EXHIBIT 10.5
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
March 30, 2001 by and between Metropolitan Health Networks, Inc., a Florida
corporation (the "Company") and Copira Investments Inc. (the "Purchaser"), a
British Virgin Islands corporation.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Purchaser from
time to time as provided herein, and Purchaser shall purchase, up to $12,000,000
of Common Stock and the Warrant; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company, up to an
aggregate of, $12,000,000 of Common Stock (the "Commitment Amount") and the
Warrant, subject to the terms herein.
Section 1.2. Purchase Price and Initial Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article I of the Escrow Agreement, attached as Exhibit
B hereto, (the "Initial Closing") shall take place at the offices of Xxxxxxx
Xxxxxx & Green, P.C., 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (i) within
fifteen (15) days from the date hereof, or (ii) such other time and place or on
such date as the Purchaser and the Company may agree upon (the "Initial Closing
Date"). Each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Initial Closing.
Section 1.3. Liquidated Damages. The parties hereto acknowledge and
agree that the sums payable pursuant to this Agreement for late delivery of the
Draw Down Shares and the Registration Rights Agreement for a suspension of the
Registration Statement or the Purchaser's right to resell the Draw Down Shares
thereunder shall constitute liquidated damages and not penalties. The parties
further acknowledge that (a) the amount of loss or damages likely
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to be incurred is incapable or is difficult to precisely estimate, (b) the
amount specified in such provisions bear a reasonable proportion and are not
plainly or grossly disproportionate to the probable loss likely to be incurred
by the Purchaser in connection with the failure of the Company to deliver the
Draw Down Shares in a timely manner or the suspension of the Purchaser's rights
to resell the Draw Down Shares under the Registration Statement, and (c) the
parties are sophisticated businesses and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated validly existing and in good standing under
the laws of Florida and has all requisite corporate authority to own, lease
and operate its properties and assets and to carry on its business as now
being conducted. The Company does not have any subsidiaries and does not
own more than fifty percent (50%) of or control any other business entity
except as set forth in the SEC Documents. The Company is duly qualified to
do business and is in good standing as a foreign corporation 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.
(b) Authorization, Enforcement. (i) The Company has the requisite
corporate power and corporate authority to enter into and perform its
obligations under the Transaction Documents and to issue the Draw Down
Shares pursuant to their respective terms, (ii) the execution and delivery
of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action and no further consent or authorization
of the Company or its Board of Directors or stockholders is required, and
(iii) the Transaction Documents have been duly executed and delivered by
the Company and at the Initial Closing shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock of which 22,553,910 shares
are issued and outstanding and 10,000,000 shares of Series A Preferred
Stock of which 5,000 are issued and outstanding. All of the outstanding
shares of the Company's Common Stock
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have been duly and validly authorized and are fully paid and non-assessable
except as set forth in the SEC Documents. Except as set forth in this
Agreement and the Registration Rights Agreement or as set forth in the SEC
Documents, or on Schedule 2.1(c) hereto, no - shares of Common Stock are
entitled to preemptive rights or registration rights and 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.
Furthermore, except as set forth in this Agreement or as set forth in the
SEC Documents or on Schedule 2.1(c), there are no contracts, commitments,
understandings, or arrangements by which the - Company is or may become
bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of
the Company. Except as set forth on Schedule 2.1(c), the Company is not a
party to any agreement granting registration rights to any person with
respect to any of its equity or debt securities. Except as set forth on
Schedule 2.1(c), the Company is not a party to, and it has no knowledge of,
any agreement restricting the voting or transfer of any shares of the
capital stock of the Company. The Company has made available to the
Purchaser true and correct copies of the Company's articles or certificate
of incorporation as in effect on the date hereof (the "Charter"), and the
Company's bylaws as in effect on the date hereof (the "Bylaws"). The
Company has not received any notice from the Principal Market questioning
or threatening the continued inclusion of the Common Stock on such market.
(d) Issuance of Shares. The Warrant Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and,
when paid for and issued in accordance with the terms hereof and the
Warrant, the Warrant Shares shall be validly issued and outstanding, fully
paid and non-assessable, and the Purchaser shall be entitled to all rights
accorded to a holder of Common Stock.
(e) No Conflicts. Except as set forth on Schedule 2.1(e), the
execution, delivery and performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated herein do
not and will not (i) violate any provision of the Company's Charter or
Bylaws, (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, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a party,
(iii) create or impose a lien, charge or encumbrance on any property of the
Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any
federal, state, local or other foreign statute, rule, regulation, order,
judgment or decree (including any federal or state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are
bound or affected, except, in all cases, for such conflicts, defaults,
termination, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse
Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for violations which
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singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under any 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 Shares in accordance with the terms
hereof (other than any filings which may be required to be made by the
Company with the SEC or state securities administrators and any
registration statement which may be filed pursuant hereto); provided,
however, that for purpose of the representations made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Exchange Act, and,
the Company is current with all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(d) of the Exchange Act. The Company has
delivered or made available to the Purchaser, through the XXXXX system or
otherwise, true and complete copies of the SEC Documents filed with the SEC
since December 31, 1998. The Company has not provided to the Purchaser any
information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. As of their respective filing dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act or the
Securities Act, as applicable, and the rules and regulations of the SEC
promulgated thereunder applicable to such documents, and, as of their
respective filing dates, 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 in all material respects with applicable accounting
requirements under GAAP 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 GAAP applied on
a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they may
not include footnotes or may be condensed or summary statements), and
fairly present in all material respects the financial position of the
Company and its subsidiaries 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).
(g) Subsidiaries. The SEC Documents or Schedule 2.1(g) hereto sets
forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of the Company's
ownership of the outstanding stock or other interests of such subsidiary.
For the purposes of this Agreement, "subsidiary" shall mean any corporation
or other entity of which at least a majority of the securities or other
ownership interests having ordinary voting power (absolutely or
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contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the
Company and/or any of its other subsidiaries. All of the issued and
outstanding shares of capital stock of each subsidiary have been duly
authorized and validly issued, and are fully paid and non-assessable. There
are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any subsidiary
for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any subsidiary is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the
preceding sentence. Neither the Company nor any subsidiary is a party to,
nor has any knowledge of, any agreement restricting the voting or transfer
of any shares of the capital stock of any subsidiary.
(h) No Material Adverse Effect. Since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or
Form 10-K (or 10-KSB), whichever is most current, no Material Adverse
Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents or on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the SEC
Documents or on Schedule 2.1(i) hereto, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) that would be required to be disclosed on a
balance sheet of the Company or any subsidiary (including the notes
thereto) in conformity with GAAP which are not disclosed in the SEC
Documents, other than those incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since such date and
which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. Since the date of the
financial statement contained in the most recently filed Form 10- Q (or
10-QSB) or Form 10-K (or 10-KSB), whichever is most current, 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.
(k) Indebtedness. The SEC Documents or Schedule 2.1(k) hereto sets
forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or
any subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (A) any liabilities for borrowed money or amounts
owed in excess of $500,000 (other than trade accounts payable incurred in
the ordinary course of business), (B) all guaranties, endorsements and
contingent obligations in respect of Indebtedness of others, whether or
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not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (C) the present value of any lease
payments in excess of $500,000 due under leases required to be capitalized
in accordance with GAAP. Neither the Company nor any subsidiary is in
default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has good
and marketable title to all of its real and personal property reflected in
the SEC Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated in the SEC
Documents or on Schedule 2.1(1) hereto or such that do not cause a Material
Adverse Effect. All said real property leases of the Company and each of
its subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this
Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth in the SEC
Documents or on Schedule 2.1(m) - hereto, there is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of
their respective properties or assets, which action, suit, claim,
investigation or proceeding would have a Material Adverse Effect. Except as
set on Schedule 2.1(m), there are no outstanding orders, judgments, -
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any subsidiary except those orders,
judgments, injunctions, awards or decrees which would not have a Material
Adverse Effect.
(n) Compliance with Law. The Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of their
respective businesses as now being conducted by them unless the failure to
possess such franchises, permits, licenses, consents and other governmental
or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Taxes. The Company and each subsidiary has filed all Tax Returns
which it is required to file under applicable laws; all such Tax Returns
are true and accurate in all material respect, and have been prepared in
compliance with all applicable laws; except as set forth in the SEC
Documents the Company has paid all Taxes due and owing by it or any
subsidiary (whether or not such Taxes are required to be shown on a Tax
Return) and has withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and
since December 31, 1999, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for
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deferred income taxes) reflected on the books of the Company are to its
knowledge adequate to cover any Tax liabilities of the Company if its
current tax year were treated as ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is
or may be subject to taxation by that jurisdiction. Except as set forth in
the SEC Documents, there are no foreign, federal, state or local tax audits
or administrative or judicial proceedings pending or being conducted with
respect to the Company or any subsidiary; no information related to Tax
matters has been requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice indicating an
intent to open an audit or other review has been received by the Company or
any subsidiary from any foreign, federal, state or local taxing authority.
Except as set forth in the SEC Documents, there are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A)
has not executed or entered into a closing agreement pursuant to ss. 7121
of the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; and (B) has not agreed to
or is required to make any adjustments pursuant to ss. 481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign
law by reason of a change in accounting method initiated by the Company or
any of its subsidiaries or has any knowledge that the IRS has proposed any
such adjustment or change in accounting method, or has any application
pending with any taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue
Code during the applicable period specified in ss. 897(c)(1)(A)(ii) of the
Internal Revenue Code.
The Company has not made an election under ss.341 (f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6
(or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not
made any payments, is not obligated to make payments nor is it a party to
an agreement that could obligate it to make any payments that would not be
deductible under ss. 280G of the Internal Revenue Code.
For purposes of this Section 2.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or
use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind
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whatsoever (including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether disputed
or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto and
the fees paid to GKN Securities Corp. pursuant to the Escrow Agreement, no
brokers, finders or financial advisory fees or commissions will be payable
by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
(q) Operation of Business. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the SEC Documents
or on Schedule 2.1(r) hereto, and all rights with respect to the foregoing,
which to its knowledge would be reasonably necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(r) Books and Records. The records and documents of the Company and
its subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the subsidiaries,
the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary.
(s) Material Agreements. Except as set forth on Schedule 2.1(u), the
Company and each of its subsidiaries has in all material respects performed
all the obligations required to be performed by them to date under the
foregoing agreements, have received no notice of default and, to the best
of the Company's knowledge are not in default under any Material Agreement
now in effect, the result of which would cause a Material Adverse Effect.
Except as set forth in the SEC Documents, no written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of the
Company or of any subsidiary limits or shall limit the payment of dividends
on the Company's Common Stock.
(t) Transactions with Affiliates. Except as set forth in the SEC
Documents or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $100,000 between
(A) the Company, any subsidiary or any of their respective customers or
suppliers on the one hand, and (B) on the other hand, any officer,
employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning 5% or more of the capital stock of the
Company or any subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director
or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
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(u) Securities Laws. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to
sell or solicit offers to buy the Shares or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person (other than
the Purchaser), so as to bring the issuance and sale of the Shares under
the registration provisions of the Securities Act and applicable state
securities laws. 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.
(v) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its
employees. Except as set forth in the SEC Documents or on Schedule 2.1(x)
hereto, neither the Company nor any subsidiary is in breach of any
employment contract, agreement regarding proprietary information,
noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating
to the right of any officer, to be employed or engaged by the Company or
such subsidiary. Since the date of the December 31, 2000 Form 10-K (or
10-KSB), no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate,
could have a Material Adverse Effect, has terminated or, to the knowledge
of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(w) Absence of Certain Developments. Except as disclosed in SEC
Documents or on Schedule 2.1(y) hereto, since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or
Form 10-K (or 10KSB), whichever is most current, neither the Company nor
any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary
course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the
Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased
or
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redeemed, or made any agreements so to purchase or redeem, any
shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary
confidential information to any person except to customers in the
ordinary course of business or to the Purchaser or its
representatives;
(vii) suffered any material losses (except for anticipated losses
consistent with prior quarters) or waived any rights of material
value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $500,000;
(x) entered into any other material transaction, whether or not
in the ordinary course of business;
(xi) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its
subsidiaries.
(x) Governmental Approvals. Except as set forth in the SEC Documents
or on Schedule 2.1(z) hereto, and except for the filing of any notice prior
or subsequent to any Settlement Date that may be required under applicable
federal or state securities laws (which if required, shall be filed on a
timely basis), including the filing of a registration statement or
post-effective amendment pursuant to this Agreement, no authorization,
consent, approval, license, exemption of, filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the delivery of the Shares, or for the performance by the
Company of its obligations under this Agreement.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares. Company
acknowledges and agrees that Purchaser is acting solely in the capacity of
arm's
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length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereunder. The Company further represents to the Purchaser
that the Company's decision to enter into this Agreement has been based
solely on (a) the Purchaser's representations and warranties in Section
2.2, and (b) the independent evaluation by the Company and its own
representatives and counsel.
Section 2.2. Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under
the laws of the British Virgin Islands.
(b) Authorization and Power. The Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to
purchase the Shares being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by
all necessary corporate action and at the Initial Closing shall constitute
valid and binding obligations of the Purchaser enforceable against the
Purchaser in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws
relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of the Purchaser's charter documents or bylaws 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 Purchaser is a party, or result in a
violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to the Purchaser or its
properties (except for such conflicts, defaults and violations as would
not, individually or in the aggregate, have a Material Adverse Effect on
Purchaser). The Purchaser 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 this Agreement or to purchase the Shares in
accordance with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Shares and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the
11
Company and the subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation. The Purchaser is capable of
evaluating the risks and merits of an investment in the Shares by virtue of
its experience as an investor and its knowledge, experience, and
sophistication in financial and business matters and the Purchaser is
capable of bearing the entire loss of its investment in the Shares.
(e) Accredited Investor. The Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) General. The Purchaser understands that the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in
order to determine the suitability of the Purchaser to acquire the Shares.
ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each applicable Draw Down,
the Company will have authorized and reserved, free of preemptive rights, a
sufficient number of authorized but unissued shares of its Common Stock to cover
the Draw Down Shares to be issued in connection with such Draw Down requested
under this Agreement. The Draw Down Shares to be issued under this Agreement,
when paid for and issued in accordance with the terms hereof, shall be duly and
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock. Anything
in this Agreement to the contrary notwithstanding, the Company may not make a
Draw Down to the extent that, after such purchase by the Purchaser, the sum of
the number of shares of Common Stock beneficially owned by the Purchaser and its
affiliates would result in beneficial ownership by the Purchaser and its
affiliates of more than 9.9% of the then outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act.
Section 3.2. Securities Compliance. If applicable, the Company shall
notify the Principal Market, in accordance with its rules and regulations, of
the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Shares to the
Purchaser or subsequent holders.
Section 3.3. Registration and Listing. The Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act,
12
will comply in all material respects with its reporting and filing obligations
under the Exchange Act, will comply with all requirements related to any
registration statement filed pursuant to this Agreement, and will not take any
action or file any document (whether or not permitted by the Securities Act or
the Exchange Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein; provided, however, in the event the Company enters into a merger or
Consolidation Event in accordance with Section 3.11 herein, the Company shall
not be obligated to continue such listing 45 Trading Days after notice of such
delisting is given to the Purchaser, provided that the Company exercises no
other Draw Downs after such notice is delivered. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide the Purchaser with copies of any correspondence to or from
such Principal Market which questions or threatens delisting of the Common
Stock, within three (3) Trading Days of the Company's receipt thereof, until the
Purchaser has disposed of all of the Shares.
Section 3.4. Escrow Arrangement. The Company and the Purchaser shall
enter into an escrow arrangement with Xxxxxxx Xxxxxx & Green, P.C. (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery
of the Shares.
Section 3.5. Registration Rights Agreement. The Company and the
Purchaser shall enter into the Registration Rights Agreement in the Form of
Exhibit A hereto. Before the Purchaser shall be obligated to accept a Draw Down
request from the Company, the Company shall have caused a sufficient number of
shares of Common Stock to be registered to cover the Shares to be issued in
connection with such Draw Down.
Section 3.6. Accuracy of Registration Statement.On each Settlement
Date, the Registration Statement and the prospectus therein shall not contain
any untrue statement of a material fact or omit to state any material fact to be
required to be stated therein or necessary in order to make the statements
therein not misleading in light of the circumstances under which they were made;
and on such Settlement Date or date of filing of the Registration Statement and
the prospectus therein will not include any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, the Company makes no representations or
warranties as to the information contained in or omitted from the Registration
Statement and the prospectus therein in reliance upon and in conformity with the
information furnished in writing to the Company by the Purchaser specifically
for inclusion in the Registration Statement and the prospectus therein.
Section 3.7. Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all
13
financial transactions of the Company and its subsidiaries, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
Section 3.9. Notice of Certain Events Affecting Registration;
Suspension of Right to Request a Draw Down. The Company will promptly notify the
Purchaser in writing upon the occurrence of any of the following events in
respect of the Registration Statement or related prospectus in respect of the
Shares: (i) receipt of any request for additional information from the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would require
any amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the filing of a post-effective amendment or withdrawal to
the Registration Statement. The Company shall not deliver to the Purchaser any
Draw Down Notice during the continuation of any of the foregoing events. The
Company shall promptly make available to the Purchaser any such supplements or
amendments to the related prospectus, at which time, provided that the
registration statement and any supplements and amendments thereto are then
effective, the Company may recommence the delivery of Draw Down Notices.
Section 3.10. 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 (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 3.11. Limitation on Future Financing. The Company agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a discount to the then current market price until the earlier of (i) 24
months from the Effective Date, (ii) sixty (60) days after the entire Commitment
Amount has been purchased by the Purchaser, or (iii) the date this Agreement is
terminated pursuant to the terms herein. The foregoing shall not prevent or
limit the Company from engaging in any sale of securities (i) in a registered
public offering by the Company which is underwritten by one or more established
investment banks (not including an "equity line" type of financing), (ii) in one
or more private placements where the purchasers do
14
have registration rights (other than on equity line of credit type of financing)
provided that the Company has exercised Draw Downs during the two (2) months
immediately preceding the date the Company enters into such financing for the
maximum amount permitted based upon the formula contained herein and Draw Down
Shares have been purchased on at least thirty (20) Trading Days during such
period and further, the Company agrees to exercise the maximum amount permitted
based upon the formula contained herein during all subsequent months until the
earlier of the date this Agreement is terminated as provided hereunder or the
date the aggregate Purchase Price of such Draw Downs equals or exceeds the net
proceeds received by the Company pursuant to such financing (and the Threshold
Price for such Draw Down Pricing Periods is never set above 90% of the VWAP on
the Trading Day immediately prior to the Trading Day on which the applicable
Draw Down Notice is delivered, (iii) pursuant to any presently existing or
future employee benefit plan which plan has been or is approved by the Company's
stockholders, (iv) pursuant to any compensatory plan for a full-time employee or
key consultant, (v) in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to raise money, (vi)
in a private placement with registration rights entered into before the
Effective Date with an aggregate purchase price not to exceed $5,000,000, or
(vii) to which Purchaser gives its prior written consent. Further, the Purchaser
shall have a right of first refusal to undertake and complete such subsequent
transaction in the case of (i), (ii), (vi) and (vii) above. Such right of first
refusal must be exercised in writing within five (5) Trading Days of the
Purchaser's receipt of notice of the proposed terms of such financing.
Section 3.12. Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate purposes.
The Purchaser covenants with the Company as follows:
Section 3.13. Compliance with Law. The Purchaser agrees that its
trading activities with respect to shares of the Company's Common Stock will be
in compliance with all applicable state and federal securities laws, rules and
regulations and rules and regulations of the Principal Market on which the
Company's Common Stock is listed. Without limiting the generality of the
foregoing, the Purchaser agrees that it will, whenever required by federal
securities laws, deliver the prospectus included in the Registration Statement
to any purchaser of Shares from the Purchaser.
Section 3.14. No Short Sales. The Purchaser and its affiliates shall
not engage in short sales of the Company's Common Stock (as defined in
applicable SEC and the Principal Market rules) during the term of this
Agreement.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to proceed to close
this Agreement and to issue and sell the Shares to the Purchaser is subject to
the satisfaction or waiver, at or before the
15
Initial Closing, and as of each Settlement Date of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing and as of each Settlement Date as though made at that time, except
for representations and warranties that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all material
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to the
Initial Closing and as of each Settlement Date.
(c) 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 which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Performance by the Company. The Company 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 the Company at or prior to the Initial Closing.
(c) 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 which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and
no investigation by any governmental authority shall have been threatened,
against the Purchaser or the Company or any subsidiary, or any of the
officers, directors or affiliates
16
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser
shall have received an opinion of counsel to the Company, dated as of the
Initial Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall issue to
the Purchaser a warrant certificate to purchase up to a number of shares of
Common Stock equal to $780,000 divided by the average of the last closing
sale price of the Common Stock (as reported by Bloomberg Financial L.P. at
4:02 p.m. ET on the Principal Market) during the 15 Trading Days
immediately prior to the Initial Closing Date (the "Base Price"). The
Warrant shall have a term from its initial date of exercise of 3 years. The
exercise price of the Warrant shall be 115% of the Base Price. The Common
Stock underlying the Warrant will be registered in the Registration
Statement referred to in Section 4.3 hereof. The Warrant shall be in the
form of Exhibit E hereto.
Section 4.3. Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The Company shall
have satisfied, or the Purchaser shall have waived at the Initial Closing,
the conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the SEC and
shall remain effective on each Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock shall not
have been suspended by the SEC or the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the delivery of each Draw Down
Notice), and, at any time prior to such Draw Down Notice, trading in
securities generally as reported on the Principal Market shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported on the Principal Market
unless the general suspension or limitation shall have been terminated
prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to perform
the Company's obligations shall have occurred, such occurrences to be
determined in accordance with Section 8.9 herein.
17
(e) Opinion of Counsel. The Purchaser shall have received (i) a
"down-to-date" letter from the Company's counsel, confirming that there is
no change from the counsel's previously delivered opinion, or else
specifying with particularity the reason for any change and an opinion as
to the additional items specified in Exhibit C hereto, and (ii) any other
items set forth in the Escrow Agreement.
ARTICLE 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue and exercise draw
downs (each a "Draw Down") during the Commitment Period, which Draw Downs
the Purchaser shall be obligated to accept during the Commitment Period,
subject to the terms and conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing
Period. There shall be a minimum of five (5) Trading Days between Draw Down
Pricing Periods. The number of shares of Common Stock purchased by the
Purchaser with respect to each Draw Down shall be determined as set forth
in Section 5.1(e) herein and settled on:
(i) as to the 1st through the 11th Trading Days during the Draw
Down Pricing Period, on the 13th Trading Day after such Draw Down
Pricing Period commences; and
(ii) as to the 12th through the 22nd Trading Days during the Draw
Down Pricing Period commences, on the 24th Trading Day after such Draw
Down Pricing Period (such settlement periods and such settlement dates
in subsection (i) and this subsection (ii) each referred to as a
"Settlement Period" and a "Settlement Date", respectively).
(c) In connection with each Draw Down Pricing Period, the Company may
set the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be $100,000
and the maximum Investment Amount as to each Draw Down shall be the lesser
of (i) $750,000, and (ii) 6% of the average of the VWAPs for the Common
Stock for the 60 calendar days immediately prior to the applicable
Commencement Date (defined below) multiplied by the total trading volume in
respect of the Common Stock for such period. Notwithstanding anything
herein to the contrary, in the event the minimum Investment Amount is
greater than the maximum Investment Amount, as to such Draw Down only, the
minimum Investment Amount shall equal the maximum Investment Amount, but in
no
18
event shall the minimum Investment Amount be less than $50,000, such that
if the maximum Investment Amount is less than $50,000, then the Company
shall be precluded from exercising a Draw Down at such time.
(e) The number of Shares of Common Stock to be issued on each
Settlement Date shall be a number of shares equal to the sum of the
quotients (for each trading day within the Settlement Period) of (x) 1/22nd
of the Investment Amount, and (y) the Purchase Price on each Trading Day
within the Settlement Period, subject to the following adjustments:
(i) if the VWAP on a given Trading Day is less than the Threshold
Price, then that portion of the Investment Amount to be paid on the
immediately pending Settlement Date shall be reduced by 1/22nd of the
Investment Amount and such Trading Day shall be withdrawn from the
Settlement Period;
(ii) if during any Trading Day during the Settlement Period
trading of the Common Stock on the Principal Market is suspended for
more than three (3) hours, in the aggregate, or if any Trading Day
during the Settlement Period is shortened because of a public holiday,
then that portion of the Investment Amount to be paid on the
immediately pending Settlement Date shall be reduced by 1/22nd of the
Investment Amount and such Trading Day shall be withdrawn from the
Settlement Period; and
(iii) if during any Trading Day during the Settlement Period
sales of Draw Down Shares pursuant to the Registration Statement are
suspended by the Company in accordance with Sections 3(j) or 5(e) of
the Registration Rights Agreement for more than three (3) hours, in
the aggregate, during the Settlement Period, then that portion of the
Investment Amount to be paid on the immediately pending Settlement
Date shall be reduced by 1/22nd of the Investment Amount and such
Trading Day shall be withdrawn from the Settlement Period.
(f) The Company must inform the Purchaser by delivering a draw down
notice, in the form of Exhibit D hereto (the "Draw Down Notice"), via
facsimile transmission in accordance with Section 8.4 as to the amount of
the Draw Down (the "Investment Amount") the Company wishes to exercise,
before the first day of the Draw Down Pricing Period (the "Commencement
Date"). If the Commencement Date is to be the date of the Draw Down Notice,
the Draw Down Notice must be delivered to and receipt confirmed by the
Purchaser at least one (1) hour before trading commences on such date. At
no time shall the Purchaser be required to purchase more than the maximum
Investment Amount for a given Draw Down Pricing Period so that if the
Company chooses not to exercise the maximum Investment Amount in a given
Draw Down Pricing Period the Purchaser is not obligated to and shall not
purchase more than the scheduled maximum Investment Amount in a subsequent
Draw Down Pricing Period.
19
(g) On or before each Settlement Date, the Shares purchased by the
Purchaser shall be delivered to The Depository Trust Company ("DTC")
account of the Purchaser or its designees via the Deposit Withdrawal Agent
Commission ("DWAC") system upon receipt by the Escrow Agent of payment for
the Draw Down Shares into the Escrow Agent's master escrow account, as
further provided in the Escrow Agreement. Notwithstanding anything herein
to the contrary, f the Company is unable to deliver the Shares to DTC via
the DWAC system, the Purchaser or the Escrow Agent, as the case may be,
shall be required to fund the aggregate Purchase Price for such DrawDown
only after the shares have cleared legal transfer in the Purchaser's
designated DTC account and are freely transferable; provided, however, that
the liquidated damages hereunder shall not apply in such circumstances. The
Escrow Agent shall be directed to pay the Purchase Price to the Company,
net of one thousand dollars ($1,000) per Settlement as escrow expenses to
the Escrow Agent and any additional fees as set forth in the Escrow
Agreement. The Company understands that a delay in the delivery of the Draw
Down Shares into the Purchaser's DTC account beyond three (3) Trading Days
after the dates set forth herein and in the Escrow Agreement could result
in economic loss to the Purchaser. Notwithstanding anything herein to the
contrary, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late delivery after three
(3) Trading Days from such dates in accordance with the following schedule
(where "No. Trading Days Late" is defined as the number of Trading Days
beyond three (3) Trading Days from the dates set forth herein and in the
Escrow Agreement on which such Draw Down Shares are to be delivered into
the Purchaser's DTC account):
No. Trading Days Xxxx Xxxx Payment for Each
$5,000 of Draw Down Shares
Being Purchased
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
The Company shall pay any payments incurred under this Section 5.1(g)
in immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right
20
to pursue injunctive relief and/or actual damages for the Company's failure
to issue and deliver the Draw Down Shares to the Company, including,
without limitation, the Purchaser's actual losses occasioned by any
"buy-in" of Common Stock necessitated by such late delivery.
ARTICLE 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the date
hereof and shall end 24 months from the Effective Date or as otherwise set forth
in Section 6.2.
Section 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading Day's
notice if (i) an event resulting in a Material Adverse Effect has
occurred and has not been cured for a period of thirty (30) days after
giving written notice thereof, (ii) the Common Stock is de-listed from
the Principal Market unless such de-listing is in connection with the
Company's subsequent listing of the Common Stock on the Nasdaq
National Market, Nasdaq SmallCap Market, the American Stock Exchange
or the New York Stock Exchange, or (iii) the Company files for
protection from creditors under any applicable law.
(b) The Company may terminate this Agreement upon one (1) Trading
Day's notice if the Purchaser shall fail to fund one properly noticed
Draw Down within four (4) Trading Days of the end of the applicable
Settlement Period.
Section 6.3. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 6.2 herein, written notice thereof shall forthwith
be given to the other party and the transactions contemplated by this Agreement
shall be terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 or 6.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 8.1, 8.2 and 8.9,
and Article 7 herein. Nothing in this Section 6.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights of the Company or the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the Purchaser
(and its directors, officers, affiliates, agents, successors and assigns)
from and against any
21
and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Purchaser as a result of any material
inaccuracy in or breach of the representations, warranties or covenants
made by the Company herein.
(b) The Purchaser agrees to indemnify and hold harmless the Company
and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys'
fees, charges and disbursements) incurred by the Company as result of any
material inaccuracy in or breach of the representations, warranties or
covenants made by the Purchaser herein. Notwithstanding anything to the
contrary herein, the Purchaser shall be liable under this Section 7.1(b)
for only that amount as does not exceed the gross proceeds to the Purchaser
as a result of the sale of the Shares.
Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the Indemnified Party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. In the event that the indemnifying party
advises an Indemnified Party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or
22
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
Indemnified Party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the Indemnified Party's costs (including reasonable
attorneys' fees, charges and disbursements) and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding shall
be losses subject to indemnification hereunder. The Indemnified Party shall
cooperate fully with the indemnifying party in connection with any settlement
negotiations or defense of any such action or claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably available
to the Indemnified Party, which relates to such action or claim. The
indemnifying party shall keep the Indemnified Party fully apprised at all times
as to the status of the defense or any settlement negotiations with respect
thereto. If the indemnifying party elects to defend any such action or claim,
then the Indemnified Party shall be entitled to participate in such defense with
counsel of its choice at its sole cost and expense. The indemnifying party shall
not be liable for any settlement of any action, claim or proceeding effected
without its prior written consent. Notwithstanding anything in this Article 7 to
the contrary, the indemnifying party shall not, without the Indemnified Party's
prior written consent (which consent shall not be unreasonably withheld), settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the Indemnified Party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in respect of
such claim. The indemnification required by this Article 7 shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, within ten (10) Trading Days of written notice thereof to the
indemnifying party so long as the Indemnified Party irrevocably agrees to refund
such moneys, with interest, if it is ultimately determined by a court of
competent jurisdiction that such party was not entitled to indemnification. The
indemnity agreements contained herein shall be in addition to (a) any cause of
action or similar rights of the Indemnified Party against the indemnifying party
or others, and (b) any liabilities to which the indemnifying party may be
subject.
ARTICLE 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Each of the parties to this Agreement
shall pay its own fees and expenses related to the transactions contemplated by
this Agreement; except that, the Company shall pay, at the Initial Closing, a
non-accountable expense allowance of $25,000 for the Purchaser's legal,
administrative and due diligence costs and expenses and any other additional
fees as set forth in the Escrow Agreement. In addition, the Company shall pay
all reasonable fees and expenses incurred by the Purchaser in connection with
any subsequent amendments, modifications or waivers of this Agreement, the
Escrow Agreement or the Registration Rights Agreement or incurred in connection
with the enforcement of this Agreement, the Escrow Agreement and the
Registration Rights Agreement, including, without limitation, all reasonable
attorneys' fees and expenses if such subsequent amendment, modification or
waiver is at the request of the Company. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 8.3. Entire Agreement; Amendment. The Transaction Documents
contain the entire understanding of the parties with respect to the matters
covered in the Transaction Documents. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought and no condition to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.
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Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: 000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
Attn: Xxxx Xxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
With copies to: Atlas Xxxxxxxx P.A.
(which shall not constitute 000 Xxxx Xxx Xxxx Xxxxxxxxx, Xxxxx 0000
notice) Xxxx Xxxxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Purchaser: x/x Xxxxxx Xxxxxxx Xxxxxxxxxx
Xxxxxxx Xxxxx, 0xx Xxxxx
Xxxxxxxxxx Drive
Attn: Xxxxx Xxxx
Fax: (000) 000-0000
with copies to: Xxxxxxx Xxxxxx & Green P.C.
(which shall not constitute 000 Xxxx Xxxxxx
xxxxxx) Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto in
accordance herewith.
Section 8.5. Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
24
Section 8.6. Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
The parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment.
Section 8.8. No Third Party Beneficiaries.This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 8.9. Governing Law/Arbitration. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to the choice of law provisions. The Company and
the Purchaser agree to submit themselves to the in personam jurisdiction of the
state and federal courts situated within the Southern District of the State of
New York with regard to any controversy arising out of or relating to this
Agreement. Any dispute under this Agreement or any Exhibit attached hereto shall
be submitted to arbitration under the American Arbitration Association (the
"AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to participate
in the arbitration proceeding within thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent jurisdiction in any case where such relief is available.
The prevailing party in such injunctive action shall be awarded its costs,
including reasonable attorneys' fees, from the non-prevailing party.
Section 8.10. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart. Execution may be made by
delivery by facsimile.
25
Section 8.11. Publicity. Neither the Company nor the Purchaser shall
issue any press release or otherwise make any public statement or announcement
with respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement, without the prior written consent of the other
party. After the Initial Closing, the Company may issue a press release or
otherwise make a public statement or announcement with respect to this Agreement
or the transactions contemplated hereby or the existence of this Agreement;
provided, however, that prior to issuing any such press release, making any such
public statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. The provisions of this Agreement are
severable and, in the event that The Board of Arbitration or any court or
officials of any regulatory agency of competent jurisdiction shall determine
that any one or more of the provisions or part of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
and this Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible, so long as such construction does not materially
adversely affect the economic rights of either party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
ARTICLE 9
DEFINITIONS
Section 9.1. Certain Definitions.
(a) "Commencement Date" shall have the meaning assigned to such term
in Section 5.1(f) hereof.
(b) "Commitment Amount" shall have the meaning assigned to such term
in Section 1.1 hereof.
(c) "Commitment Period" shall mean the period commencing on the
Effective Date and expiring on the earliest to occur of (i) the date on
which the Purchaser shall have exercised an aggregate amount of Draw Downs
equal to the Xxxxxxxxxx
00
Xxxxxx, (xx) the date this Agreement is terminated in accordance with the
terms hereof, or (iii) the date occurring twenty-four (24) months from the
Effective Date..
(d) "Common Stock" shall mean the Company's common stock, $0.001 par
value per share.
(e) "Draw Down" shall have the meaning assigned to such term in
Section 5.1(a) hereof.
(f) "Draw Down Notice" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(g) "Draw Down Pricing Period" shall mean a period of twenty-two (22)
consecutive Trading Days beginning on the date specified in the Draw Down
Notice (as defined in Section 5.1(f) herein); provided, however, the Draw
Down Pricing Period shall not begin before the day on which receipt of such
notice is confirmed by the Purchaser.
(h) "Effective Date" shall mean the date the Registration Statement of
the Company covering the Shares being subscribed for hereby is declared
effective by the SEC.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(j) "GAAP" shall mean the United States Generally Accepted Accounting
Principles as those conventions, rules and procedures are determined by the
Financial Accounting Standards Board and its predecessor agencies.
(k) "Initial Closing" shall have the meaning assigned to such term in
Section 1.2 hereof.
(l) "Initial Closing Date" shall have the meaning assigned to such
term in Section 1.2 hereof.
(m) "Investment Amount" shall have the meaning assigned to such term
in Section 5.1(f) hereof.
(n) "Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties, or financial condition of the Company
that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the
ability of the Company to perform any of its material obligations under
this Agreement or the Registration Rights Agreement or to perform its
obligations under any other agreement which would be required to be filed
with the SEC as on exhibit to a Registration Statement on Form S-1 or other
applicable form.
27
(o) "Principal Market" shall mean initially the OTC Bulletin Board and
shall include the American Stock Exchange, Nasdaq National Market, the
Nasdaq Small-Cap Market and the New York Stock Exchange if the Company
becomes listed and trades on such market or exchange after the date hereof.
(p) "Purchase Price" shall mean, with respect to Shares purchased
during each applicable Settlement Period, 90% of the VWAP on the date in
question.
(q) "Registration Statement" shall mean the registration statement
under the Securities Act, to be filed with the Securities and Exchange
Commission for the registration of the Shares pursuant to the Registration
Rights Agreement attached hereto as Exhibit A (the "Registration Rights
Agreement).
(r) "SEC" shall mean the Securities and Exchange Commission.
(s) "SEC Documents" shall mean the Company's latest Form 10-K or Form
10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the
time in question until such time as the Company no longer has an obligation
to maintain the effectiveness of a Registration Statement as set forth in
the Registration Rights Agreement.
(t) "Securities Act" shall mean the Securities and Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
(u) "Settlement" shall mean the delivery of the Draw Down Shares into
the Purchaser's DTC account in exchange for payment therefor.
(v) "Settlement Date" shall have the meaning assigned to such term in
Section 5.1(b).
(w) "Settlement Period" shall have the meaning assigned to such term
in Section 5.1(b).
(x) "Shares" shall mean, collectively, the shares of Common Stock of
the Company being subscribed for hereunder (the "Draw Down Shares") and the
shares of Common Stock issuable upon exercise of the Warrant (the "Warrant
Shares").
(y) "Threshold Price" shall mean the price per Share designated by the
Company as the lowest VWAP during any Draw Down Pricing Period at which the
Company shall sell its Common Stock in accordance with the Agreement.
(z) "Trading Day" shall mean any day on which the Principal Market is
open for business.
(aa) "Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement and the Escrow Agreement.
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(bb) "VWAP" shall mean the daily volume weighted average price of the
Company's Common Stock on the Principal Market as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:02
p.m. Eastern Time) using the VAP function on the date in question.
(cc) "Warrant" shall mean the warrant issued to the Purchaser pursuant
to Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
29
[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorize officer as of this
__ day of March, 2001.
METROPOLITAN HEALTH NETWORKS, INC.
By:
------------------------------------
Xxxx Xxxxxxxxx, President & CEO
COPIRA INVESTMENTS INC.
By:
------------------------------------
Xxxxx Xxxx, Director
