Price for the Securities being purchased by the Investor at
the Closing (after receipt of confirmation of delivery of such
Securities) by wire transfer of immediately available funds pursuant
to the wire instructions provided by the Company.
(c) The representations and warranties of the Investor shall be
true and correct as of the date when made and as of the applicable
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the Investor
shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Investor at or prior to
such Closing Date.
(d) 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.
(e) No Valuation Event shall have occurred since the applicable
Put Notice Date.
Section 8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is
subject to the satisfaction, on or before each Closing Date, of each
of the following conditions set forth below.
(a) The Company shall have executed each of the Transaction
Documents and delivered the same to the Investor.
(b) The Common Stock shall be authorized for quotation on the
Principal Market and trading in the Common Stock shall not have been
suspended by the Principal Market or the SEC, at any time beginning on
the date hereof and through and including the respective Closing Date
(excluding suspensions of not more than one Trading Day resulting from
business announcements by the Company, provided that such suspensions
occur prior to the Company's delivery of the Put Notice related to
such Closing).
(c) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the applicable
Closing Date as though made at that time (except for (i)
representations and warranties that speak as of a specific date and
(ii) with respect to the representations made in Sections 4(g), (h)
and (j) and the third sentence of Section 4(k) hereof, events which
occur on or after the date of this Agreement and are disclosed in SEC
filings made by the Company at least ten Trading Days prior to the
applicable Put Notice Date) and the Company shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by the Company on or before such Closing Date. The
Investor may request an update as of such Closing Date regarding the
representation contained in Section 4(c) above.
(d) reserved
(e) The Company shall have executed and delivered to the
Investor the certificates representing, or have executed electronic
book-entry transfer of, the Securities (in such denominations as such
Investor shall request) being purchased by the Investor at such Closing.
(f) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 4(b)(ii) above (the "Resolutions")
and such Resolutions shall not have been amended or rescinded prior to
such Closing Date.
(g) reserved.
(h) 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.
(i) The Registration Statement shall be effective on each Closing
Date and no stop order suspending the effectiveness of the
Registration statement shall be in effect or shall be pending or
threatened. Furthermore, on each Closing Date (i) neither the Company
nor Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to such Registration
Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of such Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC's
concerns have been addressed and 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 such Registration Statement or related prospectus shall exist.
(j) At the time of each Closing, the Registration Statement
(including information or documents incorporated by reference therein)
and any amendments or supplements thereto shall 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 or which would require public disclosure or an
update supplement to the prospectus.
(k) There shall have been no filing of a petition in bankruptcy,
either voluntarily or involuntarily, with respect to the Company and
there shall not have been commenced any proceedings under any
bankruptcy or insolvency laws, or any laws relating to the relief of
debtors, readjustment of indebtedness or reorganization of debtors,
and there shall have been no calling of a meeting of creditors of the
Company or appointment of a committee of creditors or liquidating
agents or offering of a composition or extension to creditors by, for,
with or without the consent or acquiescence of the Company.
(l) If applicable, the shareholders of the Company shall have
approved the issuance of any Shares in excess of the Maximum Common
Stock Issuance in accordance with Section 2(j).
(m) The conditions to such Closing set forth in Section 2(f)
shall have been satisfied on or before such Closing Date.
(n) The Company shall have certified to the Investor the number
of shares of Common Stock outstanding as of a date within ten Trading
Days prior to such Closing Date.
Section 9. TERMINATION. This Agreement shall terminate upon any of
the following events:
(i) when the Investor has purchased an aggregate of $3,500,000 in
the Common Stock of the Company pursuant to this Agreement; provided
that the Company's representations, warranties and covenants contained
in this Agreement insofar as applicable to the transactions
consummated hereunder prior to such termination, shall survive the
termination of this Agreement for the period of any applicable statute
of limitations;
(ii) on the date which is 36 months after the Effective Date;
(iii) if the Company shall file or consent by answer or otherwise
to the entry of an order for relief or approving a petition for
relief, reorganization or arrangement or any other petition in
bankruptcy for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or shall make an assignment for
the benefit of its creditors, or shall consent to the appointment of a
custodian, receiver, trustee or other officer with similar powers of
itself or of any substantial part of its property, or shall be
adjudicated a bankrupt or insolvent, or shall take corporate action
for the purpose of any of the foregoing, or if a court or governmental
authority of competent jurisdiction shall enter an order appointing a
custodian, receiver, trustee or other officer with similar powers with
respect to the Company or any substantial part of its property or an
order for relief or approving a petition for relief or reorganization
or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy or insolvency law, or an order for the
dissolution, winding up or liquidation of the Company, or if any such
petition shall be filed against the Company;
(iv) if the Company shall issue or sell any equity securities or
securities convertible into, or exchangeable for, equity securities or
enter into any other equity financing facility during the Open Period,
other than in compliance with Section 4(v);
(v) the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of five consecutive Trading
Days during the Open Period;
(vi) the Company shall not have filed with the SEC the
initial Registration Statement with respect to the resale of the
Registrable Securities in accordance with the terms of the initial
Registration Rights Agreement within 60 calendar days of the date
hereof or the Registration Statement has not been declared effective
within 180 calendar days of the date hereof; or
(vii) The Common Stock ceases to be registered under the 1934
Act or listed or traded on the Principal Market. Upon the occurrence
of one of the above-described events, the Company shall send written
notice of such event to the Investor.
Section 10. INDEMNIFICATION. In consideration of the parties mutual
obligations set forth in the Transaction Documents, each of the
parties (in such capacity, an "Indemnitor") shall defend, protect,
indemnify and hold harmless the other and all of the other party's
shareholders, officers, directors, employees, counsel, and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by any Indemnitee as a result of, or arising
out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Indemnitor or any other
certificate, instrument or document contemplated hereby or thereby;
(ii) any breach of any covenant, agreement or obligation of the
Indemnitor contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby;
or (iii) any cause of action, suit or claim brought or made against
such Indemnitee by a third party and arising out of or resulting from
the execution, delivery, performance or enforcement of the Transaction
Documents or any other certificate, instrument or document
contemplated hereby or thereby, except insofar as any such
misrepresentation, breach or any untrue statement, alleged untrue
statement, omission or alleged omission is made in reliance upon and
in conformity with written information furnished to Indemnitor which
is specifically intended for use in the preparation of any such
Registration Statement, preliminary prospectus, prospectus or
amendments to the prospectus. To the extent that the foregoing
undertaking by the Indemnitor may be unenforceable for any reason, the
Indemnitor shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The indemnity provisions contained
herein shall be in addition to any cause of action or similar rights
Indemnitor may have, and any liabilities the Indemnitor or the
Indemnitees may be subject to.
Section 11. GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of
Massachusetts without regard to the principles of conflict of laws.
Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the City of Boston, County of
Suffolk, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such
suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing
a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law. If any provision of
this Agreement shall be invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction
or the validity or enforceability of any provision of this Agreement
in any other jurisdiction.
(b) Legal Fees; and Miscellaneous Fees. Except as otherwise set
forth in the Transaction Documents, each party shall pay the fees and
expenses of its advisers, counsel, the accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. Any
attorneys' fees and expenses incurred by either the Company or by the Investor
in connection with the preparation, negotiation, execution and delivery
of any amendments to this Agreement or relating to the enforcement of
the rights of any party, after the occurrence of any breach of the
terms of this Agreement by another party or any default by another
party in respect of the transactions contemplated hereunder, shall be
paid on demand by the party which breached the Agreement and/or
defaulted, as the case may be. The Company shall pay all stamp and
other taxes and duties levied in connection with the issuance of any
Securities.
(c) 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; provided that a
facsimile signature shall be considered due execution and shall be
binding upon the signatory thereto with the same force and effect as
if the signature were an original, not a facsimile signature.
(d) Headings; Singular/Plural. The headings of this Agreement
are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. Whenever required by the
context of this Agreement, the singular shall include the plural and
masculine shall include the feminine.
(e) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other
jurisdiction.
(f) 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 (including the other Transaction
Documents) 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
amended other than by an instrument in writing signed by the Company
and the Investor, and no provision hereof may be waived other than by
an instrument in writing signed by the party against whom enforcement
is sought.
(g) Notices. Any notices 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 confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or
(iii) one 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:
Sonic Jet Performance
0000 Xxxxxx X Xxxxxxxx 00
Xxxxx Xxxxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
With Copy to:
If to the Investor:
Dutchess Private Equities fund, LP
000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide five days' prior written notice to the
other party of any change in address or facsimile number.
(h) No Assignment. This Agreement may not be assigned.
(i) No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.
(j) Survival. The representations and warranties of the Company
and the Investor contained in Sections 2 and 3, the agreements and
covenants set forth in Sections 4 and 5, and the indemnification
provisions set forth in Section 10, shall survive each of the Closings
and the termination of this Agreement.
(k) Publicity. The Company and Investor shall consult with each
other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no
party shall issue any such press release or otherwise make any such
public statement without the prior written consent of the other
parties, which consent shall not be unreasonably withheld or delayed,
except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide
the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose
the name of Investor without the prior written consent of such
Investor, except to the extent required by law. Investor acknowledges
that this Agreement and all or part of the Transaction Documents may
be deemed to be "material contracts" as that term is defined by Item
601(b)(10) of Regulation S-B, and that the Company may therefore be
required to file such documents as exhibits to reports or registration
statements filed under the 1933 Act or the 1934 Act. Investor further
agrees that the status of such documents and materials as material
contracts shall be determined solely by the Company, in consultation
with its counsel.
(l) Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and
shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request
in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
(m) Placement Agent. The Company agrees to pay Charleston
Capital Securities ("Charleston") a registered broker dealer, $10,000.
The $10,000 shall be payable from 1% (one percent) of the Put Amount
on each draw toward the fee. Charleston will also act as an
unaffiliated broker dealer. The Investor shall have no obligation
with respect to any fees or with respect to any claims made by or on
behalf of other persons or entities for fees of a type contemplated in
this Section that may be due in connection with the transactions
contemplated by the Transaction Documents. The Company shall
indemnify and hold harmless the Investor, their employees, officers,
directors, agents, and partners, and their respective affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses incurred in respect of
any such claimed or existing fees, as such fees and expenses are incurred.
(n) No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be
applied against any party.
(o) Remedies. The Investor and each holder of the Shares shall
have all rights and remedies set forth in this Agreement and the
Registration Rights Agreement and all rights and remedies which such
holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law.
Any person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any default
or breach of any provision of this Agreement, including the recovery
of reasonable attorneys fees and costs, and to exercise all other
rights granted by law.
(p) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investor hereunder or the Registration
Rights Agreement or the Investor enforces or exercises its rights
hereunder or thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other
person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
(q) Pricing of Common Stock. For purposes of this Agreement,
the bid price of the Common Stock in this Agreement shall be as
reported on Xxxxxxxxx.xxx.
SIGNATURE PAGE OF INVESTMENT AGREEMENT
Your signature on this Signature Page evidences your agreement to
be bound by the terms and conditions of the Investment Agreement and
the Registration Rights Agreement as of the date first written above.
The undersigned signatory hereby certifies that he has read and
understands the Investment Agreement, and the representations made by
the undersigned in this Investment Agreement are true and accurate,
and agrees to be bound by its terms.
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER,
DUTCHESS CAPITAL MANAGEMENT, LLC
By: /s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx, Managing Member
SONIC JET PERFORMANCE, INC
By: /s/ Xxxxxxx Xxxxx
Xxxxxxx Xxxxx, Chief Executive Officer
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (the "Agreement"), dated as of
September 10, 2003, by and between Sonic Jet Performance, Inc., a
corporation organized under the laws of State of Colorado, with its
principal executive office at with its principal executive office at
0000 Xxxxxx X, Xxxxxxxx 00, Xxxxx Xxxxxxxxxx, XX 00000 (the
"Company"), and Dutchess Private Equities Fund, L.P., a Delaware
limited partnership with its principal office at 000 Xxxxxx Xxxxxx,
Xxxxxx, XX 00000 (the "Investor").
Whereas, in connection with the Investment Agreement by and
between the Company and the Investor of even date herewith (the
"Investment Agreement"), the Company has agreed to issue and sell to
the Investor an indeterminate number of shares of the Company's Common
Stock, no par value per share (the "Common Stock"), to be purchased
pursuant to the terms and subject to the conditions set forth in the
Investment Agreement; and
Whereas, to induce the Investor to execute and deliver the
Investment Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute
(collectively, the "1933 Act"), and applicable state securities laws,
with respect to the shares of Common Stock issuable pursuant to the
Investment Agreement.
Now therefore, in consideration of the foregoing premises and the
mutual covenants contained hereinafter and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Investor hereby agree as follows:
Section 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
"Execution Date" means the date first written above.
"Holder" means Dutchess Private Equities Fund, L.P., a Delaware
limited partnership.
"Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or a
governmental agency.
"Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for
disclosure in a Registration Statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company
that disclosure of such information in the Registration Statement
would be detrimental to the business and affairs of the Company, or
(ii) any material engagement or activity by the Company which would,
in the good faith determination of the Board of Directors of the
Company, be adversely affected by disclosure in a Registration
Statement at such time, which determination shall be accompanied by a
good faith determination by the Board of Directors of the Company that
the Registration Statement would be materially misleading absent the
inclusion of such information.
"Principal Market" shall mean The American Stock Exchange,
National Association of Securities Dealer's, Inc. Over-the-Counter
electronic bulletin board, the Nasdaq National Market or The Nasdaq
SmallCap Market whichever is the principal market on which the Common
Stock is listed.
"Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the
United States Securities and Exchange Commission (the "SEC").
"Registrable Securities" means (i) the shares of Common Stock
issued or issuable pursuant to the Investment Agreement, and (ii) any
shares of capital stock issued or issuable with respect to such shares
of Common Stock, if any, as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise,
which have not been (x) included in a Registration Statement that has
been declared effective by the SEC or (y) sold under circumstances
meeting all of the applicable conditions of Rule 144 (or any similar
provision then in force) under the 1933 Act.
"Registration Statement" means a registration statement of the
Company filed under the 1933 Act covering the Registrable Securities.
All capitalized terms used in this Agreement and not otherwise
defined herein shall have the same meaning ascribed to them as in the
Investment Agreement.
Section 2. REGISTRATION.
(a) On or before the execution of this Agreement, the Company
shall have provided a draft of the Registration Statement covering the
Registrable Securities to the Investor. The Company shall, as soon as
practicable, but not later than fifteen calendar days following the
Execution Date, file with the SEC a Registration Statement or
Registration Statements (as is necessary) on Form SB-2 (or, if such
form is unavailable for such a registration, on such other form as is
available for such a registration), covering the resale of all of the
Registrable Securities, which Registration Statement(s) shall state
that, in accordance with Rule 416 promulgated under the 1933 Act, such
Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon stock
splits, stock dividends or similar transactions. The Company shall
initially register for resale __________ shares of Common Stock which
would be issuable on the date preceding the filing of the Registration
Statement based on the closing bid price of the Company's Common Stock
on such date and the amount reasonably calculated that represents
Common Stock issuable to other parties as set forth in the Investment
Agreement except to the extent that the SEC requires the share amount
to be reduced as a condition of effectiveness..
(b) The Company shall use commercially reasonable efforts to
have the Registration Statement(s) declared effective by the SEC
within 90 calendar days after the Execution Date.
(c) The Company agrees not to include any other securities in
the Registration Statement covering the Registrable Securities without
Investor's prior written consent which Investor may withhold in its
sole discretion. Furthermore, the Company agrees that it will not file
any other Registration Statement for other securities, until thirty
calendar days after the Registration Statement for the Registrable
Securities is declared effective by the SEC.
Section 3. RELATED OBLIGATIONS.
At such time as the Company is obligated to prepare and file a
Registration Statement with the SEC pursuant to Section 2(a), the
Company will effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, with
respect thereto, the Company shall have the following obligations:
(a) The Company shall use commercially reasonable efforts to
cause such Registration Statement relating to the Registrable
Securities to become effective within 90 days after the Execution Date
and shall keep such Registration Statement effective until the earlier
to occur of (i) the date as of which the Holders may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto); or (ii) the
date on which (A) the Holders shall have sold all the Registrable
Securities; and (B) the Investor has no right to acquire any
additional shares of Common Stock under the Investment Agreement (the
"Registration Period"). The Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein)
shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which
they were made, not misleading. The Company shall use its best efforts
to respond to all SEC comments within seven business days from receipt
of such comments by the Company. The Company shall use its best
efforts to cause the Registration Statement relating to the
Registrable Securities to become effective no later than three
business days after notice from the SEC that the Registration
Statement may be declared effective. The Holder agrees to provide all
information which it is required by law to provide to the Company,
including the intended method of disposition of the Registrable
Securities, and the Company's obligations set forth above shall be
conditioned on the receipt of such information.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the 1933 Act, as may be necessary to keep
such Registration Statement effective during the Registration Period,
and, during such period, comply with the provisions of the 1933 Act
with respect to the disposition of all Registrable Securities of the
Company covered by such Registration Statement until such time as all
of such Registrable Securities shall have been disposed of in
accordance with the intended methods of disposition by the Investor
thereof as set forth in such Registration Statement. In the event the
number of shares of Common Stock covered by a Registration Statement
filed pursuant to this Agreement is at any time insufficient to cover
all of the Registrable Securities, the Company shall amend such
Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover
all of the Registrable Securities, in each case, as soon as
practicable, but in any event within 30 calendar days after the
necessity therefor arises (based on the then Purchase Price of the
Common Stock and other relevant factors on which the Company
reasonably elects to rely), assuming the Company has sufficient
authorized shares at that time, and if it does not, within 30 calendar
days after such shares are authorized. The Company shall use
commercially reasonable efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable
following the filing thereof.
(c) The Company shall make available to the Holders whose
Registrable Securities are included in any Registration Statement and
its legal counsel without charge (i) promptly after the same is
prepared and filed with the SEC at least one copy of such Registration
Statement and any amendment(s) thereto, including financial statements
and schedules, all documents incorporated therein by reference and all
exhibits, the prospectus included in such Registration Statement
(including each preliminary prospectus) and, with regards to such
Registration Statement(s), any correspondence by or on behalf of the
Company to the SEC or the staff of the SEC and any correspondence from
the SEC or the staff of the SEC to the Company or its representatives;
(ii) upon the effectiveness of any Registration Statement, the Company
shall make available copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto; and
(iii) such other documents, including copies of any preliminary or
final prospectus, as the Holders may reasonably request from time to
time in order to facilitate the disposition of the Registrable Securities.
(d) The Company shall use commercially reasonable efforts to (i)
register and qualify the Registrable Securities covered by a
Registration Statement under such other securities or "blue sky" laws
of such states in the United States as any Holder reasonably requests;
(ii) prepare and file in those jurisdictions, such amendments
(including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period; (iii) take such
other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period,
and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (x) qualify to do
business in any jurisdiction where it would not otherwise be required
to qualify but for this Section 3(d), or (y) subject itself to general
taxation in any such jurisdiction. The Company shall promptly notify
each Holder who holds Registrable Securities of the receipt by the
Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for
sale under the securities or "blue sky" laws of any jurisdiction in
the United States or its receipt of actual notice of the initiation or
threatening of any proceeding for such purpose.
(e) As promptly as practicable after becoming aware of such
event, the Company shall notify each Holder in writing of the
happening of any event as a result of which the prospectus included in
a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading ("Registration Default") and use all diligent efforts to
promptly prepare a supplement or amendment to such Registration
Statement and take any other necessary steps to cure the Registration
Default, (which, if such Registration Statement is on Form S-3, may
consist of a document to be filed by the Company with the SEC pursuant
to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act (as defined
below) and to be incorporated by reference in the prospectus) to
correct such untrue statement or omission, and make available copies
of such supplement or amendment to each Holder. The Company shall also
promptly notify each Holder (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become
effective (the Company will prepare notification of such effectiveness
which shall be delivered to the Holder on the same day of such
effectiveness and by overnight mail), additionally, the Company will
promptly provide to the Holder a copy of the effectiveness order
prepared by the SEC once it is received by the Company; (ii) of any
request by the SEC for amendments or supplements to a Registration
Statement or related prospectus or related information, (iii) of the
Company's reasonable determination that a post-effective amendment to
a Registration Statement would be appropriate, (iv) in the event the
Registration Statement is no longer effective, or (v) if Registration
Statement is stale as a result of the Company's failure to timely file
its financials or otherwise. The Company acknowledges that its failure
to cure the Registration Default within ten business days will cause
the Investor to suffer damages in an amount that will be difficult to
ascertain. Accordingly, the parties agree that it is appropriate to
include a provision for liquidated damages. The parties acknowledge
and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such
liquidated damages are reasonable and will not constitute a penalty.
It is the intention of the parties that interest payable under any of
the terms of this Agreement shall not exceed the maximum amount
permitted under any applicable law. If a law, which applies to this
Agreement which sets the maximum interest amount, is finally
interpreted so that the interest in connection with this Agreement
exceeds the permitted limits, then: (1) any such interest shall be
reduced by the amount necessary to reduce the interest to the
permitted limit; and (2) any sums already collected (if any) from the
Company which exceed the permitted limits will be refunded to the
Company. The Investor may choose to make this refund by reducing the
amount that the Company owes under this Agreement or by making a
direct payment to the Company. If a refund reduces the amount that
the Company owes the Investor, the reduction will be treated as a
partial payment. In case any provision of this Agreement is held by a
court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining
provisions of this Agreement will not in any way be affected or
impaired thereby.
(f) The Company shall use commercially reasonable efforts to
prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, or the suspension of the
qualification of any of the Registrable Securities for sale in any
jurisdiction and, if such an order or suspension is issued, to obtain
the withdrawal of such order or suspension at the earliest possible
moment and to notify the Holder who holds Registrable Securities being
sold of the issuance of such order and the resolution thereof or its
receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
(g) The Company shall permit the Holder and one legal counsel,
designated by the Holder, to review and comment upon a Registration
Statement and all amendments and supplements thereto at least seven
business days prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects. The
Company may request to shorten the Holder's review period and the
Holder will, if possible, attempt to comply with the accelerated
review period. The Company shall not submit to the SEC a request for
acceleration of the effectiveness of a Registration Statement or file
with the SEC a Registration Statement or any amendment or supplement
thereto without the prior approval of such counsel, which approval
shall not be unreasonably withheld.
(h) At the request of the Holder, the Company shall cause to be
furnished to such Holder, on the date of the effectiveness of a
Registration Statement, a legal opinion, in form and substance
reasonably acceptable to Holder's counsel, dated as of such date, of
counsel representing the Company for purposes of such Registration
Statement.
(i) The Company shall make available for inspection by (i) the
Holder and (ii) one legal counsel and one firm of accountants or other
agents retained by the Holders (collectively, the "Inspectors"), at
the Holders' expense, all pertinent financial and other records, and
pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary
by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably
request; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to a Holder) or
use of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records
is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the 1933 Act,
(b) the release of such Records is ordered pursuant to a final, non-
appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has
been made generally available to the public other than by disclosure
in violation of this or any other agreement of which the Inspector has
knowledge. Each Holder agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
(j) The Company shall hold in confidence and not make any
disclosure of information concerning a Holder provided to the Company
unless (i) disclosure of such information is necessary to comply with
federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (iii) the release of such
information is ordered pursuant to a subpoena or other final, non-
appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this
Agreement or any other agreement. The Company agrees that it shall,
upon learning that disclosure of such information concerning a Holder
is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to
such Holder and allow such Holder, at the Holder's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, such information.
(k) The Company shall use commercially reasonable efforts to
maintain designation and quotation of all the Registrable Securities
covered by any Registration Statement on the Principal Market. If,
despite the Company's best efforts, the Company is unsuccessful in
satisfying the preceding sentence, it shall use commercially
reasonable efforts to cause all the Registrable Securities covered by
any Registration Statement to be listed on each other national
securities exchange and automated quotation system, if any, on which
securities of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange or system. The Company
shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(k).
(l) The Company shall cooperate with the Investor to facilitate
the prompt preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be
offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may
be, as the Holders may reasonably request.
(m) The Company shall provide a transfer agent for all the
Registrable Securities not later than the effective date of the first
Registration Statement filed pursuant hereto.
(n) If requested by the Holder, the Company shall (i) as soon as
reasonably practical incorporate in a prospectus supplement or post-
effective amendment such information as such Holders reasonably
determine should be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the offering of the Registrable Securities
to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as
reasonably possible after being notified of the matters to be
incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration
Statement if reasonably requested by such Holders.
(o) The Company shall use commercially reasonable efforts to
cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to consummate
the disposition of such Registrable Securities.
(p) The Company shall otherwise use commercially reasonable
efforts to comply with all applicable rules and regulations of the SEC
in connection with any registration hereunder.
(q) Within one business day after the Registration Statement
which includes Registrable Securities is declared effective by the
SEC, the Company shall deliver to the transfer agent for such
Registrable Securities, with copies to the Investor, confirmation that
such Registration Statement has been declared effective by the SEC.
(r) At or prior to the date of the first Put Notice (as that
term is defined in the Investment Agreement) and at such other times
as the Holders may reasonably request, the Company shall cause to be
delivered, letters from the Company's independent certified public
accountants (i) addressed to the Holders that such accountants are
independent public accountants within the meaning of the 1933 Act and
the applicable published rules and regulations thereunder, and (ii) in
customary form and covering such financial and accounting matters as
are customarily covered by letters of independent certified public
accountants delivered to underwriters in connection with public
offerings.
(s) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Holders of
Registrable Securities pursuant to a Registration Statement.
Section 4. OBLIGATIONS OF THE HOLDERS.
(a) At least five calendar days prior to the first anticipated
filing date of a Registration Statement the Company shall notify the
Holder in writing of the information the Company requires from each
such Holder if such Holder elects to have any of such Holder's
Registrable Securities included in such Registration Statement. It
shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Holder that such Holder
shall furnish in writing to the Company such information regarding
itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall
reasonably be required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. Each Holder
covenants and agrees that, in connection with any sale of Registrable
Securities by it pursuant to a Registration Statement, it shall comply
with the "Plan of Distribution" section of the current prospectus
relating to such Registration Statement.
(b) The Holder, by such Holder's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing
of any Registration Statement hereunder, unless such Holder has
notified the Company in writing of such Holder's election to exclude
all of such Holder's Registrable Securities from such Registration
Statement.
(c) The Holder agrees that, upon receipt of written notice from
the Company of the happening of any event of the kind described in
Section 3(f) or the first sentence of 3(e), such Holder will
immediately discontinue disposition of Registrable Securities pursuant
to any Registration Statement(s) covering such Registrable Securities
until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or the first sentence of 3(e).
Section 5. EXPENSES OF REGISTRATION.
All expenses, other than underwriting discounts and commissions
and other than as set forth in the Investment Agreement, incurred in
connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration,
listing and qualifications fees, printing and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the
Company; provided, however, that nothing in this Section 5 shall
obligate the Company to pay the expenses or fees of Inspectors or
counsel to the Holders.
Section 6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Holder who
holds such Registrable Securities, the directors, officers, partners,
employees, counsel, agents, representatives of, and each Person, if
any, who controls, any Holder within the meaning of the 1933 Act or
the Securities Exchange Act of 1934, as amended (the "1934 Act")
(each, an "Indemnified Person"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, attorneys'
fees, amounts paid in settlement or expenses, joint or several
(collectively, "Claims"), incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation
or appeal taken from the foregoing by or before any court or
governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which
any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection
with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which the Investor has
requested in writing that the Company register or qualify the Shares
("Blue Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which the
statements therein were made, not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in
the final prospectus (as amended or supplemented, if the Company files
any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not
misleading, or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without
limitation, any state securities law, or any rule or regulation
thereunder relating to the offer or sale of the Registrable Securities
pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(c) with respect to the
number of legal counsel, the Company shall reimburse the Holders and
each such controlling person, promptly as such expenses are incurred
and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating
or defending any such Claim. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or based
upon a Violation which is due to the inclusion in the Registration
Statement of the information furnished to the Company by any
Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment
thereof or supplement thereto; (ii) shall not be available to the
extent such Claim is based on (a) a failure of the Holder to deliver
or to cause to be delivered the prospectus made available by the
Company or (b) the Indemnified Person's use of an incorrect prospectus
despite being promptly advised in advance by the Company in writing
not to use such incorrect prospectus; (iii) any claims based on the
manner of sale of the Registrable Securities by the Holder or of the
Holder's failure to register as a dealer under applicable securities
laws; (iv) any omission of the Holder to notify the Company of any
material fact that should be stated in the Registration Statement or
prospectus relating to the Holder or the manner of sale; and (v) any
amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf
of the Indemnified Person and shall survive the resale of the
Registrable Securities by the Holders pursuant to the Registration
Statement.
(b) In connection with any Registration Statement in which a
Holder is participating, each such Holder agrees to severally and
jointly indemnify, hold harmless and defend, to the same extent and
in the same manner as is set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration
Statement, each Person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act and the Company's agents
(collectively and together with an Indemnified Person, an "Indemnified
Party"), against any Claim or Indemnified Damages to which any of them
may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based
upon any Violation, in each case to the extent, and only to the
extent, that such Violation is due to the inclusion in the
Registration Statement of the written information furnished to the
Company by such Holder expressly for use in connection with such
Registration Statement; and, subject to Section 6(c), such Holder will
reimburse any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution contained in Section 7
shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such
Holder, which consent shall not be unreasonably withheld; provided,
further, however, that the Holder shall be liable under this Section
6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall
survive the resale of the Registrable Securities by the Holders
pursuant to the Registration Statement. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained
in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary
prospectus were corrected on a timely basis in the prospectus, as then
amended or supplemented. This indemnification provision shall apply
separately to each Investor and liability hereunder shall not be joint
and several.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement
of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may
be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and
expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the Indemnified Person or Indemnified
Party, the representation by counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The indemnifying
party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and
such counsel shall be selected by the Holders, if the Holders are
entitled to indemnification hereunder, or the Company, if the Company
is entitled to indemnification hereunder, as applicable. The
Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation 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 or Indemnified Person which relates to such action
or Claim. The indemnifying party shall keep the Indemnified Party or
Indemnified Person fully appraised at all times as to the status of
the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to
entry of any judgment or enter into any settlement or other compromise
which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified
Person of a release from all liability in respect to such Claim.
Following indemnification as provided for hereunder, the indemnifying
party shall be surrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or
corporations relating to the matter for which indemnification has been
made. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall
not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except
to the extent that the indemnifying party is prejudiced in its ability
to defend such action.
(d) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the
Indemnified Party or Indemnified Person against the indemnifying party
or others, and (ii) any liabilities the indemnifying party may be
subject to pursuant to the law.
Section 7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent
permitted by law; provided, however, that: (i) no contribution shall
be made under circumstances where the maker would not have been liable
for indemnification under the fault standards set forth in Section 6;
(ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000
Xxx) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of fraudulent misrepresentation; and
(iii) contribution by any seller of Registrable Securities shall be
limited in amount to the net amount of proceeds received by such
seller from the sale of such Registrable Securities.
Section 8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Holders the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Holders to sell
securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act
so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations
under Section 5(c) of the Investment Agreement) and the filing of such
reports and other documents is required for the applicable provisions
of Rule 144; and
(c) furnish to the Investor, promptly upon request, (i) a
written statement by the Company that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act,
(ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company,
and (iii) such other information as may be reasonably requested to
permit the Investor to sell such securities pursuant to Rule 144
without registration.
Section 9. NO ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall not be assignable.
Section 10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended only with the written
consent of the Company and Holders. No such amendment shall be
effective to the extent that it applies to less than all of the
Holders of the Registrable Securities.
Section 11. MISCELLANEOUS.
(a) Any notices or other communications required or permitted to
be given under the terms of this Agreement that must be in writing
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one 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:
Sonic Jet Performance
0000 Xxxxxx X Xxxxxxxx 00
Xxxxx Xxxxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
With Copy to:
If to the Investor:
Dutchess Private Equities Fund, LP
000 Xxxxxx Xx, Xxxxx Xxxxx
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide five-business days prior notice to the
other party of any change in address, phone number or facsimile number.
(b) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
(c) The laws of the Commonwealth of Massachusetts shall govern
all issues arising from or related to this Agreement without regard to
the principles of conflict of laws. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts
sitting in the City of Boston, County of Suffolk, for the adjudication
of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding
is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service
of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner
permitted by law. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other
jurisdiction.
(d) This Agreement and the Transaction Documents constitute the
entire agreement among the parties hereto with respect to the subject
matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to
herein and therein.
(e) This Agreement and the Transaction Documents supersede all
prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
(f) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof. Whenever required by the context of this Agreement, the
singular shall include the plural and masculine shall include the
feminine. This Agreement shall not be construed as if it had been
prepared by one of the parties, but rather as if all the parties had
prepared the same.
(g) This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Agreement,
once executed by a party, may be delivered to the other party hereto
by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
(h) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
SIGNATURE PAGE OF REGISTRATION RIGHTS AGREEMENT
Agreed as of the date first written above.
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER,
DUTCHESS CAPITAL MANAGEMENT, LLC
By: /s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx, Managing Member
SONIC JET PERFORMANCE, INC
By: /s/ Xxxxxxx Xxxxx
Xxxxxxx Xxxxx, Chief Executive Officer
