EXHIBIT 10.2
STANDBY EQUITY DISTRIBUTION AGREEMENT
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THIS AGREEMENT dated as of the 28th day of April 2005 (the "AGREEMENT")
between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"INVESTOR"), and VALENTEC SYSTEMS, INC., 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 $0.01 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 Newbridge Securities Corporation (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
pursuant to the Placement Agent Agreement dated the date hereof by and among the
Company, the Placement Agent and the Investor (the "PLACEMENT AGENT AGREEMENT").
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 date the Xxxxx Xxxxxxxx
Attorney Trust Account is in receipt of the funds from the Investor and Xxxxx
Xxxxxxxx, Esq., is in possession of free trading shares from the Company and
therefore an Advance by the Investor to the Company can be made and Xxxxx
Xxxxxxxx, Esq. can release the free trading shares to the Investor. The Advance
Date shall be 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 to the
Investor setting forth the Advance amount that the Company requests from the
Investor and the Advance Date.
Section 1.4. "ADVANCE NOTICE DATE" shall mean each date the Company
delivers 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.
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 Fifteen
Million Dollars ($15,000,000), (y) the date this Agreement is terminated
pursuant to Section 2.4, or (z) the date occurring twenty-four (24) months after
the Effective Date.
Section 1.9. "COMMON STOCK" shall mean the Company's common stock, par
value $0.01 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. "ESCROW AGREEMENT" shall mean the escrow agreement among
the Company, the Investor, and Xxxxx Xxxxxxxx, Esq., dated the date hereof.
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 would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement in any material
respect.
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Section 1.16. "MARKET PRICE" shall mean the lowest VWAP of the Common
Stock during the Pricing Period.
Section 1.17. "MAXIMUM ADVANCE AMOUNT" shall be Five Hundred Thousand
Dollars ($500,000) per 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 Newbridge Securities
Corporation, a registered broker-dealer.
Section 1.21. "PRICING PERIOD" shall mean the five (5) consecutive
Trading Days after the Advance Notice Date.
Section 1.22. "PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq SmallCap 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 eight percent
(98%) of the Market Price during the Pricing Period.
Section 1.24. "REGISTRABLE SECURITIES" shall mean the shares of Common
Stock to be issued hereunder, including 10% of the Common Stock of the Company
held by Armament Systems International, Inc. and the Warrant Shares (as such
term is defined in the Warrant issued by the Company to the Investor of even
date herewith) (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 or 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
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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 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-KSB,
Quarterly Reports on Form 10-QSB, 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. "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. INVESTMENTS.
(a) ADVANCES. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Advance Notice Date the Company may request an Advance by the Investor by the
delivery of an Advance Notice. The number of shares of Common Stock that the
Investor shall receive for 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.
(a) ADVANCE NOTICE. At any time during the Commitment Period,
the Company may deliver 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. 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 on the day the Advance Notice is
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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 12:00 noon Eastern
Time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 12:00 noon Eastern Time on a Trading Day or at any
time on a day which is not a Trading Day. No Advance Notice may be deemed
delivered on a day that is not a Trading Day.
Section 2.3. CLOSINGS. On each Advance Date, which shall be the first
(1st) Trading Day after expiration of the applicable Pricing Period for each
Advance, (i) the Company shall deliver to Xxxxx Xxxxxxxx, Esq. (the "ESCROW
AGENT") shares of the Company's Common Stock, representing the amount of the
Advance by the Investor pursuant to Section 2.1 herein, registered in the name
of the Investor which shall be delivered to the Investor, or otherwise in
accordance with the Escrow Agreement and (ii) the Investor shall deliver to
Escrow Agent the amount of the Advance specified in the Advance Notice by wire
transfer of immediately available funds which shall be delivered to the Company,
or otherwise in accordance with the Escrow Agreement. In addition, on or prior
to the Advance Date, each of the Company and the Investor shall deliver to the
other through the Investor's counsel, 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. Payment of funds
to the Company and delivery of the Company's Common Stock to the Investor shall
occur in accordance with the conditions set forth above and those contained in
the Escrow Agreement; PROVIDED, HOWEVER, that to the extent the Company has not
paid the fees, expenses, and disbursements of the Investor, the Investor's
counsel, or the Company's counsel 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) from the amount of the Advance with no
reduction in the amount of shares of the Company's Common Stock to be delivered
on such Advance Date.
Section 2.4. TERMINATION OF INVESTMENT. 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, and (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.
Section 2.5. AGREEMENT TO ADVANCE FUNDS. The Investor agrees to advance
the amount specified in the Advance Notice to the Company after the completion
of each of the following conditions and the other conditions set forth in this
Agreement:
(a) the execution and delivery by the Company, and the
Investor, of this Agreement and the Exhibits hereto;
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(b) The Escrow Agent shall have received the shares of Common
Stock applicable to the Advance in accordance with Section 2.3. Such shares
shall be free of restrictive legends.
(c) the Company's Registration Statement with respect to the
resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement shall have been declared effective by the SEC;
(d) the Company shall have obtained all material permits and
qualifications required by any applicable state for the offer and sale of the
Registrable Securities, or shall 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;
(e) the Company shall have filed with the Commission in a
timely manner all reports, notices and other documents required of a "reporting
company" under the Exchange Act and applicable Commission regulations;
(f) the fees as set forth in Section 12.4 below shall have been
paid or can be withheld as provided in Section 2.3; and
(g) the conditions set forth in Section 7.2 shall have been
satisfied.
(h) the Company shall have provided to the Investor an
acknowledgement, from Heard, XxXxxxx & Xxxxxx, LLP as to its ability to provide
all consents required in order to file a registration statement in connection
with this transaction;
(i) The Company's transfer agent shall be DWAC eligible.
Section 2.6. LOCK UP PERIOD. On the date hereof, the Company shall
obtain from each officer and director a lock-up agreement, as defined below, in
the form annexed hereto as Schedule 2.6 agreeing to only sell in compliance with
the volume limitation of Rule 144.
Section 2.7. 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 Escrow Agent on the Advance Date the shares of
Common Stock corresponding to the applicable Advance, 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 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
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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
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, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part. 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
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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
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; and
(iii) 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 AND ESCROW AGREEMENT. The
parties have entered into the Registration Rights Agreement and the Escrow
Agreement, each 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. PUBLIC COMPANY. No Investor makes any representation or
warranty regarding the Company's ability to successfully become a public company
or to have any registration statement filed by the Company pursuant to the
Registration Rights Agreement or otherwise declared effective by the SEC. The
Company has the sole obligation to make any and all such filings as may be
necessary to become a public company and to have any registration statement
declared effective by the SEC.
Section 3.12. The Company acknowledges that the Investor is relying on
the representations and warranties made by the Company hereunder and that such
representations and warranties are a material inducement to the Investor
purchasing the Convertible Debentures. The Company further acknowledges that
without such representations and warranties of the Company made hereunder, the
Investor would not enter into this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below, on the Disclosure Schedules (the "DISCLOSURE
SCHEDULE") attached hereto as Exhibit "B," the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
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Section 4.1. 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 power and authority
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 4.2. AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER
INSTRUMENTS. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements have
been duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Placement Agent
Agreement and assuming the execution and delivery thereof and acceptance by the
Investor and any related agreements constitute the valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
Section 4.3. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of 100 shares of Common Stock, par value
$0.01 per share and no shares of Preferred Stock of which 100 shares of Common
Stockare issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as disclosed in the
Disclosure Schedule, no shares of Common Stock are subject to preemptive rights
or any other similar rights or any liens or encumbrances suffered or permitted
by the Company. Except as disclosed in the Disclosure Schedule, as of the date
hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, (ii) there are no outstanding debt securities (iii) there are no
outstanding registration statements other than on Form S-8 and (iv) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the Securities
Act (except pursuant to Section 1.24 above and the Registration Rights
Agreement). There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by this Agreement or any related
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agreement or the consummation of the transactions described herein or therein.
The Company has furnished to the Investor true and correct copies of the
Company's Certificate of Incorporation, as amended and as in effect on the date
hereof (the "CERTIFICATE OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
Section 4.4. NO CONFLICT. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) result in a violation of the
Certificate of Incorporation, any certificate of designations of any outstanding
series of preferred stock of the Company or By-laws or (ii) conflict with or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market on which the Common Stock is quoted)
applicable to the Company or any of its subsidiaries or by which any material
property or asset of the Company or any of its subsidiaries is bound or affected
and which would cause a Material Adverse Effect. Except as disclosed in the
Disclosure Schedule, neither the Company nor its subsidiaries is in violation of
any term of or in default under its Articles of Incorporation or By-laws or
their organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted in violation of any material law, ordinance, regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the Securities Act and any applicable state securities laws,
the Company is not required 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 or
contemplated by this Agreement or the Registration Rights Agreement in
accordance with the terms hereof or thereof. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its subsidiaries are unaware of any fact or
circumstance which might give rise to any of the foregoing.
Section 4.5. FINANCIAL STATEMENTS. As of their respective dates, the
financial statements of the Company (the "FINANCIAL STATEMENTS") for the two
most recently completed fiscal years and any subsequent interim period complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and, fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). No other information provided by or on behalf of the Company
to the Investor contains any untrue statement of a material fact or omits to
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state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Section 4.6. NO DEFAULT. Except as disclosed in the Disclosure
Schedule, the Company is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or agreement to
which it is a party or by which it is or its property is bound and neither the
execution, nor the delivery by the Company, nor the performance by the Company
of its obligations under this Agreement or any of the exhibits or attachments
hereto will conflict with or result in the breach or violation of any of the
terms or provisions of, or constitute a default or result in the creation or
imposition of any lien or charge on any assets or properties of the Company
under its Certificate of Incorporation, By-Laws, any material indenture,
mortgage, deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound, or any
statute, or any decree, judgment, order, rules or regulation of any court or
governmental agency or body having jurisdiction over the Company or its
properties, in each case which default, lien or charge is likely to cause a
Material Adverse Effect on the Company's business or financial condition.
Section 4.7. ABSENCE OF EVENTS OF DEFAULT. Except for matters described
in the Disclosure Schedule and/or this Agreement, no Event of Default, as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (as so defined), has occurred and is continuing,
which would have a Material Adverse Effect on the Company's business,
properties, prospects, financial condition or results of operations.
Section 4.8. INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess adequate rights or licenses to use all material
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. The Company and its subsidiaries do not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, and, to the knowledge of the Company, there
is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
Section 4.9. EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
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Section 4.10. ENVIRONMENTAL LAWS. The Company and its subsidiaries are
(i) in compliance with any and all applicable material foreign, federal, state
and local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.
Section 4.11. TITLE. Except as set forth in the Disclosure Schedule,
the Company has good and marketable title to its properties and material assets
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than such as are not material to the business
of the Company. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
Section 4.12. INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
Section 4.13. REGULATORY PERMITS. The Company and its subsidiaries
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
Section 4.14. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 4.15. NO MATERIAL ADVERSE BREACHES, ETC. Except as set forth in
the Disclosure Schedule, neither the Company nor any of its subsidiaries is
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company's
officers has or is expected in the future to have a Material Adverse Effect on
the business, properties, operations, financial condition, results of operations
or prospects of the Company or its subsidiaries. Except as set forth in the
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Disclosure Schedule, neither the Company nor any of its subsidiaries is in
breach of any contract or agreement which breach, in the judgment of the
Company's officers, has or is expected to have a Material Adverse Effect on the
business, properties, operations, financial condition, results of operations or
prospects of the Company or its subsidiaries.
Section 4.16. ABSENCE OF LITIGATION. Except as set forth in the
Disclosure Schedule, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company,
the Common Stock or any of the Company's subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a Material Adverse Effect on the
transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the Disclosure Schedule, have a
Material Adverse Effect on the business, operations, properties, financial
condition or results of operation of the Company and its subsidiaries taken as a
whole.
Section 4.17. SUBSIDIARIES. Except as disclosed in the Disclosure
Schedule, the Company does not presently own or control, directly or indirectly,
any interest in any other corporation, partnership, association or other
business entity.
Section 4.18. TAX STATUS. Except as disclosed in the Disclosure
Schedule, the Company and each of its subsidiaries has made or filed all federal
and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject and (unless and only to the extent that
the Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
Section 4.19. CERTAIN TRANSACTIONS. Except as set forth in the
Disclosure Schedule none of the officers, directors, or employees of the Company
is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
Section 4.20. FEES AND RIGHTS OF FIRST REFUSAL. The Company is not
obligated to offer the securities offered hereunder on a right of first refusal
basis or otherwise to any third parties including, but not limited to, current
or former shareholders of the Company, underwriters, brokers, agents or other
third parties.
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Section 4.21. 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 4.22. 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 4.23. OPINION OF COUNSEL. Investor shall receive an opinion
letter from counsel to the Company on the date hereof.
Section 4.24. 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 4.25. 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.
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 suits and claims, including but not
limited to 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 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. 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.
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(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 any
misrepresentation or breach of any representation or warranty made by the
Investor in this Agreement, the Registration Rights Agreement, or any instrument
or document contemplated hereby or thereby executed by the Investor. 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 obtain and
maintain the Common Stock's authorization for quotation on the National
Association of Securities Dealers Inc.'s Over the Counter Bulletin Board or any
other Principal Market (as defined herein).
Section 6.3. EXCHANGE ACT REGISTRATION. The Company will cause its
Common Stock to continue to be registered under Section 12(g) of 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
15
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus 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. RESTRICTION ON SALE OF CAPITAL STOCK. During the
Commitment Period, the Company shall not, without the prior written consent of
the Investor, (i) issue or sell any Common Stock or Preferred Stock without
consideration or for a consideration per share less than the bid price of the
Common Stock determined immediately prior to its issuance, (ii) issue or sell
any Preferred Stock warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock without
consideration or for a consideration per share less than such Common Stock's Bid
Price determined immediately prior to its issuance, or (iii) file any
registration statement on Form S-8.
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.
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,
16
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 AND THE OBLIGATION OF THE INVESTOR TO PURCHASE SHARES
OF COMMON STOCK. The right of the Company to deliver an Advance Notice and the
obligation of the Investor hereunder to acquire and pay for shares of the
Company's Common Stock incident to a Closing is subject to the fulfillment by
the Company, on (i) the date of delivery of such Advance Notice and (ii) the
applicable Advance Date (each a "CONDITION SATISFACTION DATE"), of each of the
following conditions:
(a) LISTING OF THE COMPANY'S COMMON STOCK. The Company's Common
Stock shall have been authorized for quotation on the National Association of
Securities Dealers Inc.'s Over the Counter Bulletin Board or any other Principal
Market. The Company expressly acknowledges and understands that it shall not be
able to deliver an Advance Notice unless the Company's Common Stock is listed
and maintained on a Principal Market.
(b) 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.
(c) 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.
17
(b) 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.
(c) 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 (including, without
limitation, the conditions specified in Section 2.5 hereof) and the Registration
Rights Agreement to be performed, satisfied or complied with by the Company at
or prior to each Condition Satisfaction Date.
(d) 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.
(e) 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).
(f) 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.
(g) 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.
(h) OTHER. On each Condition Satisfaction Date, the Investor
shall have received the certificate executed by an officer of the Company in the
form of EXHIBIT A attached hereto.
ARTICLE VIII.
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1. DUE DILIGENCE REVIEW. Prior to the filing of the
Registration Statement the Company shall make available for inspection and
review by the Investor, its advisors and representatives, and any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
18
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 the 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 the Registration Statement for the sole purpose of enabling the 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 the Registration Statement.
Section 8.2. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose non-public information to
the Investor, its advisors, or its representatives, unless prior to disclosure
of such information the Company identifies such information as being non-public
information and provides the 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 the Investor's advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and 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.
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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 Jersey without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Xxxxxx County, New Jersey, and expressly
consent to the jurisdiction and venue of the Superior Court of New Jersey,
sitting in Xxxxxx County, New Jersey and the United States District Court of New
Jersey, sitting in Newark, New Jersey, 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.
Section 10.2. TERMINATION. The obligations of the Investor to make
Advances under Article II hereof shall terminate twenty-four (24) months after
the Effective Date.
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: Valentec Systems, Inc.
0000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxxxx LLP
0000 Xxxxxxxxxxx Xxxxxx, X.X. - Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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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:
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(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 the Company will pay a structuring
fee of Twenty Five Thousand Dollars ($25,000) to Yorkville Advisors Management,
LLC, which shall be paid on the date hereof. Subsequently on each advance date,
the Company will pay Yorkville Advisors Management, LLC a structuring fee of
Five Hundred Dollars ($500) directly out the proceeds of any Advances hereunder.
(b) DUE DILIGENCE FEE. Company shall pay the Investor a
non-refundable due diligence fee of Two Thousand Five Hundred Dollars ($2,500),
which has been previously paid.
(c) COMMITMENT FEES.
(i) On each Advance Date the Company shall pay to the
Investor, directly from the gross proceeds held in escrow, an amount equal to
five percent (5%) 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 will be made at the direction of the Investor as
outlined and mandated by Section 2.3 of this Agreement.
(ii) The Company shall pay to the Investor a commitment fee
of One Hundred Thousand Dollars ($100,000), of which Sixty Thousand Dollars
($60,000) shall be paid and deducted from the gross proceeds of the Initial
Closing of the Promissory Note (the "NOTE") of even date herewith and Forty
Thousand Dollars ($40,000) shall be paid and deducted from the gross proceeds of
the Second Closing of the Note. This fee shall be deemed fully earned on the
date hereof.
(iii) WARRANT. Upon the execution of this Agreement, the
Company shall issue to the Investor a warrant to purchase Two Hundred Thousand
(200,000) shares of the Company's Common Stock (the "WARRANT SHARES") for a
period of two (2) years at an exercise price of $0.01 per share. The Warrant
Shares shall have "piggy-back" and demand registration rights.
(iv) Within five (5) days following the consummation of the
merger with Acorn Holding Corp., the Company shall issue to the Investor shares
of Common Stock of Acorn Holding Corp. or the surviving entity following the
Company's merger with Acorn Holding Corp. in an amount equal to Four Hundred
Forty Thousand Dollars ($440,000) divided by the VWAP of the Common Stock, as
quoted by Bloomberg, LP, on the second (2nd) trading day following the
consummation of the merger (the "INVESTOR'S SHARES").
(v) FULLY EARNED. The Investor's Shares and the Warrant
Shares shall be deemed fully earned as of the date hereof.
(vi) REGISTRATION RIGHTS. The Investor's Shares and the
Warrant Shares will have "piggy-back" registration rights.
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
22
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]
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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:
VALENTEC SYSTEMS, INC.
By: /s/ Xxxxxx Xxxxx
---------------------------
Name: Xxxxxx Xxxxx
Title: CEO
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: /s/ Xxxx Xxxxxx
---------------------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
24
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
VALENTEC SYSTEMS, INC.
The undersigned, Xxxxxx Xxxxx hereby certifies, with respect to the
sale of shares of Common Stock of VALENTEC SYSTEMS, INC. (the "COMPANY"),
issuable in connection with this Advance Notice and Compliance Certificate dated
___________________ (the "NOTICE"), delivered pursuant to the Standby Equity
Distribution Agreement (the "AGREEMENT"), as follows:
1. The undersigned is the duly elected CEO 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 on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
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, 10-K, 8-K,
etc. 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
_________________.
VALENTEC SYSTEMS, INC.
By:
-----------------------------------
Name: Xxxxxx Xxxxx
Title: CEO
25
EXHIBIT B
DISCLOSURE SCHEDULE
26
SCHEDULE 2.6
------------
VALENTEC SYSTEMS, INC.
----------------------
The undersigned hereby agrees that for a period commencing on the date
hereof and expiring on the termination of the Agreement dated April __, 2005
between Valentec Systems, Inc., (the "COMPANY"), and Cornell Capital Partners,
LP, (the "INVESTOR") (the "LOCK-UP PERIOD"), he, she or it will not, directly or
indirectly, without the prior written consent of the Investor, issue, offer,
agree or offer to sell, sell, grant an option for the purchase or sale of,
transfer, pledge, assign, hypothecate, distribute or otherwise encumber or
dispose of except pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act of 1933, any securities of the Company, including
common stock or options, rights, warrants or other securities underlying,
convertible into, exchangeable or exercisable for or evidencing any right to
purchase or subscribe for any common stock (whether or not beneficially owned by
the undersigned), or any beneficial interest therein (collectively, the
"SECURITIES").
In order to enable the aforesaid covenants to be enforced, the
undersigned hereby consents to the placing of legends and/or stop-transfer
orders with the transfer agent of the Company's securities with respect to any
of the Securities registered in the name of the undersigned or beneficially
owned by the undersigned, and the undersigned hereby confirms the undersigned's
investment in the Company.
Dated: _______________, 2005
Signature
______________________________________________
Name: ________________________________________
Address: _____________________________________
City, State, Zip Code:________________________
______________________________________________
Print Social Security Number
or Taxpayer I.D. Number
27
