PRIVATE EQUITY LINE OF CREDIT AGREEMENT
Between
Moldbury Holdings Limited
And
NAM Corporation
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of February 16, 2000 (the
"Agreement"), between Moldbury Holdings Limited (the "Investor") and NAM
Corporation, a corporation organized and existing under the laws of the State of
Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor
from time to time as provided herein, and Investor shall purchase, up to
$7,000,000 (the "Aggregate Purchase Price") of the Common Stock (as defined
below); and
WHEREAS, such investments will be made by the Investor as a statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.2 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.3 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing Date" shall mean, with respect to a Closing, the
second Trading Day following the Put Date related to such Closing, provided all
conditions to such Closing have been satisfied on or before such Trading Day.
Section 1.6 "Commitment Amount" shall mean the $7,000,000 up to which
the Investors have agreed to provide to the Company in order to purchase the Put
Shares pursuant to the terms and conditions of this Agreement, subject to
increase as set forth in Section 2.6.
Section 1.7 "Commitment Period" shall mean the period commencing on the
Effective Date and expiring on the earliest to occur of (x) the date on which
the Investors shall have purchased Put Shares pursuant to this Agreement for an
aggregate Purchase Price of $7,000,000, (y) the date this Agreement is
terminated pursuant to Section 2.4, or (z) the date occurring three years from
the date of commencement of the Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, par
value $.001 per share.
Section 1.9 "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.10 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the sale by the
Company and resale by the Investors of the Registrable Securities as set forth
in Section 7.2(a).
Section 1.11 "Escrow Agent" shall mean the escrow agent designated in
the Escrow Agreement.
Section 1.12 "Escrow Agreement" shall mean the escrow agreement in the
form attached hereto as Exhibit A.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Floor Price" shall mean, with respect to any given Put,
that Purchase Price set solely by the Company below which the Put shall be
automatically cancelled.
Section 1.15 "Investment Amount" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor, all in accordance with Section 2.2
hereof.
Section 1.16 "Market Price" on any given date shall mean the average of
the closing bid prices (as reported by Bloomberg L.P.) of the Common Stock on
each Trading Day during the Valuation Period relating to such date.
Section 1.17 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Registration Rights Agreement or the Escrow Agreement in any material
respect.
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Section 1.18 "Maximum Put Amount" shall mean the amount indicated by
the following table:
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
20,000-35,000 Avg. 35,001-50,000 Avg. 30 50,001-65,000 Avg. 65,001-Above Avg. 30
Stock Bid Price 30 Trading Day Volume Trading Day Volume 30 Trading Day Volume Trading Day Volume
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
2.00-3.50 $500,000 $500,000 $750,000 $750,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
3.51-5.00 $500,000 $750,000 $750,000 $1,000,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
5.01-6.50 $750,000 $1,000,000 $1,000,000 $1,000,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
6.51-8.50 $750,000 $1,000,000 $1,000,000 $1,500,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
8.01-Above $1,000,000 $1,000,000 $1,500,000 $2,000,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
If the Bid Price or the thirty-day average trading volumes shall be
less than the parameters set forth in the foregoing table, the Maximum Put
Amount shall be $250,000.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.20 "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.21 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.22 "Principal Market" shall mean the NASDAQ National Market,
the NASDAQ Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock. Principal Market shall not include the OTC Bulletin Board
without the express written consent of the Investors.
Section 1.23 "Purchase Price" shall mean with respect to Put Shares,
eighty-nine percent (89%) (the "Purchase Price Percentage") of the average of
the daily Market Prices during the Valuation Period applicable to a Put Date (or
such other date on which the Purchase Price is calculated in accordance with the
terms and conditions of this Agreement), provided, however, that in no event
shall the Purchase Price for the Put Shares be less than the Floor Price, if
any, established for such Put. Upon any Special Activity, the Purchase Price
Percentage shall be eighty-six percent (86%) of the Market Price upon a Put
Date.
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Section 1.24 "Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase
shares of the Company's Common Stock, subject to the terms of this Agreement.
Section 1.25 "Put Date" shall mean the Trading Day during the
Commitment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.26 "Put Notice" shall mean a written notice to the Investor
setting forth the Investment Amount that the Company intends to sell to the
Investor.
Section 1.27 "Put Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to a Put that has occurred or may
occur in accordance with the terms and conditions of this Agreement.
Section 1.28 "Registrable Securities" shall mean the Put Shares and
Warrant Shares until (i) all Put Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been
otherwise transferred to persons who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company, all Put Shares
and Warrant Shares may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.
Section 1.29 "Registration Statement" shall mean the Company's
registration statement on Form S-3, and any subsequent Form S-3 (if use of such
form is then available to the Company pursuant to the rules of the SEC and, if
not, on such other form promulgated by the SEC, such as Form S-1 or SB-2, for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investor of
the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, and in accordance with the intended method of
distribution of such securities), for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
Section 1.30 "SEC" shall mean the Securities and Exchange Commission.
Section 1.31 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.32 "SEC Documents" shall mean the Company's latest Form 10-K
or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the time in
question until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement.
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Section 1.33 "Special Activity" shall mean a merger, acquisition, or
any other event outside the ordinary course of the Company's business for which
the Company needs funds in addition to its ordinary working capital needs.
Section 1.34 "Trading Cushion" shall mean the mandatory fifteen (15)
Trading Days between Put Dates, except for Special Activity, during which period
the Trading Cushion shall be seven (7) Trading Days.
Section 1.35 "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section 1.36 "Valuation Event" shall mean an event in which the Company
at any time after the date of this Agreement and prior to the end of the
Commitment Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and (b)
above or (d) and (e) below, 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 (other than pursuant to this Agreement);
(d) issues any warrants, options or other rights to subscribe for
or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the circumstances provided for in
the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections (a)
through (f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a Material Adverse Effect upon
the rights of the Investor at the time of a Put.
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Section 1.37 "Valuation Period" shall mean the period of five (5)
Trading Days during which the Purchase Price of the Common Stock is valued,
which period shall be with respect to the Purchase Price on any Put Date, the
two (2) Trading Days immediately preceding and the two (2) Trading Days
following the Trading Day on which a Put Notice is deemed to be delivered, as
well as the Trading Day on which such notice is deemed to be delivered;
provided, however, that if a Valuation Event occurs during a Valuation Period, a
new Valuation Period shall begin on the Trading Day immediately after the
occurrence of such Valuation Event and end on the fifth Trading Day thereafter.
Section 1.38 "Warrant" shall mean the warrants to purchase up to 60,000
shares of Common Stock to be issued to Investor, seventy-five percent (75%) of
which shall be issued at the Initial Closing and the remaining twenty-five
percent (25%) to be issued immediately after the Investor has invested three
million five hundred thousand dollars ($3,500,000) to purchase Put Shares under
the terms and conditions of this Agreement, in the form of Exhibit B hereto.
Section 1.39 "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrant.
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Put Date the Company may make a Put by the delivery of a Put Notice. The number
of Put Shares that the Investor shall purchase pursuant to such Put shall be
determined by dividing the Investment Amount specified in the Put Notice by the
Purchase Price on such Put Date, which amount shall not exceed the Maximum Put
Amount on such date.
(b) Maximum Aggregate Amount of Puts. Anything in this Agreement
to the contrary notwithstanding, unless the Company obtains shareholder approval
of this Agreement pursuant to the applicable corporate governance rules of the
Principal Market, the Company may not make a Put (or issue any additional shares
under Section 2.5) which results in the issuance of more shares of Common Stock
in the aggregate pursuant to all Puts made under the terms of this Agreement and
all shares reserved for issuance upon exercise of the Warrants which exceeds
19.9% of the number of shares of Common Stock issued and outstanding on the date
hereof.
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Section 2.2 Mechanics.
(a) Put Notice. At any time during the Commitment Period, the
Company may deliver a Put Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, that the Investment Amount for each Put
as designated by the Company in the applicable Put Notice shall be neither less
than $250,000 nor more than the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii)
the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Put Notice may be deemed delivered on a day that
is not a Trading Day.
Section 2.3 Closings. On or before each Closing Date for a Put (i) the
Company shall arrange for its transfer agent to deliver the Put Shares to be
purchased by the Investor pursuant to Section 2.1 herein, to the Depository
Trust Company ("DTC") brokerage account specified by the Investor if the Company
has been notified in writing that the Investment Amount is held by the Escrow
Agent and (ii) the Investor shall deliver the Investment Amount specified in the
Put Notice by wire transfer of immediately available funds to the Escrow Agent
on or before the Closing Date. In addition, on or prior to the Closing Date,
each of the Company and the Investor shall deliver to the Escrow Agent all
documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein. Payment of funds to the Company
shall occur out of escrow in accordance with the Escrow Agreement, provided,
however, that to the extent the Company has not paid the fees, expenses, and
disbursements of the Investor's counsel in accordance with Section 14.7, the
amount of such fees, expenses, and disbursements shall be paid in immediately
available funds, at the direction of the Investor, to Investor's counsel with no
reduction in the number of Put Shares issuable to the Investor on such Closing
Date.
Section 2.4 Termination of Investment Obligation. The obligation of the
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of twenty (20)
consecutive Trading Days during the Commitment Period, for any reason other than
deferrals or suspensions in accordance with the Registration Rights Agreement as
a result of corporate developments subsequent to the Effective Date that would
require such Registration Statement to be amended to reflect such event in order
to maintain its compliance with the disclosure requirements of the Securities
Act or (ii) the Company shall at any time fail to comply with the requirements
of Section 6.3, 6.4 or 6.6.
Section 2.5 Additional Shares. In the event that (a) within five
Trading Days of any Closing Date, the Company gives notice to the Investor of an
impending "blackout period" during which the use of the Registration Statement
is not permitted due to the Company's non-disclosure of material information,
and (b) the Bid Price on the Trading Day immediately preceding such "blackout
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period" (the "Old Bid Price") is greater than the Bid Price on the first Trading
Day following such "blackout period" (the "New Bid Price") the Company shall
issue to the Investor a number of additional shares (the "Blackout Shares")
equal to the difference between (y) the product of the number of Registrable
Securities held by the Investor during such "blackout period" that are not
otherwise freely tradable during such "blackout period" and the Old Bid Price,
divided by the New Bid Price and (z) the number of Registrable Securities held
by the Investor during such "blackout period" that are not otherwise freely
tradable during such "blackout period". If any such issuance would result in the
issuance of a number of shares which exceeds the number set forth in Section
2.1(b), then in lieu of such issuance, the Company shall pay each affected
Investor the closing bid price of the Blackout Shares on the first Trading Day
following the end of the blackout period in cash within five Trading Days.
Section 2.6 Increase of Investment Obligation Under Certain
Circumstances. The Company shall have the right to increase the Commitment
Amount to $14,000,000 in total by notice to the Investor within ten (10) days of
the date which is fourteen (14) months after the first Closing Date, provided
that all of the following conditions are met:
(a) the Company reported cash and equivalents in its most recent
Form 10-Q of at least $3,500,000; and
(b) the Company has achieved net revenues in each quarter as
follows:
March 31, 2000 $500,000
June 30, 2000 $1,000,000
September 30, 2000 $1,250,000
December 31, 2000 $2,000,000
March 31, 2001 $2,250,000
(c) Roy Israel must continue to be Chief Executive Officer; and
(d) the Registration Statement must be effective.
ARTICLE III
Representations and Warranties of Investors
Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for
its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
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Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it has the capacity to protect
its own interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 Organization and Standing. Investor is a corporation duly
organized, validly existing, and in good standing under the laws of the British
Virgin Islands.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound; (b) conflict with or constitute a material default
thereunder; (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party; or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.7 Disclosure; Access to Information. Investor has received
and reviewed all documents, records, books and other publicly available
information pertaining to Investor's investment in the Company that have been
requested by Investor. The Company is subject to the periodic reporting
requirements of the Exchange Act, and Investor has reviewed copies of any such
reports that have been requested by it.
Section 3.8 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9 Financial Capacity. Investor currently has the financial
capacity to meet its obligations to the Company hereunder, and the Investor has
no present knowledge of any circumstances which could cause it to become unable
to meet such obligations in the future.
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Section 3.10 Underwriter Liability. Investor understands that it is the
position of the SEC that the Investor is an underwriter within the meaning of
Section 2(11) of the Securities Act and that the Investor will be identified as
an underwriter of the Put Shares in the Registration Statement.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors that, except as set forth
the Schedule of Exceptions attached hereto:
Section 4.1 Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement, the Warrant and the Escrow
Agreement and to issue the Put Shares, the Warrant and the Warrant Shares, (ii)
the execution, issuance and delivery of this Agreement, the Registration Rights
Agreement, the Warrant and the Escrow Agreement and the consummation by it of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Warrant and the Escrow Agreement have been
duly executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number for the issuance of the
Put Shares at the Floor Price. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the Put
Shares.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock, $.001 par value per share, of
which 3,416,233 shares are issued and outstanding as of November 12, 1999 and
5,000,000 shares of preferred stock, par value $.001 per share, 1,850 of which
have been designated as Series A Exchangeable Preferred Stock. Except for (i)
outstanding options and warrants as set forth in the SEC Documents, (ii) stock
options awarded under the Company's 1996 Stock Option Plan, as amended, and
(iii) as set forth in the Disclosure Schedule, there are no outstanding Capital
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Shares Equivalents nor any agreement or understandings pursuant to which any
Capital Shares Equivalents may become outstanding. The Company is not a party to
any agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. All of the outstanding shares
of Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on the
Principal Market. As of the date hereof, the Principal Market is the Nasdaq
Smallcap Market and the Company has not received any notice regarding, and to
its knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5 SEC Documents. The Company has delivered or made available
to the Investors true and complete copies of the SEC Documents. The Company has
not provided to the Investors any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act, and rules and regulations of the SEC promulgated thereunder
and the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they 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 operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6 Valid Issuances. When issued and paid for in accordance
with a Put, the Put Shares will be registered for sale to the Investors by the
Company and by the Investors to the public, and will be duly and validly issued,
fully paid, and non-assessable. When issued and paid for upon exercise of the
Warrant, the Warrant Shares will be registered for sale to the Investors by the
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Company and will be duly and validly issued, fully paid, and non-assessable.
Neither the sales of the Put Shares nor the Company's performance of its
obligations under this Agreement, the Registration Rights Agreement, the Warrant
or the Escrow Agreement will (i) result in the creation or imposition by the
Company of any liens, charges, claims or other encumbrances upon the Put Shares
or Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe to or acquire the Capital Shares or other
securities of the Company. The Put Shares, the Warrant and the Warrant Shares
shall not subject the Investors to personal liability to the Company or its
creditors by reason of the possession thereof.
Section 4.7 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Put Shares, the Warrant or the Warrant Shares, do not and will not (i)
result in a violation of the Company's Certificate of Incorporation or By-Laws
or (ii) conflict with, or constitute a material default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any material
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the foregoing
(except in each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
under federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Put Shares, the Warrant
or the Warrant Shares in accordance with the terms hereof (other than any SEC,
Nasdaq or state securities filings that may be required to be made by the
Company subsequent to Closing, any registration statement that may be filed
pursuant hereto, and any shareholder approval required by the rules applicable
to companies whose common stock trades on the Nasdaq Stock Market); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.8 No Material Adverse Change. Since September 30, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.9 No Undisclosed Events or Circumstances. Since September 30,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
12
Section 4.10 Litigation and Other Proceedings. Except as disclosed in
the SEC Documents, there are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.11 No Misleading or Untrue Communication. The Company and, to
the knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Preferred Stock or the
Warrants in connection with the transaction contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.12 Material Non-Public Information. Except as set forth in
the Disclosure Schedule, the Company has not disclosed to the Investors any
material non-public information that (i) if disclosed, would reasonably be
expected to have a material effect on the price of the Common Stock or (ii)
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
Section 4.13 Insurance. The Company maintains property and casualty,
general liability, workers' compensation, environmental hazard, personal injury
and other similar types of insurance with financially sound and reputable
insurers that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Section 4.14 Tax Matters.
(a) The Company has filed all Tax Returns which it is required to
file under applicable laws; all such Tax Returns are true and accurate and have
been prepared in compliance with all applicable laws; the Company has paid all
Taxes due and owing by it (whether or not such Taxes are required to be shown on
a Tax Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and since
June 30, 1999, the charges, accruals and reserves for Taxes with respect to the
Company (including any provisions for deferred income taxes) reflected on the
books of the Company are adequate to cover any Tax liabilities of the Company if
its current tax year were treated as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that such corporation is or may be
subject to taxation by that jurisdiction. There are no foreign, federal, state
or local tax audits or administrative or judicial proceedings pending or being
conducted with respect to the Company; no information related to Tax matters has
13
been requested by any foreign, federal, state or local taxing authority; and,
except as disclosed above, no written notice indicating an intent to open an
audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority. There are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A) has
not executed or entered into a closing agreement pursuant to ss. 7121 of the
Internal Revenue Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; or (B) has not agreed to or is
required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue
Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of ss. 897(c)(2) of the
Internal Revenue Code during the applicable period specified in ss.
897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
(d) For purposes of this Section 4.14:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
Section 4.15 Property. Neither the Company nor any of its subsidiaries
owns any real property except as set forth in the SEC Documents. Each of the
Company and its subsidiaries has good and marketable title to all personal
property owned by it, free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company; and to the Company's knowledge any real property and buildings
held under lease by the Company as tenant are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and intended to be made of such property and
buildings by the Company.
14
Section 4.16 Licensing and Permits. The Company holds all necessary
licenses and permits for the conduct of its business. All of such licenses and
permits are in good standing and the Company is not in material default of any
of the conditions thereof.
Section 4.17 Intellectual Property. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
Section 4.18 Internal Controls and Procedures. The Company maintains
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
recorded accounting of the Company's assets is compared with existing assets at
regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
Section 4.19 Payments and Contributions. Neither the Company nor any of
its directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Section 4.20 No Misrepresentation. Except as set forth in the
Disclosure Schedule, the representations and warranties of the Company contained
in this Agreement, any schedule, annex or exhibit hereto and any agreement,
instrument or certificate furnished by the Company to the Investor pursuant to
this Agreement, do 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 under which they were made,
not misleading.
15
ARTICLE V
Covenants of the Investor
The Investor covenants with the Company that:
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed. Without limiting the generality of the foregoing, the Investor agrees
that it will, whenever required by federal securities laws, deliver the
prospectus included in the Registration Statement to any purchaser of Put Shares
from the Investor.
Section 5.2 Short Sales. Section 5.3 The Investor and its affiliates
shall not engage in short sales of the Company's Common Stock.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the
Registration Statement to become and then remain effective throughout the term
of this Agreement, or until all shares of Common Stock registered thereunder
have been sold, in which event the Company shall file a further Registration
Statement permitting the sale of additional Put Shares and the Warrant Shares,
which such additional Registration Statement shall be effective within one
hundred twenty (120) days of the termination or withdrawal of the present
Registration Statement, or the Investor's obligations under this Agreement shall
terminate.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company issue the Put Shares. The number of shares
so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder.
Section 6.3 Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list the Put Shares. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Put Shares and will take such other action as is
necessary or desirable in the opinion of the investor to cause the Common Stock
to be listed on such other Principal Market as promptly as possible. The Company
will take all action to continue the listing and trading of its Common Stock on
the Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Investor with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within one Trading Day of the Company's receipt thereof.
16
Section 6.4 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will use its best efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
sold to the Investors shall be free of restrictive legends.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 . Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put. The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional information
from the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement the response to which
would require any amendments or supplements to the registration statement or
related prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in the Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investor any such supplement or amendment to the related prospectus. The Company
shall not deliver to the Investor any Put Notice during the continuation of any
of the foregoing events.
Section 6.8 Expectations Regarding Put Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar 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 and
shall in no way obligate the Company to raise such amount, or any amount, or
otherwise limit its ability to deliver Put Notices. The failure by the Company
to comply with this provision can be cured by the Company's notifying the
Investor, in writing, at any time as to its reasonable expectations with respect
to the current calendar quarter.
Section 6.9 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investor such shares of stock
and/or securities as the Investor is entitled to receive pursuant to this
Agreement.
Section 6.10 Minimum Issuance of Put Shares. The Company shall issue
Put Notices in the minimum amount of $500,000 during the Commitment Period.
Section 6.11 Limitation on Similar Financing. The Company agrees that
it will not enter into any other equity line of credit type of agreement at a
price below the then-current bid price of the Common Stock during the Commitment
Period without the prior written consent of the Investor.
Section 6.12 Special Activity. The Company shall give the Investor at
least twenty-one days' advance written notice of any Special Activity, or else
the Trading Cushion shall remain at fifteen (15) Trading Days.
ARTICLE VII
Conditions to Delivery of Puts
and Conditions to Closing
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver
a Put Notice and the Obligation of the Investor to Purchase Put Shares. The
right of the Company to deliver a Put Notice and the obligation of the Investor
to acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on both (i) the date of delivery of such Put Notice and (ii) the
applicable Closing Date (each a "Condition Satisfaction Date"), of each of the
following conditions:
18
(a) Closing Certificate. All representations and warranties of the
Company contained herein shall remain true and correct as of the Closing Date as
though made as of such date (other than warranties which speak as of a specific
date) and the Company shall have delivered into escrow an Officer's Certificate
signed by its Chief Executive Officer certifying that all of the Company's
representations and warranties herein remain true and correct as of the Closing
Date and that the Company has performed all covenants and satisfied all
conditions to be performed or satisfied by the Company prior to such Closing;
(b) Blue Sky. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Common Stock
to the Investor and by the Investor as set forth in the Registration Rights
Agreement or shall have the availability of exemptions therefrom;
(c) Delivery of Put Shares. Delivery to the Depository Trust
Company DWAC account specified by the Investor of the Put Shares;
(d) Opinion of Counsel. Receipt by the Investor of an opinion of
counsel to the Company, in the form of Exhibit C hereto; and
(e) Registration of the Common Stock with the SEC. The
Registration Statement shall remain effective (or, if a further Registration
Statement shall be necessary, shall have previously become effective) and shall
be available for making resales of the Put Shares by the Investor on each
Condition Satisfaction Date and (i) neither the Company nor the Investor shall
have received notice that the SEC has issued or intends to issue a stop order
with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investor is reasonably satisfied that
the SEC no longer is considering or intends to take such action), and (ii) no
other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist.
(f) Authority. The Company will satisfy all laws and regulations
pertaining to the sale and issuance of the Put Shares.
(g) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, the Registration Rights Agreement and
the Escrow Agreement to be performed, satisfied or complied with by the Company
at or prior to each Condition Satisfaction Date.
(h) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
19
(i) Adverse Changes. Since the date of filing of the Company's
most recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(j) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including, without limitation, the Put Shares) is
not suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved for
listing or quotation on and shall not be delisted from the Principal Market. The
issuance of shares of Common Stock with respect to the applicable Closing, if
any, shall not violate the shareholder approval requirements of the Principal
Market. The Company shall not have received any notice threatening to delist the
Common Stock from the Principal Market.
(k) Minimum Trading Volume. The dollar value of the average daily
trading volume of the Common Stock on the Principal Market during the thirty
(30) Trading Days prior to the Put Date shall be at least $20,000.
(l) No Knowledge. The Company has no knowledge of any event more
likely than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is reasonably likely to occur
within the thirty (30) Trading Days following the Trading Day on which such
Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have elapsed since
the next preceding Put Date.
(n) Other. On each Condition Satisfaction Date, the Investor shall
have received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section 7.2.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investors (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investors pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all SEC Documents and
other filings with the SEC, and all other publicly available corporate documents
and properties of the Company as may be reasonably necessary for the purpose of
such review, and cause the Company's officers, directors and employees to supply
all such publicly available information reasonably requested by the Investors or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
20
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investors' advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
(b) The Company represents that it does not disseminate non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE IX
Transfer Agent Instructions
Section 9.1 Transfer Agent Instructions. Upon each Closing, the Company
will issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon the Company's appointment
of any such substitute or replacement transfer agent) instructions to deliver
the Put Shares without restrictive legends to the DTC DWAC account specified by
Investor.
21
Section 9.2 No Legend or Stock Transfer Restrictions. No legend shall
be placed on the share certificates representing the Put Shares and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto.
Section 9.3 Investor's Compliance. Nothing in this Article shall affect
in any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Put Shares.
ARTICLE X
Indemnification
Section 10.1 Survival. The representations, warranties and covenants
made by each of the Company and the Investor in this Agreement, the schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive each
Closing and the consummation of the transactions contemplated hereby until the
expiration of one year from the date of the Put to which such claim applies. In
the event of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
Section 10.2 General Indemnity. The Company agrees to indemnify and
hold harmless the Investor (and its directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorney's fees, charges and disbursements) incurred by the Investor
to any third party as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Investor agrees to indemnify and hold harmless the Company and its directors,
officers, affiliates, agents, successors and assigns from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys fees, charges and disbursements)
incurred by the Company to any third party as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Investor
herein. The indemnification against such third-party claims shall survive any
expiration of this Agreement.
Section 10.3 Securities Law Indemnity.
(a) The Company agrees to indemnify and hold harmless the Investor
and each person, if any, who controls the Investor within the meaning of the
Securities Act ("Distributing Investor") against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees), to which the Distributing
Investor may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, or any related
preliminary prospectus, final prospectus or amendment or supplement thereto, or
22
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
preliminary prospectus, final prospectus or amendment or supplement thereto in
reliance upon, and in conformity with, written information furnished to the
Company by the Distributing Investor, specifically for use in the preparation
thereof. This Section 10.3(a) shall not inure to the benefit of any Distributing
Investor with respect to any person asserting such loss, claim, damage or
liability who purchased the Registrable Securities which are the subject thereof
if the Distributing Investor failed to send or give (in violation of the
Securities Act or the rules and regulations promulgated thereunder) a copy of
the prospectus contained in such Registration Statement to such person at or
prior to the written confirmation to such person of the sale of such Registrable
Securities, where the Distributing Investor was obligated to do so under the
Securities Act or the rules and regulations promulgated thereunder. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Distributing Investor agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees) to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, or any related preliminary prospectus, final
prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Distributing Investor, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Distributing Investor may otherwise have.
Section 10.4 Indemnification Procedure. Any party entitled to
indemnification under this Article X (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article X except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the indemnified party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. In the event that the indemnifying party
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advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party's costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any settlement negotiations or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article X to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article X shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to.
Section 10.5 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 10.4 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 10.4 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then the
Company and the applicable Distributing Investor shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the applicable Distributing Investor
on the other hand, and the parties' relative intent, knowledge, access to
24
information and opportunity to correct or prevent such statement or omission.
The Company and the Distributing Investor agree that it would not be just and
equitable if contribution pursuant to this Section 10.5 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 10.5. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
Section 10.5 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Notwithstanding any other provision of this Section 10.5, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 10.5 for any amounts in excess of the dollar amount of the net
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
ARTICLE XI
Choice of Law
Section 11.1 Governing Law; Jurisdiction and Venue. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made in New York by persons domiciled in New
York City and without regard to its principles of conflicts of laws. Each party
submits to the exclusive jurisdiction of the State and Federal courts sitting in
New York County, New York as the sole forum for hearing disputes under this
Agreement or any of the Agreements attached as Exhibits hereto. The
non-prevailing party to any proceeding (as determined by the Court) shall pay
the expenses of the prevailing party, including reasonable attorneys' fees, in
connection with such proceeding. Any party shall have the right to seek
injunctive relief from any court of competent jurisdiction in any case where
such relief is available, and the prevailing party shall be entitled to
reasonable attorneys' fees incurred in connection with any such injunctive
proceeding.
ARTICLE XII
Assignment
Section 12.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by the Investor hereunder with respect to
the Common Stock held by such person, and (b) upon the prior written consent of
25
the Company, which consent shall not unreasonably be withheld or delayed in the
case of an assignment to an affiliate of the Investor, the Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to be
bound hereby, provided, that Investor shall not assign its rights to any person
identified by the Company to the Investor as being in a business competitive
with that of the Company.
ARTICLE XIII
Notices
Section 13.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company:
Xx. Xxx Israel, Chief Executive Officer
NAM Corporation
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: Xxxxxx Xxxxxx, Esq.
Camhy Xxxxxxxxx & Xxxxx LLP
(shall not constitute notice) 0000 Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
26
if to the Investor: Moldbury Holdings Limited
c/o Dr. Xx. Xxxxxxxx & Partner
Xxxxxxxxxxxx 00, Xxxxxxxx 86
FL-9490 Vaduz
Furstentum Liechtenstein
Attention: Xxxx Xxxxxxx
Telephone: 000-000-000-0000
Facsimile: 000-000-000-0000
with a copy to: Xxxxxx X. Xxxxx, Esq.
(shall not constitute notice) Xxxxxxx Xxxxxx & Green, P.C.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 13.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
ARTICLE XIV
Miscellaneous
Section 14.1 Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 14.2 Entire Agreement. This Agreement, the Exhibits hereto,
which include, but are not limited to the Escrow Agreement, the Warrant and the
Registration Rights Agreement, set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 14.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder for a period of three years. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
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Section 14.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 14.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the Investor and the Company shall be required to employ any other reporting
entity.
Section 14.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Put Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company (which shall not exceed that required by the Company's transfer
agent in the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 14.7 Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Investors' counsel in the amount of $10,000 plus $1,000 per
Closing of a Put.
Section 14.8 Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investors, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 14.9 Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
NAM Corporation
By: /s/ Roy Israel
------------------------------
Roy Israel,
Chief Executive Officer
Moldbury Holdings Limited
By: /s/ Xxxx Xxxxxxx
------------------------------
Xxxx Xxxxxxx,
Authorized Signatory
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