Exhibit 10.4
STANDBY EQUITY DISTRIBUTION AGREEMENT
-------------------------------------
THIS AGREEMENT dated as of the 21 day of December 2006 (the
"Agreement") between CORNELL CAPITAL PARTNERS, LP, a Delaware limited
partnership (the "Investor"), and EPICEPT CORPORATION, a corporation organized
and existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase from the
Company up to Fifteen Million Dollars ($15,000,000) of the Company's common
stock, par value $0.0001 per share (the "Common Stock"); and
WHEREAS, such investments will be made in reliance upon the provisions
of Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and
the regulations promulgated thereunder (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
WHEREAS, the Company has engaged Xxxxxx & Xxxxxxx LLC (the "Placement
Agent"), to act as the Company's exclusive placement agent in connection with
the sale of the Company's Common Stock to the Investor hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
Section 1.1. "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.2. "Advance Date" shall mean the first (1st) Trading Day
after expiration of the applicable Pricing Period for each Advance.
Section 1.3. "Advance Notice" shall mean a written notice in the form
of Exhibit A attached hereto to the Investor executed by an officer of the
Company and setting forth the Advance amount that the Company requests from the
Investor.
Section 1.4. "Advance Notice Date" shall mean each date the Company
delivers (in accordance with Section 2.2(b) of this Agreement) to the Investor
an Advance Notice requiring the Investor to advance funds to the Company,
subject to the terms of this Agreement. No Advance Notice Date shall be less
than five (5) Trading Days after the prior Advance Notice Date.
Section 1.5. "Bid Price" shall mean, on any date, the closing bid price
(as reported by Bloomberg L.P.) of the Common Stock on the Principal Market or
if the Common Stock is not traded on a Principal Market, the highest reported
bid price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.6. "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate amount of up
to Fifteen Million Dollars ($15,000,000) which the Investor has agreed to
provide to the Company in order to purchase the Company's Common Stock pursuant
to the terms and conditions of this Agreement, provided that, the Company shall
not effect any sales under this Agreement and the Investor shall not have the
right or the obligation to purchase any shares of Common Stock under this
Agreement to the extent that after giving effect to such purchase and sale the
aggregate number of shares issued under this Agreement would exceed 5,101,765
shares of Common Stock (which represents one less than 20% of the 25,508,830
outstanding shares of Common Stock as of the date of this Agreement) unless or
until the Company obtains any necessary shareholder approval or consents in
accordance with Nasdaq rules prior to such issuance.
Section 1.8. "Commitment Period" shall mean the period commencing on
the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of the Commitment
Amount, (y) the date this Agreement is terminated pursuant to Section 10.2 or
(z) the date occurring thirty-six (36) months after the Effective Date.
Section 1.9. "Common Stock" shall mean the Company's common stock, par
value $0.0001 per share.
Section 1.10. "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.11. "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12. "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13. Intentionally Omitted.
Section 1.14. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.15. "Material Adverse Effect" shall mean any condition,
circumstance, or situation that may result in, or reasonably be expected to
result in (i) a material adverse effect on the legality, validity or
enforceability of the Agreement, (ii) a material adverse effect on the results
of operations, assets, business or condition (financial or otherwise) of the
Company, taken as a whole, or (iii) a material adverse effect on the Company's
2
ability to perform in any material respect on a timely basis its obligations
under the Agreement.
Section 1.16. "Market Price" shall mean the average VWAP of the Common
Stock on the Principal Market during the Pricing Period.
Section 1.17. "Maximum Advance Amount" with respect to each Advance
Notice shall mean the greater of (i) Two Hundred Thousand Dollars ($200,000) or
(ii) the VWAP of the Common Stock on the Principal Market during the five (5)
Trading Days immediately prior to such Advance Notice multiplied by the average
daily volume traded (as reported by Bloomberg, LP) for the Common Stock on the
Principal Market during the same five (5) Trading Days immediately prior to such
Advance Notice.
Section 1.18. "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19. "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.20. "Placement Agent" shall mean Xxxxxx & Xxxxxxx LLC, a
registered broker-dealer.
Section 1.21. "Pricing Period" shall mean the five (5) consecutive
Trading Days after the Advance Notice Date subject to any reduction pursuant to
Section 2.2(c).
Section 1.22. "Principal Market" shall mean the Nasdaq Global Market,
the Nasdaq Capital Market, the American Stock Exchange, the OTC Bulletin Board
or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.23. "Purchase Price" shall be set at ninety seven percent
(97%) of the Market Price during the Pricing Period.
Section 1.24. "Registrable Securities" shall mean the shares of Common
Stock to be issued hereunder (i) in respect of which the Registration Statement
has not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") or (iii)
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
Section 1.25. "Registration Rights Agreement" shall mean the
Registration Rights Agreement dated the date hereof, regarding the filing of the
Registration Statement for the resale of the Registrable Securities, entered
into between the Company and the Investor.
Section 1.26. "Registration Statement" shall mean a registration
statement on Form S-1 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
3
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.27. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.28. "SEC" shall mean the United States Securities and
Exchange Commission.
Section 1.29. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.30. "SEC Documents" shall mean Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements
of the Company as supplemented to the date hereof, filed by the Company for a
period of at least twelve (12) months immediately preceding the date hereof or
the Advance Date, as the case may be, until such time as the Company no longer
has an obligation to maintain the effectiveness of a Registration Statement as
set forth in the Registration Rights Agreement.
Section 1.31. "Trading Day" shall mean any day during which the New
York Stock Exchange shall be open for business.
Section 1.32. "Transaction Documents" shall mean this Agreement and the
Registration Rights Agreement.
Section 1.32. "VWAP" shall mean the volume weighted average price of
the Company's Common Stock as quoted by Bloomberg, LP.
ARTICLE II.
ADVANCES
Section 2.1. Advances.
Subject to the terms and conditions of this Agreement
(including, without limitation, the provisions of Article VII hereof), the
Company, at its sole and exclusive option, may issue and sell to the Investor,
and the Investor shall purchase from the Company, shares of the Company's Common
Stock by the delivery, in the Company's sole discretion, of Advance Notices. The
number of shares of Common Stock that the Investor shall purchase pursuant to
each Advance shall be determined by dividing the amount of the Advance by the
Purchase Price. No fractional shares shall be issued. Fractional shares shall be
rounded to the next higher whole number of shares. The aggregate maximum amount
of all Advances that the Investor shall be obligated to make under this
Agreement shall not exceed the Commitment Amount.
Section 2.2. Mechanics.
4
(a) Advance Notice. At any time during the Commitment Period,
the Company may require the Investor to purchase shares of Common Stock by
delivering an Advance Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, the amount for each Advance as
designated by the Company in the applicable Advance Notice shall not be more
than the Maximum Advance Amount and the aggregate amount of the Advances
pursuant to this Agreement shall not exceed the Commitment Amount. The Company
acknowledges that the Investor may sell shares of the Company's Common Stock
corresponding with a particular Advance Notice after the Advance Notice is
received by the Investor. There shall be a minimum of five (5) Trading Days
between each Advance Notice Date.
(b) Date of Delivery of Advance Notice. An Advance Notice
shall be deemed delivered on (i) the Trading Day it is received by facsimile or
otherwise by the Investor if such notice is received prior to 5:00 pm Eastern
Time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day or at any
time on a day which is not a Trading Day. No Advance Notice may be deemed
delivered on a day that is not a Trading Day.
(c) Minimum Acceptable Price. For the purposes of this
Agreement, the "Minimum Acceptable Price" shall mean, in connection with each
Advance Notice delivered by the Company, eighty five percent (85%) of the Bid
Price on the Trading Day immediately preceding the Advance Notice Date for such
Advance Notice. Upon the issuance by the Company of an Advance Notice the
Minimum Acceptable Price with respect to that Advance Notice shall be determined
and (i) the Company shall automatically reduce the amount of the Advance set
forth in such Advance Notice by twenty percent (20%) for each Trading Day during
the Pricing Period that the VWAP of the Common Stock is below the Minimum
Acceptable Price (each such day, an "Excluded Day"), and (ii) each Excluded Day
shall be excluded from the Pricing Period for purposes of determining the Market
Price. The number of shares of Common Stock to be delivered to the Investor at
the Closing (in accordance with Section 2.3 of this Agreement) shall correspond
with the Advance Notice amount as reduced pursuant to clause (i) above, except
that the Company shall be obligated to sell, and the Investor shall be obligated
to purchase any shares of Common Stock corresponding to such Advance Notice that
have been sold by the Investor and such shares shall be purchased at a price
equal to such Minimum Acceptable Price multiplied by ninety-seven percent (97%).
Section 2.3. Closings. On each Advance Date (i) the Company shall
deliver to the Investor such number of shares of the Common Stock registered in
the name of the Investor as shall equal (x) the amount of the Advance specified
in such Advance Notice pursuant to Section 2.1 herein, divided by (y) the
Purchase Price and (ii) upon receipt of such shares, the Investor shall deliver
to the Company the amount of the Advance specified in the Advance Notice by wire
transfer of immediately available funds. In addition, on or prior to the Advance
Date, each of the Company and the Investor shall deliver to the other all
documents, instruments and writings required to be delivered by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. To the extent the Company has not paid the fees, expenses,
and disbursements of the Investor in accordance with Section 12.4, the amount of
such fees, expenses, and disbursements may be deducted by the Investor (and
shall be paid to the relevant party) directly out of the proceeds of the Advance
with no reduction in the amount of shares of the Company's Common Stock to be
delivered on such Advance Date.
5
(a) Company's Obligations Upon Closing.
(i) The Company shall deliver to the Investor the shares of
Common Stock applicable to the Advance in accordance with Section 2.3. The
certificates evidencing such shares shall be free of restrictive legends.
(ii) the Company shall maintain the effectiveness of the
Registration Statement with respect to the resale of the shares of Common Stock
delivered in connection with the Advance;
(iii) the Company shall obtain all material permits and
qualifications required by any applicable state for the offer and sale of the
Registrable Securities, or have the availability of exemptions therefrom. The
sale and issuance of the Registrable Securities shall be legally permitted by
all laws and regulations to which the Company is subject;
(iv) the Company shall file with the SEC in a timely manner
all reports, notices and other documents required of a "reporting company" under
the Exchange Act and applicable Commission regulations;
(v) the Company shall pay all any unpaid fees set forth in
Section 12.4 below or withhold such amounts as provided in Section 2.3; and
(vi) The Company's transfer agent shall be DWAC eligible.
(b) Investor's Obligations Upon Closing. Upon receipt of the shares
referenced in Section 2.3(a)(i) above and provided the Company is in compliance
with its obligations in Section 2.3, the Investor shall deliver to the Company
the amount of the Advance specified in the Advance Notice by wire transfer of
immediately available funds.
Section 2.5. Hardship. In the event the Investor sells shares of the
Company's Common Stock after receipt of an Advance Notice and the Company fails
to perform its obligations as mandated in Section 2.3, and specifically the
Company fails to deliver to the Investor on the Advance Date the shares of
Common Stock corresponding to the applicable Advance pursuant to Section
2.3(a)(i), the Company acknowledges that the Investor shall suffer financial
hardship and therefore shall be liable for any and all losses, commissions,
fees, or financial hardship caused to the Investor.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby represents and warrants to, and agrees with, the
Company that the following are true and correct as of the date hereof and as of
each Advance Date:
Section 3.1. Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
6
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.
Section 3.2. Evaluation of Risks. The Investor has such knowledge and
experience in financial, tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
Section 3.3. No Legal Advice From the Company. The Investor
acknowledges that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with his or its own legal counsel
and investment and tax advisors. The Investor is relying solely on such counsel
and advisors and not on any statements or representations of the Company or any
of its representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this Agreement or
the securities laws of any jurisdiction.
Section 3.4. Investment Purpose. The securities are being purchased by
the Investor for its own account, and for investment purposes. The Investor
agrees not to assign or in any way transfer the Investor's rights to the
securities or any interest therein and acknowledges that the Company will not
recognize any purported assignment or transfer except in accordance with
applicable Federal and state securities laws. No other person has or will have a
direct or indirect beneficial interest in the securities. The Investor agrees
not to sell, hypothecate or otherwise transfer the Investor's securities unless
the securities are registered under Federal and applicable state securities laws
or unless, in the opinion of counsel satisfactory to the Company, an exemption
from such laws is available.
Section 3.5. Accredited Investor. The Investor is an "Accredited
Investor" as that term is defined in Rule 501(a)(3) of Regulation D of the
Securities Act.
Section 3.6. Information. The Investor and its advisors (and its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information it deemed
material to making an informed investment decision. The Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence
investigations conducted by such Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor's right to rely on
the Company's representations and warranties contained in this Agreement. The
Investor understands that its investment involves a high degree of risk. The
Investor is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such
Investor to obtain information from the Company in order to evaluate the merits
and risks of this investment. The Investor has sought such accounting, legal and
7
tax advice, as it has considered necessary to make an informed investment
decision with respect to this transaction.
Section 3.7. Receipt of Documents. The Investor and its counsel have
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-K for the year ended December 31, 2005 and Form 10-Q
for the period ended September 30, 2006; and (iv) answers to all questions the
Investor submitted to the Company regarding an investment in the Company; and
the Investor has relied on the information contained therein and has not been
furnished any other documents, literature, memorandum or prospectus.
Section 3.8. Registration Rights Agreement. The parties have entered
into the Registration Rights Agreement dated the date hereof.
Section 3.9. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the shares of Common Stock offered hereby.
Section 3.10. Not an Affiliate. The Investor is not an officer,
director or a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with
the Company or any "Affiliate" of the Company (as that term is defined in Rule
405 of the Securities Act).
Section 3.11. Trading Activities. The Investor's trading activities
with respect to the Company's Common Stock shall be in compliance with all
applicable federal and state securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed or traded. Neither the Investor nor its affiliates has an open
short position in the Common Stock of the Company, the Investor agrees that it
shall not, and that it will cause its affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock during the
term of this Agreement and for a period of ninety (90) days following the
termination of this Agreement, provided that the Company acknowledges and agrees
that upon receipt of an Advance Notice the Investor has the right to sell the
shares to be issued to the Investor pursuant to the Advance Notice during the
applicable Pricing Period.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below, on the disclosure schedules attached hereto or
in the SEC Documents (as defined herein), the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
Section 4.1. Organization and Qualification. The Company and each of
the subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
8
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in Material Adverse Effect and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
Section 4.2 Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, its Board of Directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
Section 4.3 No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company, the issuance and sale of the shares of
Common Stock hereunder and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of the Company's or any subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any lien upon any of the properties or assets of the Company or any
subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or
subsidiary debt or otherwise) or other understanding to which the Company or any
subsidiary is a party or by which any property or asset of the Company or any
subsidiary is bound or affected, or (iii) conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.
Section 4.4 Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
9
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to the Registration Rights
Agreement, (ii) the filing with the Commission of the Registration Statement,
(iii) application(s) to each applicable Principal Market for the listing of the
Common Stock for trading thereon in the time and manner required thereby, and
(iv) the filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws (collectively, the "Required
Approvals").
Section 4.5 Issuance of the Securities. The shares of Common Stock to
be issued hereunder are duly authorized and, when issued and paid for in
accordance with the applicable Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all liens imposed by the
Company other than restrictions on transfer provided for in the Transaction
Documents.
Section 4.6 Capitalization. The capitalization of the Company is as set
forth on Schedule 4.6. The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other than pursuant
to the exercise of stock options under the Company's stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Company's
employee stock purchase plan and pursuant to the conversion or exercise of
common stock equivalents outstanding as of the date of the most recently filed
periodic report under the Exchange Act. No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the shares of Common Stock
hereunder, there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock or common stock equivalents. The
issuance and sale of the shares of Common Stock hereunder will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other
than the Investor) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under any
of such securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company's capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company's
stockholders.
Section 4.7 SEC Reports; Financial Statements. The Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law or regulation to file
10
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the "SEC Reports") on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.
Section 4.8 Material Changes; Undisclosed Events, Liabilities or
Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC
Report, (i) there has been no event, occurrence or development that has had or
that would reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or disclosed in
filings made with the Commission, (iii) the Company has not altered its method
of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 4.8, no event,
liability or development has occurred or exists with respect to the Company or
its subsidiaries or their respective business, properties, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made that has not
been publicly disclosed at least one (1) Trading Day prior to the date that this
representation is made.
Section 4.9 Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Common Stock or (ii) would, if there were an unfavorable decision, have or
11
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any subsidiary under the Exchange
Act or the Securities Act.
Section 4.10 Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the employees
of the Company which would reasonably be expected to result in a Material
Adverse Effect. None of the Company's or its subsidiaries' employees is a member
of a union that relates to such employee's relationship with the Company, and
neither the Company or any of its subsidiaries is a party to a collective
bargaining agreement, and the Company and its subsidiaries believe that their
relationships with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
subsidiaries to any liability with respect to any of the foregoing matters. The
Company and its subsidiaries are in compliance with all U.S. federal, state,
local and foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except where
the failure to be in compliance would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 4.11 Compliance. Neither the Company nor any subsidiary (i) is
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any subsidiary under), nor has the Company or any subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business and all such laws that affect the
environment, except in each case as would not have or reasonably be expected to
result in a Material Adverse Effect.
Section 4.12 Regulatory Permits. The Company and the subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the SEC Reports, except where the
failure to possess such permits would not have or reasonably be expected to
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.
12
Section 4.13 Title to Assets. The Company and the subsidiaries have
good and marketable title in fee simple to all real property owned by them that
is material to the business of the Company and the subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the subsidiaries, in each case free and clear of all
liens, except for liens 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 the subsidiaries and liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the subsidiaries are in
compliance.
Section 4.14 Patents and Trademarks. The Company and the subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets, inventions,
copyrights, licenses and other intellectual property rights and similar rights
necessary or material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have would have a
Material Adverse Effect (collectively, the "Intellectual Property Rights").
Neither the Company nor any subsidiary has received a notice (written or
otherwise) that the Intellectual Property Rights used by the Company or any
subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights. The Company and its subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 4.15 Insurance. The Company and the subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the subsidiaries are engaged, including, but not limited to,
directors and officers insurance coverage at least equal to the aggregate
subscription Amount. Neither the Company nor any 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 without a significant increase in
cost.
Section 4.16 Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any subsidiary (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 entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company.
13
Section 4.17 Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. The Company and the
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 GAAP 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. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms. The
Company's certifying officers have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by the
Company's most recently filed periodic report under the Exchange Act (such date,
the "Evaluation Date"). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the Company's internal control over financial reporting
(as such term is defined in the Exchange Act) that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
Section 4.18 Private Placement. Assuming the accuracy of the Investors
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Common Stock by the
Company to the Investors as contemplated hereby. The issuance and sale of the
Common Stock hereunder does not contravene the rules and regulations of the
Principal Market.
Section 4.19 Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
Section 4.20 Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge is likely
to have the effect of, terminating the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration. The Company has not,
in the twelve (12) months preceding the date hereof, received notice from any
Principal Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Principal Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.
14
Section 4.21 Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of a
tax deficiency which has been asserted or threatened against the Company or any
subsidiary.
Section 4.22 No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the Securities Act.
Section 4.23 Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite corporate power to own its
properties and to carry on its business as now being conducted. Each of the
Company and its subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect on the Company and its subsidiaries taken as a whole.
Section 4.24 Use of Proceeds. The Company shall use the net proceeds
from this offering for general corporate purposes, including, without
limitation, the payment of loans incurred by the Company. However, in no event
shall the Company use the net proceeds from this offering for the payment (or
loan to any such person for the payment) of any judgment, or other liability,
incurred by any executive officer, officer, director or employee of the Company,
except for any liability owed to such person for services rendered, or if any
judgment or other liability is incurred by such person originating from services
rendered to the Company, or the Company has indemnified such person from
liability.
Section 4.25 Further Representation and Warranties of the Company. For
so long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will maintain the listing of its Common Stock on the Principal Market.
Section 4.26 Opinion of Counsel. Investor shall receive an opinion
letter from counsel to the Company substantially in the form attached hereto.
Section 4.27 Opinion of Counsel. The Company will obtain for the
Investor, at the Company's expense, any and all opinions of counsel which may be
reasonably required in order to sell the securities issuable hereunder without
restriction.
Section 4.28 Dilution. The Company is aware and acknowledges that
issuance of shares of the Company's Common Stock could cause dilution to
existing shareholders and could significantly increase the outstanding number of
shares of Common Stock.
15
Section 4.29. Acknowledgement. The Company is aware and acknowledges
that it may not be able to request Advances under this Agreement if it can not
obtain an effective Registration Statement or if any issuances of Common Stock
pursuant to any Advances would violate any rules of the Principal Market. The
Company further is aware and acknowledges that any fees paid pursuant to Section
12.4(a)(i) and 12.4(b) hereunder or shares issued pursuant to Section
12.4(c)(ii) hereunder shall be earned on the date hereof and not refundable or
returnable under any circumstances.
ARTICLE V.
INDEMNIFICATION
The Investor and the Company represent to the other the following with
respect to itself:
Section 5.1. Indemnification.
(a) In consideration of the Investor's execution and delivery
of this Agreement, and in addition to all of the Company's other obligations
under this Agreement, the Company shall defend, protect, indemnify and hold
harmless the Investor, and all of its officers, directors, partners, employees
and agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Investor
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Investor Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by the Investor Indemnitees or any of them as a result
of, or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Investor Indemnitee not arising out of any action or inaction of an
Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(b) In consideration of the Company's execution and delivery
of this Agreement, and in addition to all of the Investor's other obligations
under this Agreement, the Investor shall defend, protect, indemnify and hold
harmless the Company and all of its officers, directors, shareholders, employees
and agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Company
Indemnitees") from and against any and all Indemnified Liabilities incurred by
the Company Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Investor in this Agreement, the Registration Rights
16
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant, agreement or obligation of the
Investor(s) contained in this Agreement, the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor, or (c) any cause of action, suit or claim brought or
made against such Company Indemnitee based on misrepresentations or due to a
breach by the Investor and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(c) The obligations of the parties to indemnify or
make contribution under this
Section 5.1 shall survive termination.
ARTICLE VI.
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
Section 6.2. Listing of Common Stock. The Company shall maintain the
Common Stock's authorization for quotation on the Principal Market.
Section 6.3. Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under the Exchange Act, will file in a
timely manner all reports and other documents required of it as a reporting
company under the Exchange Act and will not take any action or file any document
(whether or not permitted by Exchange Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said Exchange Act.
Section 6.4. Transfer Agent Instructions. Upon effectiveness of the
Registration Statement the Company shall deliver instructions to its transfer
agent to issue shares of Common Stock to the Investor free of restrictive
legends on or before each Advance Date.
Section 6.5. Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6. Notice of Certain Events Affecting Registration;
Suspension of Right to Make an Advance. The Company will immediately notify the
Investor upon its becoming aware of the occurrence of any of the following
events in respect of a registration statement or related prospectus relating to
an offering of Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other Federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other Federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
17
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to the Investor any
Advance Notice during the continuation of any of the foregoing events.
Section 6.7. RESERVED.
Section 6.8. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all the assets of the Company to
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.9. Issuance of the Company's Common Stock. The sale of the
shares of Common Stock shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state securities law.
Section 6.10. Review of Public Disclosures. All SEC filings (including,
without limitation, all filings required under the Exchange Act and other public
disclosures made by the Company, including, without limitation, all press
releases, investor relations materials, and scripts of analysts meetings and
calls, shall be reviewed and approved for release by the Company's attorneys
and, if containing financial information, the Company's independent certified
public accountants.
Section 6.11. Market Activities. The Company will not, directly or
indirectly, (i) take any action designed to cause or result in, or that
constitutes or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Stock or (ii) sell, bid for or purchase the Common
Stock, or pay anyone any compensation for soliciting purchases of the Common
Stock.
18
ARTICLE VII.
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
Section 7.1. Conditions Precedent to the Obligations of the Company.
The obligation hereunder of the Company to issue and sell the shares of Common
Stock to the Investor incident to each Closing is subject to the satisfaction,
or waiver by the Company, at or before each such Closing, of each of the
conditions set forth below.
(a) Accuracy of the Investor's Representations and Warranties.
The representations and warranties of the Investor shall be true and correct in
all material respects.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Investor at or prior to such
Closing.
Section 7.2. Conditions Precedent to the Right of the Company to
Deliver an Advance Notice. The right of the Company to deliver an Advance Notice
is subject to the fulfillment by the Company, on such Advance Notice (a
"Condition Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. The Company
shall have filed with the SEC a Registration Statement with respect to the
resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement. As set forth in the Registration Rights
Agreement, the Registration Statement shall have previously become effective and
shall remain effective on each Condition Satisfaction Date and (i) neither the
Company nor the Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the SEC otherwise has suspended or withdrawn the effectiveness of the
Registration Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been addressed and the
Investor is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of the Registration Statement or related
prospectus shall exist. The Registration Statement must have been declared
effective by the SEC prior to the first Advance Notice Date.
(b) Authority. The Company shall have obtained all permits and
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(c) Fundamental Changes. There shall not exist any fundamental
changes to the information set forth in the Registration Statement which would
require the Company to file a post-effective amendment to the Registration
Statement.
(d) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
19
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
(f) No Suspension of Trading in or Delisting of Common Stock.
The trading of the Common Stock is not suspended by the SEC or the Principal
Market (if the Common Stock is traded on a Principal Market). The issuance of
shares of Common Stock with respect to the applicable Closing, if any, shall not
violate the shareholder approval requirements of the Principal Market (if the
Common Stock is traded on a Principal Market). The Company shall not have
received any notice threatening the continued listing of the Common Stock on the
Principal Market (if the Common Stock is traded on a Principal Market).
(g) Maximum Advance Amount. The amount of an Advance requested
by the Company shall not exceed the Maximum Advance Amount. In addition, in no
event shall the number of shares issuable to the Investor pursuant to an Advance
cause the aggregate number of shares of Common Stock beneficially owned by the
Investor and its affiliates to exceed nine and 9/10 percent (9.9%) of the then
outstanding Common Stock of the Company. For the purposes of this section
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act.
(h) No Knowledge. The Company has no knowledge of any event
which would be more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective.
(i) Executed Advance Notice. The Investor shall have received
the Advance Notice executed by an officer of the Company and the representations
contained in such Advance Notice shall be true and correct as of each Condition
Satisfaction Date.
ARTICLE VIII.
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1. Non-Disclosure of Non-Public Information.
(a) The Company covenants and agrees that neither it nor any
other Person acting on its behalf will provide the Investor or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto the Company identifies such
information as being material non-public information and provides member of the
legal and compliance department of the Investor with the opportunity to accept
or refuse to accept such material non-public information for review. The Company
acknowledges that only members of the legal and compliance department of the
Investor have the authority to accept the receipt of material non-public
information from the Company. The Company acknowledges that any information
provided to the Investor without first being accepted by a member of the legal
20
and compliance department of the Investor will be deemed not to be material
non-public information and the Investor shall be under no duty to maintain the
confidentiality of such information. The Company understands and confirms that
the Investor shall be relying on the foregoing representations in effecting
transactions in securities of the Company. The Company shall be entitled to rely
on the representations of any member of the Investor as to whether such person
is a member of the legal and compliance department of the Investor.
(b) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX.
CHOICE OF LAW/JURISDICTION
Section 9.1. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. The parties further agree that any action
between them shall be heard in New York County, New York, and expressly consent
to the jurisdiction and venue of the Supreme Court of New York, sitting in New
York County, New York and the United States District Court for the Southern
District of New York, sitting in New York, New York, for the adjudication of any
civil action asserted pursuant to this paragraph.
ARTICLE X.
ASSIGNMENT; TERMINATION
Section 10.1. Assignment. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.
21
Section 10.2. Termination.
(a) The obligations of the Investor to make Advances under
Article II hereof shall terminate thirty-six (36) months after the Effective
Date.
(b) The obligation of the Investor to make an Advance to the
Company pursuant to this Agreement shall terminate permanently (including with
respect to an Advance Date that has not yet occurred) in the event that (i)
there shall occur any stop order or suspension of the effectiveness of the
Registration Statement for an aggregate of fifty (50) Trading Days, other than
due to the acts of the Investor, during the Commitment Period, or (ii) the
Company shall at any time fail materially to comply with the requirements of
Article VI and such failure is not cured within thirty (30) days after receipt
of written notice from the Investor, provided, however, that this termination
provision shall not apply to any period commencing upon the filing of a
post-effective amendment to such Registration Statement and ending upon the date
on which such post effective amendment is declared effective by the SEC.
ARTICLE XI.
NOTICES
Section 11.1. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: EpiCept Corporation
000 Xxx Xxx Xxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
With a copy to: Weil, Gotshal & Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
22
If to the Investor(s): Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx -Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a Copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
ARTICLE XII.
MISCELLANEOUS
Section 12.1. Counterparts. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof, though failure to deliver such copies shall not affect the
validity of this Agreement.
Section 12.2. Entire Agreement; Amendments. This Agreement supersedes
all other prior oral or written agreements between the Investor, the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
Section 12.3. Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the Investor and the Company shall be required to employ any other reporting
entity.
Section 12.4. Fees and Expenses. The Company hereby agrees to pay the
following fees:
23
(a) Structuring Fees. Each of the parties shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that (i) on the date hereof the Company
shall pay a structuring fee of Twenty Five Thousand Dollars ($25,000) to
Yorkville Advisors, LLC and (ii) On each Advance Date, the Company shall pay
Yorkville Advisors, LLC a structuring fee of Five Hundred Dollars ($500)
directly out the gross proceeds of each Advance.
(b) Due Diligence Fee. Company shall pay the Investor a
non-refundable due diligence fee of Five Thousand Dollars ($5,000) on the date
hereof.
(c) Commitment Fees.
(i) On each Advance Date the Company shall pay to the
Investor, directly out of the gross proceeds of each Advance, an amount equal to
three percent (3%) of the amount of each Advance. The Company hereby agrees that
if such payment, as is described above, is not made by the Company on the
Advance Date, such payment shall be made as outlined and mandated by Section 2.3
of this Agreement.
(ii) Upon the execution of this Agreement the Company
shall pay to the Investor a commitment fee of $450,000.
Section 12.5. Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 12.6. Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
COMPANY:
EPICEPT CORPORATION
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------
Name: Xxxx X. Xxxxxx
Title: President and Chief Executive Officer
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: /s/ Xxxx Xxxxxx
-----------------------------------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
25
EXHIBIT A
ADVANCE NOTICE
EPICEPT CORPORATION
The undersigned, _______________________ hereby certifies, with respect
to the sale of shares of Common Stock of EPICEPT CORPORATION (the "Company")
issuable in connection with this Advance Notice, delivered pursuant to the
Standby Equity Distribution Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected ______________ of the Company.
2. There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company and has complied in all material
respects with all obligations and conditions contained in the Agreement on or
prior to the Advance Notice Date, and shall continue to perform in all material
respects all covenants and agreements to be performed by the Company through the
applicable Advance Date. All conditions to the delivery of this Advance Notice
are satisfied as of the date hereof.
4. The undersigned hereby represents, warrants and covenants that it
has made all filings ("SEC Filings") required to be made by it pursuant to
applicable securities laws (including, without limitation, all filings required
under the Securities Exchange Act of 1934, which include Forms 10-Q or 10-QSB,
00-X xx 00-XXX, 0-X, xxx.). All SEC Filings and other public disclosures made by
the Company, including, without limitation, all press releases, analysts
meetings and calls, etc. (collectively, the "Public Disclosures"), have been
reviewed and approved for release by the Company's attorneys and, if containing
financial information, the Company's independent certified public accountants.
None of the Company's Public Disclosures contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
5. The Advance requested is _____________________.
The undersigned has executed this Certificate this ___ day of ________.
EPICEPT CORPORATION
By:
----------------------------------
Name:
Title:
If Returning This Advance Notice via Facsimile Please Send To: (000) 000-0000
If by Mail, via Federal Express To: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000,
Xxxxxx Xxxx, XX 00000
