Exhibit 10.06
PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
BIOPULSE INTERNATIONAL, INC.,
a Nevada corporation
AND
HUNTS DRIVE, LLC,
a Cayman Islands limited liability company
Dated as of January 24, 2001
This PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 24th
day of January, 2001 (this "AGREEMENT"), by and between Hunts Drive, LLC, a
Cayman Islands limited liability company ("INVESTOR"), and BioPulse
International, Inc., a Nevada corporation (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company may issue and sell to Investor,
from time to time as provided herein, and Investor shall purchase, shares
of the Common Stock (as defined below) with an aggregate purchase price not
to exceed $10,000,000; and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("SECTION 4(2)") of the Securities Act of 1933 and the
rules and 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 in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings specified or indicated (such
meanings to be equally applicable to both the singular and plural forms of
the terms defined)
"AFFILIATE" shall mean, with respect to the Person referred to,
any officer, director, or employee of the Person, and any Person who
controls that Person within the meaning of Section 20 of the Exchange Act
and Section 15 of the Securities Act.
"AGREEMENT" shall have the meaning specified in the preamble
hereof.
"BID PRICE" shall mean the closing bid price of the Common Stock
on the Principal Market.
"BY-LAWS" shall have the meaning specified in Section 4.8.
"CERTIFICATE" shall have the meaning specified in Section 4.8.
"CLAIM NOTICE" shall have the meaning specified in Section
9.3(a).
"CLOSING" shall mean one of the closings of a purchase and sale
of shares of Common Stock pursuant to Section 2.3.
"CLOSING DATE" shall mean, with respect to a Closing, the
eleventh (11th) Trading Day following the Put Date related to such Closing,
or such earlier date as the Company and Investor shall agree, provided all
conditions to such Closing have been satisfied on or before such Trading
Day.
"COMMITMENT PERIOD" shall mean the period commencing on the
earlier to occur of (a) the Effective Date, or (b) such earlier date as the
Company and Investor shall agree in writing, and expiring on the earlier to
occur of (i) the date on which Investor shall have purchased Common Stock
for an aggregate purchase price of $10,000,000, (ii) the date this
Agreement is terminated pursuant to Section 2.6 or 2.7 hereof, or Section
2(c) of the Registration Rights Agreement, or (iii) the date occurring one
(1) year from the date of commencement of the Commitment Period.
"COMMON STOCK" shall mean the Company's common stock, par value
$0.001 per share, and any shares of any other class of common stock whether
now or hereafter authorized, having the right to participate in the
distribution of dividends (as and when declared) and assets (upon
liquidation of the Company).
"COMMON STOCK EQUIVALENTS" shall mean any securities that are
convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any
such convertible or exchangeable securities.
"COMPANY" shall have the meaning specified in the preamble to
this Agreement.
"CONDITION SATISFACTION DATE" shall have the meaning specified in
Section 7.2.
"DAMAGES" shall mean any loss, claim, damage, liability, costs
and expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs and expenses of expert witnesses and
investigation).
"DISCOUNT" shall mean fifteen percent (15%).
"DISPUTE PERIOD" shall have the meaning specified in Section
9.3(a).
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"DTC" shall have the meaning specified in Section 2.3.
"DWAC" shall have the meaning specified in Section 2.3.
"EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder.
"FAST" shall have the meaning specified in Section 2.3.
"INDEMNIFIED PARTY" shall have the meaning specified in Section
9.3(a).
"INDEMNIFYING PARTY" shall have the meaning specified in Section
9.3(a).
"INDEMNITY NOTICE" shall have the meaning specified in Section
9.3(b).
"INITIAL REGISTRATION STATEMENT" shall have the meaning specified
in the Registration Rights Agreement.
"INVESTMENT AMOUNT" shall mean the dollar amount (within the
range specified in Section 2.2(a)) to be invested by Investor to purchase
Put Shares with respect to any Put Date as notified by the parties in
accordance with Section 2.2 and 2.5.
"INVESTOR" shall have the meaning specified in the preamble to
this Agreement.
"LEGEND" shall have the meaning specified in Section 8.1.
"MARKET PRICE" on any given date shall mean the average of the
three (3) lowest Bid Prices (not necessarily consecutive) during the ten
(10) Trading Day period immediately following the Put Date.
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects or financial condition of the Company
that is material and adverse to the Company and such other entities
controlling or controlled by the Company, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to enter into and
perform its obligations under either of (a) this Agreement or (b) the
Registration Rights Agreement.
"MAXIMUM COMMITMENT AMOUNT" shall mean Ten Million Dollars
($10,000,000), subject to increase as agreed to by the Company and
Investor.
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"MAXIMUM PUT AMOUNT" shall mean, with respect to any Put, the
lesser of (a) Five Hundred Thousand Dollars ($500,000) Dollars, or (b) one
hundred twenty five percent (125%) of the Weighted Average Daily Volume for
the twenty (20) Trading Days prior to the Put Date, subject to adjustment
as agreed by the Company and Investor.
"MINIMUM CALL OPTION AMOUNT" shall mean with respect to any Put,
Thirty Seven Thousand Five Hundred Dollars ($37,500), subject to decrease
as agreed to in writing by the Company and Investor.
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put, Seventy
Five Thousand Dollars ($75,000), subject to decrease as agreed to by the
Company and Investor.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"OUTSTANDING" shall mean, with respect to the Common Stock, at
any date as of which the number of shares of Common Stock is to be
determined, all issued and outstanding shares of Common Stock, including
all shares of Common Stock issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock;
provided, however, that Outstanding shall not include any shares of Common
Stock then directly or indirectly owned or held by or for the account of
the Company.
"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.
"PRINCIPAL MARKET" shall mean the NASD OTCBB, Nasdaq National
Market, the Nasdaq SmallCap 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.
"PURCHASE PRICE" shall mean, with respect to a Put, the Market
Price on the applicable Put Date less the product of the Discount and the
Market Price.
"PUT" shall mean each occasion that the Company elects to
exercise its right to tender a Put Notice requiring Investor to purchase
shares of Common Stock, subject to the terms and conditions of this
Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment
Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).
"PUT NOTICE" shall mean a written notice, substantially in the
form of Exhibit B hereto, to Investor setting forth the Investment Amount
with respect to which the Company intends to require Investor to purchase
shares of Common Stock pursuant to the terms of this Agreement.
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"PUT SHARES" shall mean all shares of Common Stock issued or
issuable pursuant to a Put that has been exercised or may be exercised in
accordance with the terms and conditions of this Agreement and all shares
of Common Stock issued or issuable pursuant to a Call Option that has been
exercised or may be exercised in accordance with Section 2.5.
"REGISTRABLE SECURITIES" shall mean the Put Shares and the
Warrants and any securities issued or issuable with respect to any of the
foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (i) a Registration Statement has been declared
effective by the SEC and such Registrable Securities have been disposed of
pursuant to a Registration Statement, (ii) such Registrable Securities have
been sold under circumstances under which all of the applicable conditions
of Rule 144 are met, (iii) such time as such Registrable Securities have
been otherwise transferred to holders 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) in the opinion of counsel to the Company,
which counsel shall be reasonably acceptable to Investor, such Registrable
Securities may be sold without registration under the Securities Act or the
need for an exemption from any such registration requirements and without
any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration
rights agreement in the form of Exhibit A hereto.
"REGISTRATION STATEMENT" shall mean a registration statement on
Form SB-2 (if use of such form is then available to the Company pursuant
to the rules of the SEC and, if not, on such other form promulgated by the
SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate and which form shall be available for the resale of
the Registrable Securities to be registered thereunder in accordance with
the provisions of this Agreement and the Registration Rights Agreement and
in accordance with the intended method of distribution of such securities),
for the registration of the resale by Investor of the Registrable
Securities under the Securities Act.
"REGULATION D" shall mean Regulation D under the Securities Act.
"RULE 144" shall mean Rule 144 under the Securities Act or any
similar provision then in force under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the recitals
of this Agreement.
"SECURITIES ACT" shall have the meaning specified in the recitals
of this Agreement.
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"SEC DOCUMENTS" shall mean, as of a particular date, all reports
and other documents filed by the Company pursuant to Section 13(a) or 15(d)
of the Exchange Act since the beginning of the Company's then most recently
completed fiscal year as of the time in question (provided that if the date
in question is within ninety days of the beginning of the Company's fiscal
year, the term shall include all documents filed since the beginning of the
second preceding fiscal year).
"SUBSCRIPTION DATE" shall mean the date on which this Agreement
is executed and delivered by the Company and Investor.
"THIRD PARTY CLAIM" shall have the meaning specified in Section
9.3(a).
"TRADING CUSHION" shall mean a minimum of fifteen (15) Trading
Days between Put Dates, unless a shorter period is agreed to by the Company
and Investor.
"TRADING DAY" shall mean any day during which the Principal
Market shall be open for business.
"TRANSACTION DOCUMENTS" means this Private Equity Credit
Agreement, the Registration Rights Agreement, the Warrant, Closing
Certificate, and the Transfer Agent Instructions.
"TRANSFER AGENT" shall mean the transfer agent for the Common
Stock (and any substitute or replacement transfer agent for the Common
Stock upon the Company's appointment of any such substitute or replacement
transfer agent).
"UNDERWRITER" shall mean any underwriter participating in any
disposition of the Registrable Securities on behalf of Investor pursuant to
a Registration Statement.
"VALUATION EVENT" shall mean an event in which the Company at any
time during a Valuation Period takes any of the following actions:
(a) subdivides or combines the Common Stock;
(b) pays a dividend in shares of Common Stock or makes any
other distribution of shares of Common Stock, except
for shares issued pursuant to this transaction;
(c) issues any warrants, options or other rights to
subscribe for or purchase shares of Common Stock and
the price per share for which shares of Common Stock
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;
(d) issues any securities convertible into or exchangeable
for shares of Common Stock and the consideration per
share for which shares of Common Stock 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;
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(e) issues shares of Common Stock otherwise than as
provided in the foregoing subsections (a) through (d),
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;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a
dividend in liquidation or by way of return of capital
or other than as a dividend payable out of earnings or
surplus legally available for dividends under
applicable law or any distribution to such holders made
in respect of the sale of all or substantially all of
the Company's assets (other than under the
circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding
Common Stock, 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
materially adverse effect upon the rights of Investor
at the time of a Put.
"VALUATION PERIOD" shall mean the period of ten (10) Trading Days
immediately following the date on which the applicable Put Notice is deemed
to be delivered and during which the Purchase Price of the Common Stock is
valued; provided, however, that if a Valuation Event occurs during any
Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the
tenth (10th) Trading Day thereafter.
"WARRANTS" shall mean warrants to purchase Common Stock, in the
form attached hereto as Exhibit F, to be issued, from time to time, to
Investor pursuant to this Agreement.
"WEIGHTED AVERAGE DAILY VOLUME" shall mean the average of the
product of (a) the closing Bid Price times (b) the volume on the Principal
Market for the relevant number of days.
"WEIGHTED VOLUME" shall mean the product of (a) the Closing Bid
Price times (b) the volume on the Principal Market.
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), on any Put
Date, the Company may exercise a Put by the delivery of a Put Notice. The
number of Put Shares that Investor shall receive pursuant to such Put shall
be determined by dividing the Investment Amount specified in the Put Notice
by the Purchase Price with respect to such Put Date.
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(b) ALTERNATIVE FINANCING. In addition to all of Investor's
rights and remedies hereunder and in the Securities Purchase Agreement, if
the Company shall enter into an "equity line" agreement with any other
party whereby the Company has the option, from time-to-time to "put" common
stock to such other party for a "purchase price" at or at a "discount" to
"market price" during the period commencing on the date hereof and ending
upon the expiration or termination of the Commitment Term, the Company
shall, within five (5) days after entering into such agreement, pay the
Investor a break-up fee in the amount of Three Hundred Thousand Dollars
($300,000).
(c) MAXIMUM AMOUNT OF PUTS. Unless the Company obtains the
requisite approval of its shareholders in accordance with the corporate
laws of the State of Nevada and the applicable rules of the Principal
Market, the Company may not issue shares pursuant to any Put which is in
excess of (i) 19.9% of the then Outstanding Common Stock on the date of the
Put, less (ii) (A) the aggregate amount of shares of Common Stock
previously issued under this Agreement, plus (B) the aggregate amount of
shares which have been previously issued as of the date of the Put (in
connection with prior conversions) and would then be issuable assuming
Investor converted all the then unconverted shares of the 7% Cumulative
Convertible Redeemable Preferred Stock, Series B, $1,000 liquidation value
per share, purchased by the Investor from the Company pursuant to that
certain Securities Purchase Agreement, dated as of January 24, 2001 (the
"Securities Purchase Agreement"), plus (C) the number of shares deliverable
to Investor (or any brokers or other parties receiving warrants as a fee in
connection with this Agreement and the Securities Purchase Agreement) if it
exercised all of the Warrants issued to it hereunder and pursuant to the
Securities Purchase Agreement.
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment Period,
the Company may deliver a Put Notice to Investor, subject to the conditions
set forth in Section 7.2; provided, however, the Investment Amount for each
Put as designated by the Company in the applicable Put Notice shall be
neither less than the Minimum Put Amount 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 Investor if such notice is received on or prior to 12:00 noon
New York time, or (ii) the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 12:00 noon New York time on a
Trading Day or at anytime on a day which is not a Trading Day.
Section 2.3 CLOSINGS. At least one (1) business day prior to each
applicable Closing Date for a Put, (a) the Company shall deliver, to the
escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as Exhibit G (the "Joint Escrow
Instructions"), one or more certificates, at Investor's option,
representing the Put Shares to be purchased by Investor pursuant to Section
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2.1 herein, registered in the name of Investor and (b) Investor shall
deliver to the Escrow Agent the Investment Amount specified in the Put
Notice by wire transfer of immediately available funds to an account
designated in the Joint Escrow Instructions. In lieu of delivering physical
certificates representing the Common Stock issuable in accordance with
clause (a) of this Section 2.3, and provided that the Transfer Agent then
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of Investor, the Company
shall use its commercially reasonable efforts to cause the Transfer Agent
to electronically transmit the Put Shares by crediting the Escrow Agent's
designated brokerage account with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system. In addition, at least one (1) business day
prior to such Closing Date, each of the Company and Investor shall deliver
to the Escrow Agent all documents, instruments and writings required to be
delivered in order to implement and effect the transactions contemplated
herein. The Escrow Agent will be authorized to release the Escrow Property
(as defined in the Escrow Agreement) only upon the delivery of the Put
Shares, the Investment Amount and other documents pursuant to this Section
2.3 and the satisfaction of the conditions set forth in this Agreement.
Section 2.4 WARRANTS.
(a) INITIAL WARRANTS. Upon execution of this Agreement, the
Company agrees to issue Warrants to the Investor for the purchase of
110,300 shares of Common Stock Such warrants shall bear an exercise price
per share of Common Stock equal to eight dollars and forty cents ($8.40),
and shall be exercisable immediately upon issuance, and for a period of
five (5) years thereafter, together with cashless exercise and piggyback
registration rights under the Registration Rights Agreement.
(b) WARRANTS ISSUABLE UPON DELIVERY OF PUT SHARES. The Company
agrees to issue Warrants to the Investor for the purchase of 750 shares of
Common Stock for each 10,000 Put Shares delivered by the Company to
Investor pursuant to Section 2.3 of this Agreement. Such warrants shall
bear an exercise price per share of Common Stock equal to 105% of the
Market Price as of the Put Date, and shall be exercisable immediately upon
issuance, and for a period of five (5) years thereafter, together with
cashless exercise and piggyback registration rights under the Registration
Rights Agreement.
Section 2.5 INVESTOR CALL OPTION. Within Three (3) Trading Days
after the delivery of a Put Notice, Investor may elect by delivery of a
Call Notice in the form annexed hereto as Exhibit B-1, to increase the
Investment Amount at the applicable Closing to 150% of the Investment
Amount set forth in the Put Notice.
Section 2.6 TERMINATION OF INVESTMENT OBLIGATION. The obligation of
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 (a) there shall occur any stop order or suspension of the
effectiveness of any Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, for any reason other than
deferrals or suspension during a Blackout Period in accordance with the
Registration Rights Agreement, or as a result of corporate developments
subsequent to the Subscription Date that would require such Registration
Statement to be amended to reflect such event in order to maintain its
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compliance with the disclosure requirements of the Securities Act, (b) the
Company shall at any time fail to comply with the requirements of Section
6.3, 6.4, 6.5 or 6.6 and such failure shall continue for more than thirty
(30) days, or (c) as permitted by Section 2(c) of the Registration Rights
Agreement.
Section 2.7 TERMINATION OF COMPANY'S OBLIGATIONS. If Investor fails
to deliver the Investment Amount on the Closing Date for any Put, the
Company may terminate this Agreement and the Registration Rights Agreement,
and may refuse to honor the exercise of any unexercised portion of the
warrant issued in respect of the immediately preceding Put Notice. Company
may terminate under this Section 2.7 effective as of the date of delivery
of a written notice. The Company's obligation to maintain the effectiveness
of any Registration Statement terminates ninety (90) days after termination
of the Agreement under this Section 2.7.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT. Investor is entering into this Agreement for
its own account and 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, 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.
Section 3.2 SOPHISTICATED INVESTOR. Investor and each of its members
are sophisticated investors (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 and each of its members have such experience in
business and financial matters that they are capable of evaluating the
merits and risks of an investment in Common Stock. Investor acknowledges
that an investment in the Common Stock is speculative and involves a high
degree of risk.
Section 3.3 AUTHORITY. (a) Investor has the requisite power and
authority to enter into and perform its obligations under this Agreement
and the transactions contemplated hereby in accordance with its terms; (b)
the execution and delivery of this Agreement and the Registration Rights
Agreement, and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action and no
further consent or authorization of Investor or its partners is required;
and (c) this Agreement has been duly authorized and validly executed and
delivered by Investor and is a valid and binding agreement of 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.
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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, or of any broker-dealer registered with the Securities and
Exchange Commission.
Section 3.5 ORGANIZATION AND STANDING. Investor is a limited liability
corporation organized, validly existing and in good standing under the laws
of the Cayman Islands, and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Investor 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 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 on Investor.
Section 3.6 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated hereby and thereby, and
compliance with the requirements hereof and thereof, will not (a) violate
any law, rule, regulation, order, writ, judgment, injunction, decree or
award binding on Investor, (b) 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, or 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 (that has not been obtained) pursuant to any material contract,
instrument, agreement, 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
all documents, records, books and other information pertaining to
Investor's investment in the Company that have been requested by Investor.
Investor has reviewed or received copies of the SEC Documents.
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 in
connection with the transactions contemplated hereby.
Section 3.9 FINANCIAL CAPABILITY. Investor presently has the
financial capacity and the necessary capital to perform its obligations
hereunder and shall and has provided to the Company such financial and
other information that the Company has requested to demonstrate such
capacity.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a
corporation duly organized and validly existing and in good standing under
the laws of the State of Nevada, and has all requisite power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted. Except as set forth in Schedule 4.1, the Company does
not own more than fifty percent (50%) of the outstanding capital stock of
or control any other business entity. The Company 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 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. (a) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and the Registration Rights Agreement and to issue the Put Shares
and the Blackout Shares, if any; (b) the execution and delivery of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required; and (c) each of this Agreement and the
Registration Rights Agreement has 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 respective 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.
Section 4.3 CAPITALIZATION. As of January 12, 2001, the authorized
capital stock of the Company consisted of 100,000,000 shares of Common
Stock, of which 9,298,246 shares were issued and outstanding, and
10,000,000 shares of preferred stock, of which zero (0) shares were
outstanding. Except as shown on the attached Schedule 4.3, all of the
outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and nonassessable. As of
January 12, 2001, the Company had outstanding warrants to purchase 189,318
shares of Common Stock and options to purchase 5,500,000 shares of Common
Stock.
Section 4.4 COMMON STOCK. The Company has registered the Common
Stock pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full
compliance with all reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the continued listing or
quotation of the Common Stock, and such Common Stock is currently listed or
quoted on the Principal Market. As of the date of this Agreement, the
Principal Market is the National Market System.
Section 4.5 SEC DOCUMENTS. The Company has delivered or made
available to Investor true and complete copies of the SEC Documents
(including, without limitation, proxy information and solicitation
materials). The Company has not provided to Investor any information that,
according to applicable law, rule or regulation, should have been disclosed
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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 Securities Act or the
Exchange Act, as the case may be, and other federal, state and local laws,
rules and regulations applicable to such SEC Documents, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the SEC Documents comply as to form and substance 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. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (a) as may be
otherwise indicated in such financial statements or the notes thereto or
(b) in the case of unaudited interim statements, to the extent they may not
include 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 statements, to normal
year-end audit adjustments).
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES. The sale
and issuance of the Put Shares, if any, in accordance with the terms and on
the bases of the representations and warranties set forth in this
Agreement, may and shall be properly issued by the Company to Investor
pursuant to Section 4(2), Regulation D and/or any applicable state law.
When issued and paid for as herein provided, the Put Shares, if any, shall
be duly and validly issued, fully paid, and nonassessable. Except as
described on Schedule 4.6, neither the sales of the Put Shares, if any,
pursuant to, nor the Company's performance of its obligations under, this
Agreement or the Registration Rights Agreement shall (a) result in the
creation or imposition of any liens, charges, claims or other encumbrances
upon the Put Shares, if any, or any of the assets of the Company, or (b)
entitle the holders of Outstanding Common Stock to preemptive or other
rights to subscribe to or acquire the Common Stock or other securities of
the Company. The Put Shares shall not subject Investor to personal
liability solely by reason of the ownership thereof.
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO
THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
person acting on its or their behalf (a) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares or the
Blackout Shares, if any, or (b) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Common Stock under the Securities Act.
Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or made
available to Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and in effect on the date hereof (the
"CERTIFICATE"), and the Company's By-Laws, as in effect on the date hereof
(the "BY-LAWS").
13
Section 4.9 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 and the Blackout Shares, if any, do not and will not (a)
result in a violation of the Certificate or By-Laws or (b) conflict with,
or constitute a material default (or an event that with notice or lapse of
time or both would become a material default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is
a party, or (c) result in a violation of any federal, state, local or
foreign law, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Company or by
which any property or asset of the Company is bound or affected (except for
such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing;
provided, however, that for purposes of the Company's representations and
warranties as to violations of foreign law, rule or regulation referenced
in clause (c), such representations and warranties are made only to the
best of the Company's knowledge insofar as the execution, delivery and
performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby are or may be affected by
the status of Investor under or pursuant to any such foreign law, rule or
regulation. 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 do not and will
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 Common
Stock in accordance with the terms hereof (other than any SEC, NASD,
Principal Market or state securities filings that may be required to be
made by the Company subsequent to any 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
Principal 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 Investor herein.
Section 4.10 NO MATERIAL ADVERSE CHANGE. Since October 31, 2000, no
event has occurred that would have a Material Adverse Effect on the
Company, except as disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no
liabilities or obligations that are material, individually or in the
aggregate, and that are not disclosed in the SEC Documents or otherwise
publicly announced, other than those incurred in the ordinary course of the
Company's businesses since October 31, 2000 and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on the
Company.
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Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since January
18, 2000, 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.
Section 4.13 EXEMPT OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security that would eliminate the availability of the
exemption from registration under Regulation D or Section 4(2) of the
Securities Act in connection with the offer and sale of the Common Stock as
contemplated hereby.
Section 4.14 LITIGATION AND OTHER PROCEEDINGS. Except as may be
set forth in the SEC Documents, there are no lawsuits or proceedings
pending or to the best 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 would 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, so far as
is known by the Company, requested of any court, arbitrator or governmental
agency which would have a Material Adverse Effect.
Section 4.15 NO MISLEADING OR UNTRUE COMMUNICATION. The Company,
any Person representing the Company, and, to the knowledge of the Company,
any other Person selling or offering to sell the Put Shares , if any, in
connection with the transactions 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 4.16 MATERIAL NON-PUBLIC INFORMATION. The Company is not
in possession of, nor has the Company or its agents disclosed to Investor,
any material non-public information that (a) if disclosed, would reasonably
be expected to have a materially adverse effect on the price of the Common
Stock or (b) 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.
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW. Investor's trading activities with
respect to shares of the Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the NASD and the Principal Market on which the
Common stock is listed.
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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 respects with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. As of the date hereof,
the Company has available and the Company shall reserve and keep available
at all times, free of preemptive rights, shares of Common Stock for the
purpose of enabling the Company to satisfy any obligation to 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 shall maintain
the listing of the Common Stock on a Principal Market, and will cause the
Put Shares and the Blackout Shares, if any, to be listed on a Principal
Market. The Company further shall, if the Company applies to have the
Common Stock traded on any other Principal Market, include in such
application the Put Shares , if any, and shall take such other action as is
necessary or desirable in the reasonable opinion of Investor to cause the
Common Stock to be listed on such other Principal Market as promptly as
possible. The Company shall use its commercially reasonable efforts to
continue the listing and trading of the Common Stock on a 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 NASD and the Principal
Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company shall take all
commercially reasonable steps to cause the Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Exchange Act, will use its
commercially reasonable efforts to comply in all material respects with its
reporting and filing obligations under said Act, and will not take any
action or file any document (whether or not permitted by said 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 Put Shares and
the Blackout Shares, if any, shall be free of legends, except as provided
for in Article VIII.
Section 6.6 CORPORATE EXISTENCE. The Company shall take all
commercially reasonable steps necessary to preserve and continue the
corporate existence of the Company.
Section 6.7 ADDITIONAL SEC DOCUMENTS. The Company shall deliver to
Investor, promptly after the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
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Section 6.9 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 undertakes, upon
written request by Investor, to notify Investor 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 with
respect to such calendar quarter and shall in no way obligate the Company
to raise such amount during such calendar quarter or otherwise limit its
ability to deliver Put Notices during such calendar quarter. The failure by
the Company to comply with this provision can be cured by the Company's
notifying Investor at any time as to its reasonable expectations with
respect to the current calendar quarter.
Section 6.10 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 unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to Investor such shares of stock and/or securities as
Investor is entitled to receive pursuant to this Agreement.
Section 6.11 ISSUANCE OF PUT SHARES AND BLACKOUT SHARES. The sale
of the Put Shares, the issuance of the Blackout Shares and Call Option
Shares, if any, shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state law.
Section 6.12 [INTENTIONALLY DELETED],
Section 6.13 REIMBURSEMENT. If (i) Investor, other than by reason
of its negligence or willful misconduct, becomes involved in any capacity
in any action, proceeding or investigation brought by any shareholder of
the Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if Investor is
impleaded in any such action, proceeding or investigation by any person,
or (ii) Investor, other than by reason of its negligence or willful
misconduct or by reason of its trading of the Common Stock in a manner that
is illegal under the federal securities laws, becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC
against or involving the Company or in connection with or as a result of
the consummation of the transactions contemplated by the Transaction
Documents, or if Investor is impleaded in any such action, proceeding or
investigation by any person, then in any such case, the Company will
reimburse Investor for its reasonable legal and other expenses (including
the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with
respect to any matter in which Investor is a named party, the Company will
pay to Investor the charges, as reasonably determined by Investor, for the
time of any officers or employees of Investor devoted to appearing and
preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of
this Agreement. The reimbursement obligations of the Company under this
17
section shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
affiliates of Investor that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of Investor and any such
affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company,
Investor and any such affiliate and any such person.
Section 6.14 DILUTION. The number of shares of Common Stock issuable
as Put Shares may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the
trading price of the Common Stock declines during the period between the
Effective Date and the end of the Commitment Period. The Company's
executive officers and directors fully understand the nature of the
transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect. The board of directors of the Company has
concluded, in its good faith business judgment, that such issuance is in
the best interests of the Company. The Company specifically acknowledges
that its obligation to issue the Put Shares is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company
Section 6.15 USE OF PROCEEDS The Company will use the proceeds
received hereunder (excluding amounts paid by the Company for legal fees,
finder's fees and escrow fees in connection with the sale of the Common
Stock) for working capital and general corporate purposes, and, unless
specifically consented to in advance in each instance by the Investor, the
Company shall not, directly or indirectly, use such proceeds for any loan
to or investment in any other corporation, partnership enterprise or other
person or for the repayment of any outstanding loan by the Company to any
other party, except for Company subsidiaries identified in Schedule 4.1.
Section 6.16 CERTAIN AGREEMENTS The Company shall not breach the
provisions of Section 4g of the Securities Purchase Agreement. In the
event the Company breaches the provisions of such Section 4g, the Discount
shall be amended to 110% of the Discount set forth herein and Investor may
terminate his obligations under this Agreement and demand such amounts as
may be owing, if any, under Section 2.1(c).
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES 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 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 INVESTOR'S REPRESENTATION AND WARRANTIES. The
representations and warranties of 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, except for changes
which have not had a Material Adverse Effect.
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(b) PERFORMANCE BY INVESTOR. Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by Investor at or prior to such Closing.
(e) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or adopted by any court or governmental authority of competent jurisdiction
that prohibits or directly and materially 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 materially
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 shall not have been suspended by the SEC,
the Principal Market or the NASD and the Common Stock (including the Put
Shares) shall have been approved for listing or quotation on and shall not
have been delisted from a Principal Market.
(g) SHAREHOLDER VOTE. 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.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO
DELIVER A PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES.
The right of the Company to deliver a Put Notice and the obligation of
Investor hereunder to acquire and pay for the Put Shares incident to a
Closing is subject to the satisfaction, on (a) the date of delivery of such
Put Notice and (b) the applicable Closing Date (each a "CONDITION
SATISFACTION DATE"), of each of the following conditions:
(a) REGISTRATION OF REGISTRABLE SECURITIES WITH THE SEC. As set
forth in the Registration Rights Agreement, the Company shall have filed
with the SEC the Registration Statement with respect to the resale of the
Registrable Securities by Investor and such Registration Statement shall
have been declared effective by the SEC prior to the first Put Date. For
the purposes of any Put Notice with respect to the Registrable Securities,
the Company shall have filed with the SEC a Registration Statement and paid
all applicable fees with respect to the resale of such Registrable
Securities by Investor which shall have been declared effective by the SEC
prior to the Put Date therefore.
(b) EFFECTIVE REGISTRATION STATEMENT. As set forth in the
Registration Rights Agreement, a Registration Statement shall have
previously become effective for the resale by Investor of the Registrable
Securities subject to such Put Notice and such Registration Statement shall
remain effective on each Condition Satisfaction Date and (i) neither the
Company nor Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to such Registration Statement
or that the SEC otherwise has suspended or withdrawn the effectiveness of
such Registration Statement, either temporarily or permanently, or intends
or has threatened to do so (unless the SEC's concerns have been addressed
and Investor is reasonably satisfied that the SEC no longer is considering
or intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist.
19
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in
all material respects as of each Condition Satisfaction Date as though made
at each such time (except for representations and warranties specifically
made as of a particular date) with respect to all periods, and as to all
events and circumstances occurring or existing prior to and including each
Condition Satisfaction Date, except for any conditions which have
temporarily caused any representations or warranties herein to be incorrect
and which have been corrected with no continuing impairment to the Company
or Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement 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 adopted by any court or governmental authority of competent jurisdiction
that prohibits or directly and materially 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 materially
adversely affecting any of the transactions contemplated by this Agreement.
(f) 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.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The
trading of the Common Stock shall not have been suspended by the SEC, a
Principal Market or the NASD and the Common Stock (including the Put
Shares) shall have been approved for listing or quotation on and shall not
have been delisted from a Principal Market.
(h) LEGAL OPINION. The Company shall have caused to be delivered
to Investor, within five (5) Trading Days of the effective date of the
Initial Registration Statement and each subsequent Registration Statement,
an opinion of the Company's legal counsel in the form of Exhibit C hereto,
addressed to Investor.
(i) DUE DILIGENCE. No good faith dispute between the Company and
Investor shall exist pursuant to Section 7.3 as to the adequacy of the
disclosure contained in any Registration Statement.
20
(j) MINIMUM BID PRICE. The average of the Bid Prices for the
ten (10) Trading Days immediately preceding the Put Notice and the Closing
Date, shall have equaled or exceeded One Dollar ($1.00) (as adjusted for
stock splits, stock dividends, reverse stock splits, and similar events).
(k) The Weighted Average Daily Volume for the ten (10) trading
days prior to the Closing Date shall equal or exceed One Hundred Thousand
Dollars ($100,000) percent of the Put Amount.
(l) NO KNOWLEDGE. The Company shall have 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 more
likely than not to occur within the fifteen (15) Trading Days following the
Trading Day on which such Notice is deemed delivered).
(m) TRADING CUSHION. The Trading Cushion shall have elapsed since
the immediately preceding Put Date.
(n) SHAREHOLDER VOTE. 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.
(o) NO VALUATION EVENT. No Valuation Event shall have occurred
since the Put Date.
(p) OTHER. On each Condition Satisfaction Date, Investor shall
have received and been reasonably satisfied with such other certificates
and documents as shall have been reasonably requested by Investor in order
for Investor to confirm the Company's satisfaction of the conditions set
forth in this Section 7.2, including, without limitation, a certificate
substantially in the form and substance of Exhibit D hereto, executed by an
executive officer of the Company and to the effect that all the conditions
to such Closing shall have been satisfied as at the date of each such
certificate and the execution and delivery of the Transfer Agent
Instructions.
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC
INFORMATION.
(a) The Company shall make available for inspection and review by
Investor, advisors to and representatives of Investor (who may or may not
be affiliated with Investor and who are reasonably acceptable to the
Company), any Underwriter, any Registration Statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all
other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by Investor or any such representative, advisor or
Underwriter in connection with such Registration Statement (including,
without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to
time after the filing and effectiveness of such Registration Statement for
the sole purpose of enabling Investor and such representatives, advisors
and Underwriters and their respective accountants and attorneys to conduct
initial and ongoing due diligence with respect to the Company and the
accuracy of such Registration Statement.
21
(b) Each of the Company, its officers, directors, employees and
agents shall in no event disclose non-public information to Investor,
advisors to or representatives of Investor unless prior to disclosure of
such information the Company identifies such information as being
non-public information and provides Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to
disclosing any non-public information hereunder, require Investor's
advisors and representatives to enter into a confidentiality agreement in
form and substance reasonably satisfactory to the Company and Investor.
(c) Nothing herein shall require the Company to disclose
non-public information to 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 shall, as
hereinabove provided, immediately notify the advisors and representatives
of Investor and 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 a 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 7.3 shall be construed to
mean that such persons or entities other than Investor (without the written
consent of 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 and conditions 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, any Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in such
Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS. Unless otherwise provided below, each
certificate representing Registrable Securities will bear the following
legend (the "LEGEND"):
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The securities represented by this certificate have
not been registered under the Securities Act of 1933
(the "Securities Act") or qualified under applicable
state securities laws. These securities may not be
offered, sold, pledged, hypothecated, transferred or
otherwise disposed of except pursuant to (i) an
effective registration statement and qualification in
effect with respect thereto under the Securities Act
and under any applicable state securities law, (ii) to
the extent applicable, Rule 144 under the Securities
Act, or (iii) an opinion of counsel reasonably
acceptable to the Company that such registration and
qualification is not required under applicable federal
and state securities laws."
As soon as practicable after the execution and delivery hereof, the Company
shall issue to the Transfer Agent, instructions in substantially the form
of Exhibit E hereto. Such instructions shall be irrevocable by the Company
from and after the date thereof or from and after the issuance thereof
except as otherwise expressly provided in the Registration Rights
Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the Transfer Agent to issue to Investor certificates
evidencing shares of Common Stock incident to a Closing, free of the
Legend, without consultation by the transfer agent with the Company or its
counsel and without the need for any further advice or instruction or
documentation to the Transfer Agent by or from the Company or its counsel
or Investor; provided that (a) a Registration Statement shall then be
effective, (b) Investor confirms to the Transfer Agent and the Company that
it has or intends to sell such Common Stock to a third party which is not
an affiliate of Investor or the Company and Investor agrees to redeliver
the certificate representing such shares of Common Stock to the Transfer
Agent to add the Legend in the event the Common Stock is not sold, and (c)
if reasonably requested by the transfer agent or the Company, Investor
confirms to the transfer agent and the Company that Investor has complied
with the prospectus delivery requirement under the Securities Act. At any
time after the Effective Date, upon surrender of one or more certificates
evidencing Common Stock that bear the Legend, to the extent accompanied by
a notice requesting the issuance of new certificates free of the Legend to
replace those surrendered
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No
legend other than the one specified in Section 8.1 has been or shall be
placed on the share certificates representing the Common Stock and no
instructions or "stop transfers orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set
forth in this Article VIII.
Section 8.3 INVESTOR'S COMPLIANCE. Nothing in this Article VIII
shall affect in any way Investor's obligations under any agreement to
comply with all applicable securities laws upon resale of the Common Stock.
ARTICLE IX
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NOTICES; INDEMNIFICATION
Section 9.1 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 (a)
personally served, (b) deposited in the mail, registered or certified,
return receipt requested, postage prepaid, (c) delivered by reputable air
courier service with charges prepaid, or (d) 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
given in accordance herewith. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (i) 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 (ii) on the second business
day following the date of mailing by express courier service or on the
fifth business day after deposited in the mail, in each case, 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: BioPulse International, Inc.
00000 Xxxxx Xxxxxx Xxxxxxx
Xxxx Xxxx Xxxx, Xxxxx 000, XX 00000
ATTN: CEO
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to: Xxxxxx Xxxxxxx, Esq.
Poulton & Yordan
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000-X
Xxxx Xxxx Xxxx, Xxxx 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
if to Investor: Hunts Drive, LLC
x/x Xxxxxxxxx Xxxxxxxxxx
X.X. Xxx 000
Xxxx Xxxx
Xxxxxxx, Xxxxxxx Xxxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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Either party hereto may from time to time change its address or facsimile
number for notices under this Section 9.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the
other party hereto.
Section 9.2 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Investor
and its Affiliates and agents from and against any Damages, joint or
several, and any action in respect thereof to which Investor, its
Affiliates or agents, becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of
or failure to perform any covenant or agreement on the part of the Company
contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from Investor's failure to perform any
covenant or agreement contained in this Agreement or Investor's or its
Affiliates' or agents' negligence, recklessness or bad faith in performing
any of their obligations under this Agreement.
(b) Investor agrees to indemnify and hold harmless the Company
and its Affiliates and agents from and against any Damages, joint or
several, and any action in respect thereof to which the Company and its
Affiliates and agents, becomes subject to, resulting from, arising out of
or relating to any misrepresentation, breach of warranty or nonfulfillment
of or failure to perform any covenant or agreement on the part of Investor
contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from the Company's failure to perform
any covenant or agreement contained in this Agreement or the Company's or
its Affiliates' or agents' negligence, recklessness or bad faith in
performing their obligations under this Agreement.
Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims
for indemnification by any Indemnified Party (as defined below) under
Section 9.2 shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 9.2 (an
"INDEMNIFIED PARTY") might seek indemnity under Section 9.2 is asserted
against or sought to be collected from such Indemnified Party by a person
other than a party hereto or an Affiliate or agent thereof (a "THIRD PARTY
CLAIM"), the Indemnified Party shall deliver a written notification,
enclosing a copy of all papers served, if any, and specifying the nature of
and basis for such Third Party Claim and for the Indemnified Party's claim
for indemnification that is being asserted under any provision of Section
9.2 against any person (the "INDEMNIFYING PARTY"), together with the amount
or, if not then reasonably ascertainable, the estimated amount, determined
in good faith, of such Third Party Claim (a "CLAIM NOTICE") with reasonable
promptness to the Indemnifying Party. If the Indemnified Party fails to
provide the Claim Notice with reasonable promptness after the Indemnified
Party receives notice of such Third Party Claim, the Indemnifying Party
25
shall not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party's ability
to defend has been prejudiced by such failure of the Indemnified Party. The
Indemnifying Party shall notify the Indemnified Party as soon as
practicable within the period ending thirty (30) calendar days following
receipt by the Indemnifying Party of either a Claim Notice or an Indemnity
Notice (as defined below) (the "DISPUTE PERIOD") whether the Indemnifying
Party disputes its liability or the amount of its liability to the
Indemnified Party under Section 9.2 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party
against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
Section 9.3(a), then the Indemnifying Party shall have the right to defend,
with counsel reasonably satisfactory to the Indemnified Party, at the sole
cost and expense of the Indemnifying Party, such Third Party Claim by all
appropriate proceedings, which proceedings shall be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion or
will be settled at the discretion of the Indemnifying Party (but only with
the consent of the Indemnified Party in the case of any settlement that
provides for any relief other than the payment of monetary damages or that
provides for the payment of monetary damages as to which the Indemnified
Party shall not be indemnified in full pursuant to Section 9.2). The
Indemnifying Party shall have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified
Party, at any time prior to the Indemnifying Party's delivery of the notice
referred to in the first sentence of this clause (i), file any motion,
answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to protect its
interests; and provided further, that if requested by the Indemnifying
Party, the Indemnified Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party
elects to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled by
the Indemnifying Party pursuant to this clause (i), and except as provided
in the preceding sentence, the Indemnified Party shall bear its own costs
and expenses with respect to such participation. Notwithstanding the
foregoing, the Indemnified Party may takeover the control of the defense or
settlement of a Third Party Claim at any time if it irrevocably waives its
right to indemnity under Section 9.2 with respect to such Third Party
Claim.
(ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying Party
desires to defend the Third Party Claim pursuant to this Section 9.3(a), or
if the Indemnifying Party gives such notice but fails to prosecute
vigorously and diligently or settle the Third Party Claim, or if the
Indemnifying Party fails to give any notice whatsoever within the Dispute
Period, then the Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party, the Third Party Claim by
all appropriate proceedings, which proceedings shall be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or will be
settled at the discretion of the Indemnified Party (with the consent of the
26
Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the
sole cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnified Party and its counsel in contesting any
Third Party Claim which the Indemnified Party is contesting.
Notwithstanding the foregoing provisions of this clause (ii), if the
Indemnifying Party has notified the Indemnified Party within the Dispute
Period that the Indemnifying Party disputes its liability or the amount of
its liability hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the Indemnifying
Party in the manner provided in clause (iii) below, the Indemnifying Party
will not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this clause (ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in,
but not control, any defense or settlement controlled by the Indemnified
Party pursuant to this clause (ii), and the Indemnifying Party shall bear
its own costs and expenses with respect to such participation.
(iii) If the Indemnifying Party has timely disputed its
liability or the amount of its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good faith to
negotiate a resolution of such dispute; provided, however, that it the
dispute is not resolved within thirty (30) days after the Claim Notice, the
Indemnifying Party shall be entitled to institute such legal action as it
deems appropriate.
(b) In the event any Indemnified Party should have a claim
under Section 9.2 against the Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party shall deliver a written
notification of a claim for indemnity under Section 9.2 specifying the
nature of and basis for such claim, together with the amount or, if not
then reasonably ascertainable, the estimated amount, determined in good
faith, of such claim (an "INDEMNITY NOTICE") with reasonable promptness to
the Indemnifying Party. The failure by any Indemnified Party to give the
Indemnity Notice shall not impair such party's rights hereunder except to
the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall proceed in
good faith to negotiate a resolution of such dispute; provided, however,
that it the dispute is not resolved within thirty (30) days after the Claim
Notice, the Indemnifying Party shall be entitled to institute such legal
action as it deems appropriate.
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of
California without regard to the principles of conflicts of law. Each of
the Company and Investor hereby submit to the exclusive jurisdiction of the
United States Federal and state courts located in Los Angeles, California
with respect to any dispute arising under this Agreement, the agreements
entered into in connection herewith or the transactions contemplated hereby
or thereby.
27
Section 10.2 ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Company and Investor and their respective
successors and permitted assigns. Neither this Agreement nor any rights of
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 Investor
hereunder with respect to the Common Stock held by such person, and (b)
Investor's interest in this Agreement, but not its obligations under this
Agreement, may be assigned at any time, in whole but not in part, to any
affiliate of Investor.
Section 10.3 THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the Company and Investor and their respective successors
and permitted assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 10.4 TERMINATION. This Agreement shall terminate twelve
(12) months after the delivery of the final Put Notice (unless extended by
the agreement of the Company and Investor); provided, however, that the
provisions of Article V, VI, VIII, IX and Sections 10.9 and 10.12 shall
survive the termination of this Agreement.
Section 10.5 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This
Agreement and the instruments referenced herein contain the entire
understanding of the Company and Investor with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor 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 10.6 FEES AND EXPENSES. Each of the Company and Investor
agrees to pay its own expenses in connection with the preparation of this
Agreement and performance of its obligations hereunder, except that the
Company shall pay the Escrow Agent the fee of $2,500 at each of the
Closings.
Section 10.7 NO BROKERS. Each of the Company and Investor
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, except Xxxx Capital Partners, Inc. The Company on
the one hand, and Investor, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any
persons 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 10.8 COUNTERPARTS. 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. This Agreement, once
executed by a party, may be delivered to the other parties hereto by
facsimile transmission of a copy of this Agreement bearing the signature of
the parties so delivering this Agreement.
28
Section 10.9 SURVIVAL; SEVERABILITY. The representations,
warranties, covenants and agreements of the parties hereto shall survive
each Closing hereunder for a period of one year. 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.
Section 10.10 FURTHER ASSURANCES. Each party shall do and perform,
or cause to be done and performed, all such further acts and things, and
shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.
Section 10.11 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be
applied against any party.
Section 10.12 EQUITABLE RELIEF. Each party recognizes that in the
event that it fails to perform, observe, or discharge any or all of its
obligations under this Agreement, any remedy at law may prove to be
inadequate relief. Each party therefore agrees that the other shall be
entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
Section 10.13 TITLE AND SUBTITLES. The titles and subtitles used in
this Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.
Section 10.14 REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price 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
Investor and the Company shall be required to employ any other reporting
entity.
Section 10.15 OWNERSHIP LIMITATION. Notwithstanding the provisions
hereof or any prior agreement between Investor and the Company, in no event
shall the Company deliver a Put to Investor in an amount that, after such
Put, the sum of the number of shares of Common Stock beneficially owned by
Investor and its affiliates would be more than 9.9% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Exchange Act. If the Company delivers a Put that
would cause Investor to exceed 9.9% of the outstanding shares of Common
Stock, then Investor shall notify the Company and the parties hereby agree
to reduce the amount of the Put so that such 9.9% limit shall not be
exceeded.
29
Section 10.16 INVESTOR OBLIGATION TO PURCHASE SHARES. Notwithstanding
anything to the contrary herein, and subject to the conditions set forth in
this Agreement, following the Investor's receipt of a validly delivered Put
Notice, the Investor shall be required to purchase from the Company during
the related Purchase Period that number of Shares having an aggregate
Purchase Price equal to the lesser of (i) the Dollar Amount set forth in
the Put Notice (subject to reduction during the Purchase Period as may be
provided pursuant to the terms of this Agreement), or (ii) 15% of the total
Volume Weighted Average Price during the applicable Purchase Period, but
only if said number of shares are received in escrow pursuant to the terms
of the Escrow Agreement attached hereto as Exhibit G.
The Dollar Amount that the Company is permitted to request with
respect to each Put Notice depends on the product of the daily trading
volume and the average trade price of the Company's Common Stock on the
Principal Market, as defined in Section 1.1 (the "VOLUME WEIGHTED AVERAGE
PRICE"). The Volume Weighted Average Price shall be as reported by
Bloomberg Financial Markets ("BLOOMBERG") through its "Volume at Price"
function or if not available through Bloomberg because of delisting, then
the average of the bid prices of any market makers for the Company's Common
Stock as reported in the "pink sheets" by the National Quotation Bureau,
Inc.
30
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
BioPulse International, Inc., a Nevada corporation
By:/s/ Xxxxx Xxxxxxx
---------------------
Name: Xxxxx Xxxxxxx
Title: President
Hunts Drive, LLC, a Cayman Islands limited liability
company
By:
----------------
Name:
Title:
31
EXHIBITS
--------
EXHIBIT A Registration Rights Agreement
EXHIBIT B Put Notice
EXHIBIT B-1 Call Option Notice
EXHIBIT C Opinion
EXHIBIT D Closing Certificate
EXHIBIT E Transfer Agent Instructions
EXHIBIT F Warrant
EXHIBIT G Escrow Instructions
32
