SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January
20, 2004 is made by and among NanoPierce Technologies, Inc., a Nevada
corporation, with headquarters located at 000 00xx Xxxxxx, Xxxxx 0000, Xxxxxx,
XX 00000 (the "Company"), and the investors named on the signature page hereto,
together with their permitted transferees (singly the "Investor" cumulatively
the "Investors").
RECITALS:
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended, (the "Securities
Act).
B. The Investors desire, upon the terms and conditions stated in this
Agreement, to purchase, for an aggregate purchase price of a minimum of
$1,250,000 and a maximum of $2,000,000, shares of Common Stock and Warrants, as
that term is defined below, of the Company (the "Offering").
C. The capitalized terms used herein and not otherwise defined have the
meanings given them in Article VII hereof.
In consideration of the premises and the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Investors hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Purchase and Sale of Securities. At the Closing the Company will
---------------------------------
issue and sell to the Investor the securities from the Company. The purchase
price per unit (the "Securities") shall be $.10. For each share of Common
Stock purchased by an Investor, such Investor shall receive warrants,
substantially in the form attached hereto as Exhibit C1 and C2 to purchase one
share of Common Stock at an exercise price of $.10 and two (2) shares of Common
Stock at an exercise price equal to $0.25. Collectively, the $.10 warrant and
the $.25 warrant are referred to as the "Warrants". The Warrants if not
exercised sooner will expire on January 20, 2009. The Shares and the warrants
are herein referred to as a unit (singly a "Unit" cumulatively the "Units").
1.2 Payment. At the Closing, the Investor will pay the aggregate
-------
Purchase Price set forth beneath its name on the signature page hereof by wire
transfer of immediately available funds to Wachovia Bank, National Association
in accordance with the wire instructions set forth on Exhibit A hereto.
Wachovia Bank, National Association shall act as escrow agent. The Company will
deliver certificates representing the Securities against delivery of the
aggregate Purchase Price as described above.
1.3 Closing Date. The Closing will take place on such date or time
-------------
agreed upon by the parties to this Agreement (the "Closing Date").
ARTICLE II
INVESTOR'S REPRESENTATIONS AND WARRANTIES
The Investor represents and warrants to the Company with respect to itself
and its purchase hereunder that:
2.1 Investment Purpose. The Investor is purchasing the Securities for
-------------------
its own account and not with a present view toward the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the Securities Act; provided, however, that by making the
representation herein, the Investor does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
The Investor is limited in the amount of shares it may own. In no event
shall the Investor be entitled to purchase that number of shares of Common Stock
which would be in excess of that amount for which the number of shares of Common
Stock beneficially owned (as such term is defined under Section 13(d) and Rule
13d-3 of the Securities Exchange Act of 1934 (the 1934 Act")) by the Investor
would result in beneficial ownership, at any one point in time, by the Investor
of more than 9.99% of the outstanding shares of Common Stock of the Company, as
determined in accordance with Rule13d-1(j). Nothing stated herein shall
restrict the Investor from beneficially owning in the aggregate more than 9.99%
of the outstanding shares of Common Stock of the Company, as long as the 9.99%
is not owned by such Investor at any one point in time.
2.2 Accredited Investor Status. The Investor is an "accredited
----------------------------
investor" as defined in Section 2(a)(15) of the Securities Act and Rule 215
promulgated under the Securities Act. The Investor has delivered an Investor
Questionnaire in the form of Exhibit B to the Company. The Investor hereby
represents that, either by reason of the Investor's business or financial
experience or the business or financial experience of the Investor's advisors,
if any, the Investor has the capacity to protect the Investor's own interests in
connection with the transaction contemplated hereby.
2.3 Reliance on Exemptions. The Investor understands that the
------------------------
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Investor's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire the Securities.
2.4 Information. The Investor and its advisors, if any, have either
-----------
had access through the Electronic Data Gathering, Analysis, and Retrieval System
("XXXXX") or have been furnished with all materials relating to the business,
finances and operations of the Company, and materials relating to the offer and
sale of the Securities, that have been requested by the Investor or its
advisors, if any, including, without limitation the Company's Current Reports on
Form 8-K filed December 15, 2003, (the "8-K"), the Company's Quarterly Report
on Form 10-QSB for the Quarter ended September 30, 2003, (the "10-Q"), and the
Company's Annual Report on Form 10-KSB for the year ended June 30, 2003 (the
"10-K" and collectively with the 8-K and the 10Q,
2
the "SEC Documents"). The Investor and its advisors, if any, have been afforded
the opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigation conducted by Investor or any of its advisors
or representatives modify, amend or affect the Investor's right to rely on the
Company's representations, warranties and covenants contained in Article III
below.
2.5 Acknowledgement of Risk. The Investor acknowledges and
-------------------------
understands that its investment in the Securities involves a significant degree
of risk, including, without limitation, (i) the Company remains a development
stage business with limited operating history and requires substantial funds in
addition to the proceeds from the sale of Securities; (ii) an investment in the
Company is highly speculative, and only investors who can afford the loss of
their entire investment should consider investing in the Company and the
Securities; (iii) the Investor may not be able to liquidate its investment; (iv)
transferability of the Securities is extremely limited; (v) in the event of a
disposition of the Securities, the Investor could sustain the loss of its entire
investment and (vi) the Company has not paid any dividends on its Common Stock
since inception and does not anticipate the payment of dividends in the
foreseeable future. Such risks are more fully set forth in the SEC Documents.
2.6 Governmental Review. The Investor understands that no United
--------------------
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities or
an investment therein.
2.7 Transfer or Resale. The Investor understands that:
--------------------
(a) except as otherwise provided in Article V, the Securities have
not been and are not being registered under the Securities Act or any applicable
state securities laws and, consequently, the Investor may have to bear the risk
of owning the Securities for an indefinite period of time because the Securities
may not be transferred unless (i) the resale of the Securities is registered
pursuant to an effective registration statement under the Securities Act; (ii)
the Investor has delivered to the Company an opinion of counsel (in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration; or (iii)
the Securities are sold or transferred pursuant to Rule 144;
(b) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and regulations of the SEC
thereunder; and
(c) except as set forth in Article V, neither the Company nor any
other person is under any obligation to register the Securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
3
2.8 Legends. The Investor understands the certificates representing
-------
the Securities will bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
2.9 Authorization; Enforcement. This Agreement has been duly and
---------------------------
validly authorized, executed and delivered on behalf of the Investor and
represents the valid and binding obligations of the Investor enforceable in
accordance with its terms, subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and the application of general principles of equity.
2.10 Residency. The Investor is a resident of the jurisdiction set
---------
forth immediately below such Investor's name on the signature pages hereto.
2.11 Acknowledgements Regarding Placement Agent. The Investor
---------------------------------------------
acknowledges that Charleston Capital Corporation is acting as placement agent
(the "Placement Agent") for the Securities being offered hereby and will be
compensated by the Company for acting in such capacity. The fee shall consist
of a cash payment equal to three percent (3%) of the gross amount of such
investment on the Closing Date and three percent (3%) of the gross amount paid
to the Company by the Investors for the exercise of the $.10 Warrants.
Charleston Capital Corporation shall also receive upon the Closing Date a
Warrant to purchase Common Stock of the Company for that number of shares of
Common Stock equal to three percent (3%) of the number of shares of Common Stock
purchased by the Investors on the Closing Date. Charleston Capital Corporation
shall also receive subsequent to the Closing Date a Warrant to purchase Common
Stock of the Company for that number of shares of Common Stock equal to three
percent (3%) of the number of shares of Common Stock purchased by the Investors
by exercising the $.10 Warrant. The Warrants will be based on the same terms as
the Warrants issued to the Investor and will be registered in the Registration
Statement for this Offering. The Warrant shall survive until January 20, 2009,
and have a $0.10 exercise price. Registration shall be "piggy backed" on the
registration statement set forth in the Registration Rights herein.
The Investors further acknowledge that to the best of their knowledge and
belief, the Placement Agent has acted solely as Placement Agent in connection
with the offering of the Securities by the Company, that the information and
data provided to the Investors in connection with the transactions contemplated
hereby have not been subjected to independent verification by the Placement
Agent, and that the Placement Agent makes no representation or warranty with
respect to the accuracy or completeness of such information, data or other
related disclosure material. The Investors further acknowledge that in making
its decision to enter into this Agreement and purchase the Securities it has
relied on its own examination of the Company and the terms of, and consequences,
of holding the Securities. The Investors further
4
acknowledge that the provisions of this Section 2.11 are for the benefit of, and
may be enforced by, the Placement Agent.
2.12 The Investor hereby acknowledges receipt of this Agreement,
including all exhibits thereto, and any documents which may have been made
available upon request as reflected therein (collectively referred to as the
"Offering Materials") and hereby represents that the Investor has been furnished
by the Company during the course of the Offering with all information regarding
the Company, the terms and conditions of the Offering and any additional
information that the Investor has requested or desired to know, and has been
afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning the
Company and the terms and conditions of the Offering.
2.13 The Investor hereby acknowledges that the Offering has not been
reviewed by the United States Securities and Exchange Commission (the "SEC") nor
any state regulatory authority since the Offering is intended to be exempt from
the registration requirements of Section 5 of the Securities Act pursuant to
Section 4(2) of the Securities Act.
2.14 The Investor represents that the Investor has full power and
authority (corporate, statutory and otherwise) to execute and deliver this
Agreement and to purchase the Securities. This Agreement constitutes the legal,
valid and binding obligation of the Investor, enforceable against the Investor
in accordance with its terms.
2.15 If the Investor is a corporation, partnership, limited liability
company, trust, employee benefit plan, individual retirement account, Xxxxx
Plan, or other tax-exempt entity, it is authorized and qualified to invest in
the Company and the person signing this Agreement on behalf of such entity has
been duly authorized by such entity to do so.
2.16 The Investor acknowledges that if he or she is a Registered
Representative of an NASD member firm, he or she must give such firm the notice
required by the NASD's Rules of Fair Practice, receipt of which must be
acknowledged by such firm in Section 4 of the Investor Questionnaire which is
attached hereto as Exhibit B.
2.17 Anti-Money Laundering.
----------------------
(a) In General. Investor acknowledges that due to anti-money
-----------
laundering requirements operating in the United States, as well as Charleston
Capital Corporation's own internal anti-money laundering policies, Charleston
Capital Corporation may require further identification of the Investor and the
source of purchase funds before this Agreement can be processed and purchase
monies accepted. Charleston Capital Corporation shall be held harmless and
indemnified against any loss arising as a result of a failure to process this
Agreement if such information has been required by Charleston Capital
Corporation and has not been satisfactorily provided by the Investor. Investor
represents that all purchase payments transferred to the Company pursuant to
this Agreement originated directly from a bank or brokerage account in the name
of Investor. If Investor is subscribing on behalf of a Beneficial Owner,
pursuant to Section 2.17(b) below, then Investor represents that all purchase
payments transferred to Investor with respect to such Beneficial Owner
originated directly from a bank or brokerage account in the
5
name of such Beneficial Owner. Investor represents that acceptance by the
Company and Charleston Capital Corporation of this Agreement, together with
acceptance of the appropriate remittance, will not breach any applicable rules
and regulations designed to avoid money laundering. Specifically, Investor
represents and warrants that all evidence of identity provided to Charleston
Capital Corporation is genuine and all related information furnished and to be
furnished to Charleston Capital Corporation is accurate.
(b) Beneficial Ownership. Investor represents that it is
---------------------
subscribing for the Shares for Investor's own account and own risk, and, unless
Investor advises Charleston Capital Corporation to the contrary in writing and
identifies with specificity each beneficial owner on whose behalf Investor is
acting, Investor represents that it is not acting as a nominee for any other
person or entity. Investor also represents that it does not have the intention
or obligation to sell, distribute or transfer the Securities, directly or
indirectly, to any other person or entity or to any nominee account. If the
Investor is (A) acting as trustee, agent, representative or disclosed nominee
for another person or entity, or (B) an entity (other than a publicly-traded
company listed on an organized exchange (or a subsidiary or a pension fund of
such a company) based in a Financial Action Task Force ("FATF") Compliant
Jurisdiction) investing on behalf of underlying investors (including a
Fund-of-Funds) (the persons, entities and underlying investors referred to in
(A) and (B) being referred to collectively as the "Beneficial Owners"), Investor
represents and warrants that:
(i) Investor understands and acknowledges the representations,
warranties and agreements made herein are made by
Investor(A) with respect to Investor and (B) with respect to
each of the Beneficial Owners;
(ii) Investor has all requisite power and authority from each of
the Beneficial Owners to execute and perform the obligations
under this Agreement;
(iii) Investor has adopted and implemented anti-money laundering
policies, procedures and controls that comply with, and will
continue to comply in all respects with, the requirements of
applicable anti-money laundering laws and regulations; and
(iv) Investor has established the identity of all Beneficial
Owners, holds evidence of such identities and will make such
information available to Charleston Capital Corporation upon
request, and has procedures in place to ensure that the
Beneficial Owners are not Prohibited Investors (as defined
in (e) below).
(c) Prohibited Investor. Investor further represents that neither
--------------------
it or to the best of its knowledge and belief, the Beneficial Owners, nor any
person controlling, controlled by, or under common control with it or the
Beneficial Owners, nor any person having a beneficial or economic interest in it
or the Beneficial Owners, is a Prohibited Investor (defined in
6
(e) below) and Investor is not and will not purchase the Securities on behalf or
for the benefit of any Prohibited Investor.
(d) Suspension of Purchase Rights. Investor acknowledges that if,
-----------------------------
following its purchase of Securities pursuant to this Agreement, Charleston
Capital Corporation reasonably believes that Investor is a Prohibited Investor
or has otherwise breached its representations and warranties herein, Charleston
Capital Corporation and the Company may be obligated to retroactively terminate
this purchase (if possible), by rejecting this Agreement (even after full
execution) and not completing this transaction, freezing such Investor's funds
forwarded by such Investor pursuant to this Agreement, and stopping the delivery
of Securities in accordance with applicable regulations, or placing a "stop
order" with the Transfer Agent or the Company, and it shall have no claim
against Charleston Capital Corporation or the Company for any form of damages or
liabilities as a result of any of the aforementioned actions.
(e) Definitions.
-----------
(i) FATF means the Financial Action Task Force on Money
----
Laundering. FATF-Compliant Jurisdiction is a jurisdiction
that (A) is a member in good standing of FATF and (B) has
undergone two rounds of FATF mutual evaluations. (The
following jurisdictions, as determined by the FATF, are
currently considered to be compliant: Argentina; Australia;
Austria; Belgium; Brazil; Canada; Denmark; European
Commission; Finland; France; Germany; Greece; Gulf
Cooperation Council; Hong Kong; Iceland; Ireland; Italy;
Japan; Luxembourg; Mexico; Kingdom of The Netherlands; New
Zealand; Norway; Portugal; Singapore; Spain; Sweden;
Switzerland; Turkey; United Kingdom; and the United States
of America. The list of FATF compliant jurisdictions is
amended periodically. For a current list of FATF compliant
jurisdictions, refer to xxxx://xxx.xxxx.xxx/xxxx/.)
(ii) Foreign Bank means an organization that (A) is organized
------------
under the laws of a non-U.S. country; (B) engages in the
business of banking; (C) is recognized as a bank by the bank
supervisory or monetary authority of the country of its
organization or principal banking operations; (D) receives
deposits to a substantial extent in the regular course of
its business; and (E) has the power to accept demand
deposits, but does not include the U.S. branches or agencies
of a non-U.S. bank.
(iii) Foreign Shell Bank means a Foreign Bank without a
--------------------
Physical Presence in any country, but does not include a
Regulated Affiliate.
(iv) Non-Cooperative Jurisdiction means any non-U.S. country
-----------------------------
that has been designated as non-cooperative with
international anti-money
7
laundering principles or procedures by an intergovernmental
group or organization, such as the FATF, of which the United
States is a member and with which designation the United
States representative to the group or organization continues
to concur. (The current list of non-cooperative countries
and territories, as determined by the FATF, is: Xxxx
Islands; Egypt; Guatemala; Indonesia; Myanmar; Nauru;
Nigeria; Philippines; St. Xxxxxxx and the Grenadines; and
Ukraine. The list of Non-Cooperative Countries and
Territories is amended periodically. For a current list of
Non-Cooperative Countries and Territories, refer to the
Financial Action Task Force website,
xxxx://xxx.xxxx.xxx/xxxx/XXXX_xx.xxx.)
(v) Physical Presence means a place of business that is
------------------
maintained by a Foreign Bank and is located at a fixed
address, other than solely a post office box or an
electronic address, in a country in which the Foreign Bank
is authorized to conduct banking activities, at which
location the Foreign Bank (i) employs one or more
individuals on a full-time basis; (ii) maintains operating
records related to its banking activities; and (iii) is
subject to inspection by the banking authority that licensed
the Foreign Bank to conduct banking activities.
(v) Prohibited Investor means (i) a person or entity whose
--------------------
name appears on the List of Specially Designated Nationals
and Blocked Persons maintained by the U.S. Office of Foreign
Assets Control ("OFAC") (refer to
xxxx://xxx.xxxxxxx.xxx/xxxx); (ii) a Foreign Shell Bank; or
(iii) a person or entity resident in or organized or
chartered under the laws of a Non-Cooperative Jurisdiction
or whose purchase funds are transferred from or through a
Foreign Shell Bank, a bank organized or chartered under the
laws of a Non-Cooperative Jurisdiction or a Sanctioned
Regime.
(vi) Regulated Affiliate means a Foreign Shell Bank that (i)
--------------------
is an affiliate of a depository institution, credit union,
or Foreign Bank that maintains a Physical Presence in the
United States or a non-U.S. country, as applicable; and (ii)
is subject to supervision by a banking authority in the
country regulating such affiliated depository institution,
credit union, or Foreign Bank.
(vii) Sanctioned Regimes means targeted foreign countries,
-------------------
terrorism sponsoring organizations and international
narcotics traffickers in respect of which OFAC administers
and enforces economic and trade sanctions based on U.S.
foreign policy and national security goals. (OFAC has
imposed sanctions upon Balkans, Burma
8
(Myanmar), Cuba, Iran, Iraq, Liberia, Libya, North Korea,
Sierra Leone, Sudan, and Zimbabwe.
(f) All representations made by Investor in this Section 2.17 are
to the best of the Investor's knowledge and belief.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that:
3.1 Organization and Qualification. The Company, and each of its
--------------------------------
material subsidiaries, is duly incorporated, validly existing and in good
standing under the laws of the jurisdiction in which they are incorporated, with
full power and authority (corporate and other) to own, lease, use and operate
their properties and to carry on their businesses as and where now owned,
leased, used, operated and conducted. The Company, and its material
subsidiaries, is duly qualified to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by them makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect.
3.2 Authorization; Enforcement. (a) The Company has all requisite
---------------------------
corporate power and authority to enter into and to perform its obligations under
this Agreement, to consummate the transactions contemplated hereby and thereby
and to issue the Securities in accordance with the terms hereof; (b) the
execution, delivery and performance of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby (including without
limitation the issuance of the Securities) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors, or its shareholders is required; (c) this
Agreement has been duly executed by the Company; and (d) this Agreement
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, or moratorium or similar laws
affecting the rights of creditors generally and the application of general
principles of equity.
3.3 Capitalization. As of January 13, 2004, the authorized capital
--------------
stock of the Company consists of (a) 200,000,000 shares of Common Stock, $.0001
par value per share, of which 66,023,969 shares are issued and outstanding. In
addition, the Company has reserved 16,435,210 shares for issuance upon exercise
of options and warrants (including options remaining to be issued under certain
plans) and (b) 5,775,000 shares of preferred stock, $.0001 par value per share,
of which 0 shares are outstanding. All of such outstanding shares of capital
stock are, or upon issuance will be, duly authorized, validly issued, fully paid
and nonassessable. No shares of capital stock of the Company, including the
Securities issuable pursuant to this Agreement, are subject to preemptive rights
or any other similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Except as disclosed above, in the SEC Documents, or in Schedule 3.3, and except
for the transactions contemplated hereby, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into,
exercisable for, or exchangeable for any shares of
9
capital stock of the Company, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company; (ii)
there are no agreements or arrangements under which the Company is obligated to
register the sale of any of its securities under the Securities Act and (iii)
there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Securities.
3.4 Issuance of Securities. The Securities are duly authorized and,
------------------------
upon issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, free from all taxes, liens, claims,
encumbrances and charges with respect to the issue thereof, will not be subject
to preemptive rights or other similar rights of stockholders of the Company, and
will not impose personal liability on the holders thereof.
3.5 No Conflicts; No Violation.
-----------------------------
(a) The execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the
Securities) will not (i) conflict with or result in a violation of any provision
of its Certificate of Incorporation or Bylaws or (ii) violate or conflict with,
or result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment (including without
limitation, the triggering of any anti-dilution provision), acceleration or
cancellation of, any agreement, indenture, patent, patent license, or instrument
to which the Company is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, breaches, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect).
(b) The Company is not in violation of its Certificate of
Incorporation, Bylaws or other organizational documents and the Company is not
in default (and no event has occurred which with notice or lapse of time or both
could put the Company in default) under any agreement, indenture or instrument
to which the Company is a party or by which any property or assets of the
Company is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect.
(c) The Company is not conducting its business in violation of any
law, ordinance or regulation of any governmental entity, the failure to comply
with which would, individually or in the aggregate, have a Material Adverse
Effect.
(d) Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws or
any listing agreement with any securities exchange or automated quotation
system, 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 or any regulatory or self regulatory agency in order for it to execute,
10
deliver or perform any of its obligations under this Agreement in accordance
with the terms hereof, or to issue and sell the Securities in accordance with
the terms hereof. 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.
3.6 SEC Documents, Financial Statements. Since January 1, 2003, the
--------------------------------------
Company has timely filed 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 (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents (other than exhibits) incorporated by reference therein,
being hereinafter referred to herein as the "SEC Documents"). The Company has
delivered to each Investor, or each Investor has had access to, true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents 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 U.S. 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 not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth in the financial statements included in the SEC Documents, the Company has
no liabilities, contingent or otherwise, other than liabilities incurred in the
ordinary course of business subsequent to January 31, 2003, and liabilities of
the type not required under generally accepted accounting principles to be
reflected in such financial statements. Such liabilities incurred subsequent to
January 31, 2003, are not, in the aggregate, material to the financial condition
or operating results of the Company.
3.7 Absence of Certain Changes. Except as disclosed in the SEC
-----------------------------
Documents or on Schedule 3.7, since January 1, 2003, there has been no material
adverse change in the assets, liabilities, business, properties, operations,
financial condition, prospects or results of operations of the Company.
3.8 Absence of Litigation. Except as disclosed in the SEC Documents or
---------------------
on Schedule 3.8, there is no action, suit, claim, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its officers or
directors acting as such that could, individually or in the aggregate, have a
Material Adverse Effect.
11
3.9 Intellectual Property Rights. The Company owns or possesses
------------------------------
licenses or rights to use all patents, patent applications, patent rights,
inventions, know-how, trade secrets, trademarks, trademark applications, service
marks, service names, trade names and copyrights necessary to enable it to
conduct its business as now operated (the "Intellectual Property"). Except as
set forth in the SEC Documents, there are no material outstanding options,
licenses or agreements relating to the Intellectual Property, nor is the Company
bound by or a party to any material options, licenses or agreements relating to
the patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names or copyrights of any other person or entity. Except as disclosed in the
SEC Documents, there is no claim or action or proceeding pending or, to the
Company's knowledge, threatened that challenges the right of the Company with
respect to any Intellectual Property.
3.10 Tax Status. The Company has timely made or filed all federal,
-----------
state and foreign income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has timely 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
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
To the knowledge of the Company, 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. The Company has
not executed a waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, state or local tax. None of
the Company's tax returns is presently being audited by any taxing authority.
3.11 Environmental Laws. The Company (i) is in compliance with all
-------------------
applicable 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)
has received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct its business and (iii) is in compliance
with all terms and conditions of any such permit, license or approval where, in
each of the three foregoing clauses, the failure to so comply would have,
individually or in the aggregate, a Material Adverse Effect
3.12 No Integrated Offering. Neither the Company, nor any of its
------------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
Securities Act of the issuance of the Securities to the Investors. Depending
upon the view of the SEC in reviewing the registration statement covering this
offering, the issuance of the Securities to the Investors will not be integrated
with any other issuance of the Company's securities (past, current or future)
for purposes of the Securities Act or any applicable rules of Nasdaq(assuming
the Company becomes listed on Nasdaq after the Closing Date.
3.13 Brokers. Except as set forth below or in Section 2.11 above, the
-------
Company has taken no action which would give rise to any claim by any person for
brokerage commissions,
12
finder's fees or similar payments relating to this Agreement or the transactions
contemplated hereby.
(a) A finder will be receiving a fee for its introductions and
consulting work for the Company. The fee shall consist of a cash payment equal
to ten percent (10%) of the gross amount of such investment on the Closing Date
and ten percent (10%) of the gross amount paid to the Company by the Investors
for the exercise of the $.10 Warrants. The finder shall also receive upon the
Closing Date a Warrant to purchase Common Stock of the Company for that number
of shares of Common Stock equal to ten percent (10%) of the number of shares of
Common Stock Purchased on the Closing Date. The Finder shall also receive,
subsequent to the Closing Date, A Warrant to purchase Common Stock of the
Company for that number of shares of Common Stock equal to ten percent (10%) of
the number of shares of Common Stock purchased by the Investors by exercising
the $.10 Warrant. The Warrants will be based on the same terms as the Warrants
issued to the Investor and will be registered in the Registration Statement for
this Offering. The Warrant shall survive until January 20, 2009, and have a
$0.10 exercise price. Any Warrants to be issued to the finder or its assignees
will be registered in the Registration Statement, unless removal from the
Registration Statement is required for effectiveness.
(b) The Company agrees to pay for legal expenses of Charleston
Capital Corporation's counsel in the amount of $7,500 associated with document
preparation, review of the Registration Statement to be prepared by the
Company's counsel and all amendments thereto. The sum of $2,500 shall be
payable immediately prior to document preparation and the balance of $5,000
shall be payable upon funding of the first funds to be released from escrow and
shall not be payable unless gross proceeds of $2,000,000 are raised. The
Company agrees to pay Charleston Capital Corporation's counsel an additional
$2,500 for Blue Sky filings in New York and the Form D filing with the SEC, but
all filing fees will be paid by the Company.
3.14 Insurance. The Company is 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 is engaged.
3.15 Employment Matters. The Company is in compliance with all
-------------------
federal, state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours
except where failure to be in compliance would not have a Material Adverse
Effect. The Company is not bound by or subject to (and none of its assets or
properties is bound by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the Company's knowledge, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the Company's
knowledge, threatened, that could have a Material Adverse Effect nor is the
Company aware of any labor organization activity involving its employees. The
Company is not aware that any officer or key employee, or that any group of
officers or key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing.
13
3.16 Investment Company Status. The Company is not and upon
---------------------------
consummation of the sale of the Securities will not be an "investment company,"
a company controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
3.17 Subsidiaries. Except as set forth in the SEC Documents, the
-------------
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, association, joint venture, partnership or other
business entity and the Company is not a direct or indirect participant in any
joint venture or partnership.
3.18 No Conflict of Interest. The Company is not indebted, directly or
------------------------
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. None of the Company's officers, directors or employees,
or any members of their immediate families, are directly, or indirectly,
indebted to the Company (other than in connection with purchases of the
Company's stock or as set forth on Schedule 3.18) or, to the best of the
Company's knowledge, have any direct or indirect ownership interest in any
entity with which the Company is affiliated or with which the Company has a
business relationship, or any entity which competes with the Company, except
that officers, directors, employees and/or stockholders of the Company may own
stock in (but not exceeding five percent (5%) of the outstanding capital stock
of) any publicly traded company that may compete with the Company. To the best
of the Company's knowledge, none of the Company's officers, directors or
employees or any members of their immediate families are, directly or
indirectly, interested in any material contract with the Company. The Company
is not a guarantor or indemnitor of any indebtedness of any other person or
entity.
ARTICLE IV
COVENANTS
4.1 Form D; Blue Sky Laws. The Company will timely file a Notice of
------------------------
Sale of Securities on Form D with respect to the Securities, as required by Form
D. The Company will, on or before the Closing Date, take such action as it
reasonably determines to be necessary to qualify the Securities for sale to the
Investors under this Agreement under applicable securities (or "blue sky") laws
of the states of the United States (or to obtain an exemption from such
qualification). The Company shall cause to be prepared and file the Form D.
4.2 Reporting Status. The Company's Common Stock is not registered
-----------------
under Section 12 of the Exchange Act. During the Registration Period (as
defined below), the Company will timely file all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC under the
reporting requirements of the Exchange Act, and the Company will not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
4.3 Expenses. In addition to the payment of fees specified in Section
--------
3.13 hereof ,the Company and each Investor is liable for, and will pay, its own
expenses incurred in connection
14
with the negotiation, preparation, execution and delivery of this Agreement,
including, without limitation, attorneys' and consultants' fees and expenses.
4.4 Financial Information. The financial statements of the Company
----------------------
will be prepared in accordance with United States generally accepted accounting
principles, consistently applied, and will fairly present in all material
respects the consolidated financial position of the Company and results of its
operations and cash flows as of, and for the periods covered by, such financial
statements (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
4.5 Compliance with Law. As long as an Investor owns any of the
---------------------
Securities, the Company will conduct its business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, (including, without limitation, all applicable local, state
and federal environmental laws and regulations), the failure to comply with
which would have a Material Adverse Effect.
4.6 Sales by Investor. The Investor will sell any Securities sold by
-------------------
it in compliance with applicable prospectus delivery requirements, if any, or
otherwise in compliance with the requirements for an exemption from registration
under the Securities Act and the rules and regulations promulgated thereunder.
Investor will not make any sale, transfer or other disposition of the Securities
in violation of federal or state securities laws.
4.7 Share Issuance At all times, the Company shall keep available
--------------
Common Stock duly authorized for issuance against the Warrants. If at any time,
the Company does not have available an amount of authorized and unissued Common
Stock necessary to satisfy the full exercise of the then outstanding Warrants,
the Company shall call and hold a special meeting within 30 days of such
occurrence, for the purpose of increasing the number of shares authorized.
Management of the Company shall recommend to shareholders, officers and
directors to vote in favor of increasing the number of common shares authorized.
4.8 Litigation. There is no pending litigation against the Company
----------
which is not otherwise disclosed in the Company's SEC Documents. The Company
knows of no pending or threatened legal or governmental proceedings against the
Company which could materially adversely affect the business, property,
financial condition or operations of the Company or which materially and
adversely questions the validity of this Agreement or any agreements related to
the transactions contemplated hereby or the right of the Company to enter into
any of such agreements, or to consummate the transactions contemplated hereby or
thereby. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality which could materially adversely affect the business, property,
financial condition or operations of the Company. There is no action, suit,
proceeding or investigation by the Company currently pending in any court or
before any arbitrator or that the Company intends to initiate.
4.9 Compliance with Securities Act. The Investor understands and
----------------------------------
agrees that the Common Stock underlying the Units have not been registered under
the Securities Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the
Securities Act (based in part on the accuracy of the representations and
warranties of the Investor contained herein), and that such Common Stock and
Warrants must be held indefinitely unless a subsequent disposition is registered
under the Securities Act or any
15
applicable state securities laws or is exempt from such registration. In any
event, and subject to compliance with applicable securities laws, the Investors
may enter into hedging transactions with third parties, which may in turn engage
in short sales of the Securities in the course of hedging the position they
assume and the Investors may also enter into short positions or other derivative
transactions relating to the Securities, or interest in the Securities, and
deliver the Securities, or interests in the Securities, to close out their short
or other positions or otherwise settle short sales or other transactions, or
loan or pledge the Securities, or interest in the Securities, to third parties
that in turn may dispose of these Securities. In connection with the aforesaid
described transaction, the Investors shall be limited to the amount of Common
Stock they are buying and the amount of Common Stock issuable upon exercise of
their Warrants.
4.10 Within five (5) business days (such fifth business day, the
"Unlegended Shares Delivery Date") after the business day on which the Company
has received (i) a notice that Registrable Securities have been sold either
pursuant to the Registration Statement or Rule 144 under the Securities Act,
(ii) a representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver, to its transfer agent (with copies
to Investor) an appropriate instruction and opinion of such counsel, for the
delivery of shares of Common Stock without any legends, issuable pursuant to any
effective and current registration statement or pursuant to Rule 144 under the
Securities Act (the "Unlegended Shares"); and (z) cause the transmission of the
certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the unsold shares of Common Stock, if
any, to the Investor at the address specified in the notice of sale, via express
courier, by electronic transfer or otherwise on or before the Unlegended Shares
Delivery Date.
4.11 In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of an Investor, so long as the certificates therefore do not bear a
legend and the Investor is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Investor's prime Broker with DTC through its Deposit Withdrawal Agent Commission
system. Such delivery must be made on or before the Unlegended Shares Delivery
Date.
4.12 The Company understands that a delay in the delivery of the
Unlegended Shares pursuant to Section 4.9 hereof beyond the Unlegended Shares
Delivery Date could result in economic loss to an Investor. As compensation to
an Investor for such loss, the Company agrees to pay late payment fess (as
liquidated damages and not as a penalty) to the Investor for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. If during any 360 day period, the Company fails to deliver
Unlegended Shares as required by this Section 4.11 for an aggregate of thirty
(30) days, then each Investor or assignee holding Securities subject to such
default may, at its option, require the Company to purchase all or any portion
of the Shares and Warrant Shares subject to such default at a price per share
equal to
16
130% of the Purchase Price of such Shares and Warrant Shares. The Company shall
pay any payments incurred under this Section in immediately available funds upon
demand.
4.13 In addition to any other rights available to an Investor, if the
Company fails to deliver to an Investor Unlegended Shares within ten (10)
calendar days after the Unlegended Shares Delivery Date and the Investor
purchases (in an open market transaction or otherwise) shares of common stock to
deliver in satisfaction of a sale by such Investor of the shares of Common Stock
which the Investor anticipated receiving from the Company (a "Buy-In"), then the
Company shall pay in cash to the Investor (in addition to any remedies available
to or elected by the Investor) the amount by which (A) the Investor's total
purchase price (including brokerage commissions, if any) for the shares of
common stock so purchased exceeds (B) the aggregate purchase price of the shares
of Common Stock delivered to the Company for reissuance as Unlegended Shares,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if an Investor
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to $10,000 of purchase price of shares of Common
Stock delivered to the Company for reissuance as Unlegended Shares, the Company
shall be required to pay the Investor $1,000, plus interest. The Investor shall
provide the Company written notice indicating the amounts payable to the
Investor in respect of the Buy-In.
ARTICLE V
REGISTRATION RIGHTS
5.1 As used in this Agreement, the following terms shall have the
following meanings:
(a) "Affiliate" shall mean, with respect to any Person (as
---------
defined below), any other Person controlling, controlled by or under direct or
indirect common control with such Person (for the purposes of this definition
"control," when used with respect to any specified Person, shall mean the power
to direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" shall have meanings correlative to the
foregoing).
(b) "Business Day" shall mean a day Monday through Friday on
-------------
which banks are generally open for business in New York.
(c) "Holders" shall mean the Investor(s) and any person
-------
holding Registrable Securities and the Common Stock underlying the Warrants or
any person to whom the rights under Article V have been transferred in
accordance with Section 5.9 hereof.
(d) "Person" shall mean any person, individual, corporation,
------
limited liability company, partnership, trust or other nongovernmental entity or
any governmental agency, court, authority or other body (whether foreign,
federal, state, local or otherwise).
17
(e) The terms "register," "registered" and "registration"
-------- ---------- ------------
refer to the registration effected by preparing and filing a registration
statement in compliance with the Act, and the declaration or ordering of the
effectiveness of such registration statement.
(f) "Registrable Securities" shall mean (i) the shares of
-----------------------
Common Stock sold in the Offering; (ii) the shares of Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares"); and (iii) any shares of Common
Stock issued as (or issuable upon the conversion of any warrant, right or other
security which is issued as a dividend or other distribution with respect to or
in replacement of the Common Stock; provided, however, that securities shall
only be treated as Registrable Securities if and only for so long as they (A)
have not been disposed of pursuant to a registration statement declared
effective by the SEC, (B) have not been sold in a transaction exempt from the
registration and prospectus delivery requirements of the Act so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale or (C) are held by a Holder or a permitted
transferee pursuant to Section 5.9.
(g) "Registration Expenses" shall mean all expenses incurred
----------------------
by the Company in complying with Section 5.2 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and expenses of counsel for the Company, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the fees of legal counsel for any Holder).
(h) "Registration Statement" shall have the meaning ascribed
-----------------------
to such term in Section 5.2.
(i) "Registration Period" shall have the meaning ascribed to
--------------------
such term in Section 5.4.
(j) "Selling Expenses" shall mean all underwriting discounts
-----------------
and selling commissions applicable to the sale of Registrable Securities and all
fees and expenses of legal counsel for any Holder.
5.2 No later than forty-five (45) calendar days after the Closing
Date (the "Filing Date"), the Company shall file a registration statement on the
appropriate form (the "Registration Statement") with the SEC and use its best
efforts to effect the registration, qualifications or compliances (including,
without limitation, the execution of any required undertaking to file
post-effective amendments no later than one hundred (100) calendar days after
the Closing Date (the Effective Date").
5.3 All Registration Expenses incurred in connection with any
registration, qualification, exemption or compliance pursuant to Section 5.2
shall be borne by the Company. All Selling Expenses relating to the sale of
securities registered by or on behalf of Holders shall be borne by such Holders
pro rata on the basis of the number of securities so registered.
5.4 In the case of the registration, qualification, exemption or
compliance effected by the Company pursuant to this Agreement, the Company
shall, upon reasonable
18
request, inform each Holder as to the status of such registration,
qualification, exemption and compliance. At its expense the Company shall:
(a) use its best efforts to keep such registration,
continuously effective until the Holders have completed the distribution
described in the registration statement relating thereto. The period of time
during which the Company is required hereunder to keep the Registration
Statement effective is referred to herein as "the Registration Period."
Notwithstanding the foregoing, at the Company's election, the Company may cease
to keep such registration, qualification, exemption or compliance effective with
respect to any Registrable Securities, and the registration rights of a Holder
shall expire, on the earlier of (i) the date on which no Warrants remain
unexercised or (ii) January 20, 2009.
(b) advise the Holders:
(i) when the Registration Statement or any amendment
thereto has been filed with the SEC and when the Registration Statement or any
post-effective amendment thereto has become effective;
(ii) of any request by the SEC for amendments or
supplements to the Registration Statement or the prospectus included therein or
for additional information;
(iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for such purpose;
(iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities included therein for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the
making of any changes in the Registration Statement or the prospectus so that,
as of such date, the statements therein are not misleading and do not omit to
state a material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in the light of the
circumstances under which they were made) not misleading;
(c) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of any Registration Statement at the
earliest possible time;
(d) furnish to each Holder, without charge, at least one copy
of such Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits (including those incorporated by reference) in the form
filed with the SEC;
(e) during the Registration Period, deliver to each Holder,
without charge, as many copies of the prospectus included in such Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and the Company
19
consents to the use, consistent with the provisions hereof, of the prospectus or
any amendment or supplement thereto by each of the selling Holders of
Registrable Securities in connection with the offering and sale of the
Registrable Securities covered by the prospectus or any amendment or supplement
thereto. In addition, upon the reasonable request of the Holder and subject in
all cases to confidentiality protections reasonably acceptable to the Company,
the Company will meet with a Holder or a representative thereof at the Company's
headquarters to discuss all information relevant for disclosure in the
Registration Statement covering the Registrable Securities, and will otherwise
cooperate with any Holder conducting an investigation for the purpose of
reducing or eliminating such Holder's exposure to liability under the Act,
including the reasonable production of information at the Company's
headquarters;
(f) during the Registration Period, deliver to each Holder,
without charge, (i) as soon as practicable (but in the case of the annual report
of the Company to its stockholders, within 120 days after the end of each fiscal
year of the Company) one copy of the following documents, other than those
documents available via XXXXX: (A) its annual report to its stockholders, if any
(which annual report shall contain financial statements audited in accordance
with generally accepted accounting principles in the United States of America by
a firm of certified public accountants of recognized standing); (B) if not
included in substance in its annual report to stockholders, its annual report on
Form 10-KSB (or similar form); (C) each of its quarterly reports to its
stockholders, and, if not included in substance in its quarterly reports to
stockholders, its quarterly report on Form 10-QSB (or similar form), and (D) a
copy of the full Registration Statement (the foregoing, in each case, excluding
exhibits); and (ii) upon reasonable request, all exhibits excluded by the
parenthetical to the immediately preceding clause (D), and all other information
that is generally available to the public;
(g) cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to any Registration Statement free of any restrictive legends
to the extent not required at such time and in such denominations and registered
in such names as Holders may request at least five (5) business days prior to
sales of Registrable Securities pursuant to such Registration Statement; and
(h) upon the occurrence of any event contemplated by Section
5.4(b)(v) above, the Company shall promptly prepare a post-effective amendment
to the Registration Statement or a supplement to the related prospectus, or file
any other required document so that, as thereafter delivered to purchasers of
the Registrable Securities included therein, the prospectus will not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
5.5 The Holders shall have the absolute right to take any action
to restrain, enjoin or otherwise delay any registration pursuant to Section 5.2
hereof as a result of any controversy that may arise with respect to the
interpretation or implementation of this Agreement.
5.6 (a) To the extent permitted by law, the Company shall
indemnify each Holder, each underwriter of the Registrable Securities and each
person controlling such Holder
20
within the meaning of Section 15 of the Act, with respect to which any
registration, qualification or compliance has been effected pursuant to this
Agreement, against all claims, losses, damages and liabilities (or action in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened (subject to Section 5.6(c) below), arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus or offering
circular, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of the
circumstances in which they were made, and will reimburse each Holder, each
underwriter of the Registrable Securities and each person controlling such
Holder, for reasonable legal and other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred; provided that the Company will not be liable in
any such case to the extent that any untrue statement or omission or allegation
thereof is made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Holder and stated to be
specifically for use in preparation of such registration statement, prospectus
or offering circular; provided that the Company will not be liable in any such
case where the claim, loss, damage or liability arises out of or is related to
the failure of the Holder to comply with the covenants and agreements contained
in this Agreement respecting sales of Registrable Securities, and except that
the foregoing indemnity agreement is subject to the condition that, insofar as
it relates to any such untrue statement or alleged untrue statement or omission
or alleged omission made in the preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the SEC at the time the
registration statement becomes effective or in the amended prospectus filed with
the SEC pursuant to Rule 424(b) or in the prospectus subject to completion and
term sheet under Rule 434 of the Act, which together meet the requirements of
Section 10(a) of the Act (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any such Holder, any such underwriter or any
such controlling person, if a copy of the Final Prospectus furnished by the
Company to the Holder for delivery was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the time such
furnishing is required by the Act and the Final Prospectus would have cured the
defect giving rise to such loss, liability, claim or damage.
(b) Each Holder will severally, if Registrable Securities
held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter of the Registrable
Securities and each person who controls the Company within the meaning of
Section 15 of the Act, against all claims, losses, damages and liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section 5.6(c)
below), arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, and will reimburse the
Company, such directors and officers, each underwriter of the Registrable
Securities and each person controlling the Company for reasonable legal and any
other expenses reasonably incurred
21
in connection with investigating or defending any such claim, loss, damage,
liability or action as incurred, in each case to the extent, but only to the
extent, that such untrue statement or omission or allegation thereof is made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Holder and stated to be specifically for use in
preparation of such registration statement, prospectus or offering circular;
provided that the indemnity shall not apply to the extent that such claim, loss,
damage or liability results from the fact that a current copy of the prospectus
was not made available to the Holder and such current copy of the prospectus
would have cured the defect giving rise to such loss, claim, damage or
liability. Notwithstanding the foregoing, in no event shall a Holder be liable
for any such claims, losses, damages or liabilities in excess of the proceeds
received by such Holder in the offering, except in the event of fraud by such
Holder, as determined by a final, non-appealable judgment in a court of law.
(c) Each party entitled to indemnification under this Section
5.6 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
is materially prejudicial to the Indemnifying Party in defending such claim or
litigation. An Indemnifying Party shall not be liable for any settlement of an
action or claim effected without its written consent (which consent will not be
unreasonably withheld).
(d) If the indemnification provided for in this Section 5.6
is held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
22
5.7 (a) Each Holder agrees that, upon receipt of any notice
from the Company of the happening of any event requiring the preparation of a
supplement or amendment to a prospectus relating to Registrable Securities so
that, as thereafter delivered to the Holders, such prospectus shall not contain
an 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, each Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement contemplated by Section 5.2
until its receipt of copies of the supplemented or amended prospectus from the
Company and, if so directed by the Company, each Holder shall deliver to the
Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice.
(b) Each Holder shall suspend, upon request of the Company,
any disposition of Registrable Securities pursuant to the Registration Statement
and prospectus contemplated by Section 5.2 during any period, not to exceed one
15-day period per circumstance or development, when the Company determines in
good faith that offers and sales pursuant thereto should not be made by reason
of the presence of material undisclosed circumstances or developments with
respect to which the disclosure that would be required in such a prospectus is
premature, would have an adverse effect on the Company or is otherwise
inadvisable. The Company shall not impose a suspension of disposition for more
than 30 days in any one calendar year.
(c) As a condition to the inclusion of its Registrable
Securities, each Holder shall furnish to the Company such information regarding
such Holder and the distribution proposed by such Holder as the Company may
request in writing or as shall be required in connection with any registration,
qualification or compliance referred to in this Article V.
(d) At the end of the Registration Period the Holders shall
discontinue sales of shares pursuant to such Registration Statement upon receipt
of notice from the Company of its intention to remove from registration the
shares covered by such Registration Statement which remain unsold, and such
Holders shall notify the Company of the number of shares registered which remain
unsold immediately upon receipt of such notice from the Company.
5.8 With a view to making available to the Holders the benefits of
certain rules and regulations of the SEC which at any time permit the sale of
the Registrable Securities to the public without registration, the Company shall
use its reasonable best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act, at all times;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable
Securities, furnish to such Holder, upon any reasonable request, a written
statement by the Company as to its compliance with Rule 144 under the Act, and
of the Exchange Act, a copy of the most recent
23
annual or quarterly report of the Company, and such other reports and documents
of the Company as such Holder may reasonably request in availing itself of any
rule or regulation of the SEC allowing a Holder to sell any such securities
without registration.
5.9 The rights to cause the Company to register Registrable
Securities granted to the Holders by the Company under Section 5.2 may be
assigned in full by a Holder in connection with a transfer by such Holder of its
Registrable Securities, provided, however, that (i) such transfer may otherwise
be effected in accordance with applicable securities laws; (ii) such Holder
gives prior written notice to the Company; and (iii) such transferee agrees to
comply with the terms and provisions of this Agreement, and such transfer is
otherwise in compliance with this Agreement. Except as specifically permitted
by this Section 5.9, the rights of a Holder with respect to Registrable
Securities as set out herein shall not be transferable to any other Person.
5.10 With the written consent of the Company and the Holders
holding at least a majority of the Registrable Securities that are then
outstanding, any provision of this Article V may be waived (either generally or
in a particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended. Upon the effectuation of
each such waiver or amendment, the Company shall promptly give written notice
thereof to the Holders, if any, who have not previously received notice thereof
or consented thereto in writing.
5.11 Delay in Filing or Effectiveness of Registration Statement.
------------------------------------------------------------
(a) The Company shall use its best efforts to ensure that a
registration statement (the "Registration Statement") is filed on or before the
Filing Date. The Registration Statement will include for resale by the Holders
in accordance with the plan of distribution set forth therein the Common
Stock included within the units and the Common Stock underlying the Warrants
(the "Registrable Securities"), but not the Warrants themselves. In the event
the Registration Statement covering this offering is not filed on or before the
Filing Date, the Company shall pay the Investor, as liquidated damages, 1% of
the purchase price of the Units for every 30 calendar day period that the
Registration Statement is not filed. Any liquidated damages shall be paid in
cash or freely trading common stock at the Company's option, and such damages
shall continue until the obligation is fulfilled, subject to a maximum of
twenty-four (24) months from the Closing Date. If paid in freely trading Common
Stock the pricing for the shares shall be based on the 5-day average closing bid
price for the Common Stock for the 3 days prior to the date the shares are
delivered to the Investor.
Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this Section shall not be payable to the extent any delay in the
filing of the Registration Statement occurs because of an act of, or a failure
to act or to act timely by the Investor. The damages set forth in this Section
shall continue until the obligation is fulfilled and shall be paid within three
(3) business days after each thirty (30) day period, or portion thereof, until
the Registration Statement is filed. Failure of the Company to make payment
within said three (3) business days shall be considered a default.
The Company acknowledges that its failure to have the Registration
Statement filed within said forty-five (45) calendar day period will cause the
Investor to suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate
24
to include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to quantify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement.
(b) The Company shall use its best efforts to cause such
Registration Statement to become effective on or before the Effective Date. The
Company represents and warrants that it shall cause the Registration Statement
relating to the Registrable Securities to become effective no later than three
(3) business days after notice from the SEC that the Registration Statement may
be declared effective. In the event the Registration Statement is not declared
effective within one hundred (100) calendar days following the Closing Date
(unless the delay was caused by the failure of Investors, who have invested more
than 50% of the amount of gross funds raised on the Closing Date, to provide the
Company with information regarding such Investors necessary to be included
therein or to agree to a customary cross indemnification agreement), the Company
shall pay the non-defaulting Investors, as liquidated damages, 1% of the
purchase price of the Units for every 30 calendar day period, or portion
thereof, that the registration statement is not declared effective. Any
liquidated damages shall be paid in cash or freely trading common stock at the
Company's option, and such damages shall continue until the obligation is
fulfilled, subject to a maximum of twenty-four (24) months from the Closing
Date. If the Registration Statement covering the Registrable Securities required
to be filed by the Company is declared effective, but after the effective date
the Investor's right to sell is suspended, then the Company shall pay the
Investor the sum of one percent (1%) of the purchase price paid by the Investor
for the Units pursuant to this Agreement for each thirty (30) calendar day
period, pro rata, following the suspension until such suspension ceases. If paid
in freely trading Common Stock the pricing for the shares shall be based on the
5-day average closing bid price for the Common Stock for the 3 days prior to the
date the shares are delivered to the Investor.
Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this Section shall not be payable to the extent any delay in the
effectiveness of the Registration Statement occurs because of an act of, or a
failure to act or to act timely by the Investor. The damages set forth in this
Section shall continue until the obligation is fulfilled or a maximum of
twenty-four (24) months and shall be paid within three (3) business days after
each thirty (30) day period, or portion thereof, until the Registration
Statement is declared effective. Failure of the Company to make payment within
said three (3) business days shall be considered a default.
The Company acknowledges that its failure to have the Registration
Statement filed within said one hundred (100) calendar day period or to permit
the suspension of the effectiveness of the Registration Statement, will cause
the Investor to suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in this
Agreement a provision for liquidated damages. The parties acknowledge and agree
that the liquidated damages provision set forth in this section represents the
parties' good faith effort to quantify such damages and, as such, agree that the
form and amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall not relieve the
Company from its obligations to register the Common Stock and deliver the Common
Stock pursuant to the terms of this Agreement.
25
The Company shall respond to all SEC comments promptly, and will keep
Charleston Capital Corporation or its counsel advised with respect to the SEC's
review of the Registration Statement.
(c) The Company agrees not to include any other securities,
other than the Common Stock underlying the units, in this Registration Statement
without Investor's prior written consent. Furthermore, the Company agrees that
it will not file, without the consent of a majority of the Invesotrs, any other
Registration Statement for other securities, for a period of 0ne hundred eighty
(180) calendar days after the Registration Statement for the Registrable
Securities is declared effective and remains effective for ninety (90) calendar
days, unless it is for additional financing being made by the Investor in this
Offering.
(d) Nothing contained in this Agreement shall be deemed to
establish or require the payment of interest to the Investor at a rate in excess
of the maximum rate permitted by governing law. In the event that the rate of
interest required to be paid exceeds the maximum rate permitted by governing
law, the rate of interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and such excess
shall be returned with reasonable promptness by the Investor to the Company.
(e) The Company shall bear registration expenses of the
Registration Statement and its counsel shall prepare and file the Registration
Statement. Charleston Capital Corporation and any other person for whom
Registrable Securities are included in the Registration Statement will bear
their own expenses. Each such person will also provide the Company with
information regarding "Selling Securityholders" and "Plan of Distribution" and
other information required to be included about them, their stock and Warrant
ownership, and otherwise that is necessary to be included in the Registration
Statement. Charleston Capital Corporation understands that it and persons
associated with it will likely be considered to be underwriters by the SEC and
the SEC will likely require this disclosure in the Registration Statement.
ARTICLE VI
INDEMNIFICATION
6. In consideration of each Investor's execution and delivery of this
Agreement and its acquisition of the Securities hereunder, and in addition to
all of the Company's other obligations under this Agreement, the Company will
indemnify and hold harmless each Investor and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (regardless of whether any such 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 an Indemnitee as a result of, or arising out of, or relating to (a)
any breach of any representation or warranty made by the Company herein or in
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
26
herein or in any other certificate, instrument or document contemplated hereby
or thereby or (c) any cause of action, suit or claim brought or made against
such Indemnitee and arising out of or resulting from the execution, delivery,
performance, breach or enforcement of this Agreement by the Company. To the
extent that the foregoing undertaking by the Company is unenforceable for any
reason, the Company will make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities that is permissible under
applicable law.
ARTICLE VII
DEFINITIONS
7.1 "Closing" means the closing of the purchase and sale of the
Securities under this Agreement.
7.2 "Closing Date" has the meaning set forth in Section 1.3.
7.3 "Common Stock" means the common stock, $0.0001 par value per share,
of the Company.
7.4 "Company" means NanoPierce Technologies, Inc
7.5 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
7.6 "Indemnified Liabilities" has the meaning set forth in Article VI.
7.7 "Indemnitees" has the meaning set forth in Article VI.
7.8 "Investors" means the investors whose names are set forth on the
signature pages of this Agreement, and their permitted transferees.
7.9 "Material Adverse Effect" means a material adverse effect on (a)
the business, operations, assets or financial condition of the Company or (b)
the ability of the Company to perform its obligations pursuant to the
transactions contemplated by this Agreement or under any instruments to be
entered into or filed in connection herewith.
7.10 "Nasdaq" means the Nasdaq National Market System.
7.11 "Rule 144" means Rule 144 promulgated under the Securities Act,
or any successor rule.
7.12 "SEC" means the United States Securities and Exchange Commission.
7.13 "SEC Documents" has the meaning set forth in Section 3.6.
7.14 "Securities" means the Common Stock and Warrants sold pursuant to
this Agreement.
7.15 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute.
27
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law; Jurisdiction. This Agreement will be governed by
-----------------------------
and interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws. The parties hereto hereby submit
to the exclusive jurisdiction of the United States federal and state courts
located in the State of New York with respect to any dispute arising under this
Agreement or the transactions contemplated hereby or thereby.
8.2 Counterparts; Signatures by Facsimile. This Agreement may be
----------------------------------------
executed in two or more counterparts, all of which are considered one and the
same agreement and will become effective when counterparts have been signed by
each party and delivered to the other parties. This Agreement, once executed by
a party, may be delivered to the other parties hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
8.3 Headings. The headings of this Agreement are for convenience of
--------
reference only, are not part of this Agreement and do not affect its
interpretation.
8.4 Severability. If any provision of this Agreement is invalid or
------------
unenforceable under any applicable statute or rule of law, then such provision
will be deemed modified in order to conform with such statute or rule of law.
Any provision hereof that may prove invalid or unenforceable under any law will
not affect the validity or enforceability of any other provision hereof.
8.5 Entire Agreement; Amendments. This Agreement (including all
------------------------------
schedules and exhibits hereto) constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein or therein. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof. 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.
8.6 Notices. Any notices required or permitted to be given under the
-------
terms of this Agreement must be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) and will be effective five days after being placed
in the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally, or by courier (including a recognized overnight delivery service),
in each case addressed to a party. The addresses for such communications are:
If to the Company: Xxxx X. Xxxxxxxxx, President and CEO
NanoPierce Technologies, Inc.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
(P) 000-000-0000
(F) 000-000-0000
28
If to an Investor: To the address set forth immediately below such
Investor's name on the signature pages hereto.
Each party will provide written notice to the other parties of any change
in its address.
8.7 Successors and Assigns. This Agreement is binding upon and inures
-----------------------
to the benefit of the parties and their successors and assigns. The Company
will not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the Investors, and no Investor may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Company. Notwithstanding the foregoing, an Investor may assign
all or part of its rights and obligations hereunder to any of its "affiliates,"
as that term is defined under the Securities Act, without the consent of the
Company so long as the affiliate is an accredited investor as defined in Section
2(a)(15) and Rule 215 of the Securities Act) and agrees in writing to be bound
by this Agreement. This provision does not limit the Investor's right to
transfer the Securities pursuant to the terms of this Agreement or to assign the
Investor's rights hereunder to any such transferee pursuant to the terms of this
Agreement.
8.8 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.
8.9 Further Assurances. Each party will do and perform, or cause to be
------------------
done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.10 No Strict Construction. The language used in this Agreement is
------------------------
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
8.11 Equitable Relief. The Company recognizes that, if it fails to
-----------------
perform or discharge any of its obligations under this Agreement, any remedy at
law may prove to be inadequate relief to the Investors. The Company therefore
agrees that the Investors are entitled to seek temporary and permanent
injunctive relief in any such case.
IN WITNESS WHEREOF, the undersigned Investors and the Company have caused
this Agreement to be duly executed as of the date first above written.
COMPANY:
NANOPIERCE TECHNOLOGIES, INC.
By: /s/ Xxxx X. Metiznger
---------------------------------------
Xxxx X. Xxxxxxxxx its President and CEO
29
OMNIBUS SIGNATURE PAGE TO
NANOPIERCE TECHNOLOGIES, INC.
SECURITIES PURCHASE AGREEMENT
The undersigned hereby executes and delivers the Securities Purchase
Agreement to which this signature page is attached, which, together with all
counterparts of the Agreement and signature pages of the other parties named in
said Agreement, shall constitute one and the same document in accordance with
the terms of the Agreement.
Sign Name: __________________________
Print Name (and title if applicable): __________________________
Date: __________________________
Address: __________________________
__________________________
__________________________
Telephone: __________________________
Facsimile: __________________________
Dollar Amount: __________________________
Number of Units Purchased _______________
EXHIBIT A
WIRE TRANSFER INSTRUCTIONS
Please remit payment to:
Wachovia Bank, National Association
Charlotte, NC
ABA#: 053 000 219
Credit A/C: 3572001905
FFC: NANOPIER TCH ESC
Attn: Corporate Trust - Bond Administration
US Mail/Overnight Courier
---------------------------
Corporate Trust Department
Xxx Xxxx Xxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Exhibit B
INVESTOR QUESTIONNAIRE
1. The Investor represents and warrants that he, she or it comes within one
category marked below, and that for any category marked, he, she or it has
truthfully set forth, where applicable, the factual basis or reason the Investor
comes within that category. ALL INFORMATION IN RESPONSE TO THIS SECTION WILL BE
KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to furnish any additional
information which the Company deems necessary in order to verify the answers set
forth below.
Category A ___ The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net
worth with his or her spouse, presently exceeds $1,000,000.
Explanation. In calculating net worth you may
include equity in personal property and real
estate, including your principal residence, cash,
short-term investments, stock and securities.
Equity in personal property and real estate should
be based on the fair market value of such property
less debt secured by such property.
Category B ___ The undersigned is an individual (not a partnership,
corporation, etc.) who had an income in excess of $200,000
in each of the two most recent years, or joint income with
his or her spouse in excess of $300,000 in each of those
years (in each case including foreign income, tax exempt
income and full amount of capital gains and losses but
excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in the current
year.
Category C ___ The undersigned is a director or executive officer of the
Company which is issuing and selling the Securities.
Category D ___ The undersigned is a bank; a savings and loan association;
insurance company; registered investment company; registered
business development company; licensed small business
investment company ("SBIC"); or employee benefit plan within
the meaning of Title 1 of ERISA and (a) the investment
decision is made by a plan fiduciary which is either a bank,
savings and loan association, insurance company or
registered investment advisor, or (b) the plan has total
assets in excess of $5,000,000 or (c) is a self directed
plan with investment decisions made solely by persons that
are accredited investors. (describe entity)
Category E ___ The undersigned is a private business development company as
defined in section 202(a)(22) of the Investment Advisors Act
of 1940. (describe entity)
32
Category F ___ The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit organization
within the meaning of Section 501(c)(3) of the Internal
Revenue Code, in each case not formed for the specific
purpose of acquiring the Securities and with total assets in
excess of $5,000,000.(describe entity)
Category G ___ The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Securities, where the purchase is directed by a
"sophisticated investor" as defined in Regulation
506(b)(2)(ii) under the Securities Act.
Category H ___ The undersigned is an entity (other than a trust) all of the
equity owners of which are "accredited investors" within one
or more of the above categories. If relying upon this
Category H alone, each equity owner must complete a separate
copy of this Agreement. (describe entity)
Category I ___ The undersigned is not within any of the categories above
and is therefore not an accredited investor.
The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the Closing Date in the event that the representations and
warranties made by the undersigned in this Agreement shall cease to be true,
accurate and complete.
2. SUITABILITY (please answer each question)
-----------
(a) For an individual Investor, please describe your current employment,
including the company by which you are employed and its principal business:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
___________________________________________________
(b) For an individual Investor, please describe any college or graduate degrees
held by you:
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________
(c) For all Investors, please state whether you have participated in other
private placements before:
YES_______ NO_______
(d) If your answer to question (d) above was "YES", please indicate frequency of
such prior participation in private placements of:
-------------------
33
Public Private Public or Private
Companies Companies Biotechnology Companies
--------- ---------- -----------------------
Frequently __________ _____________ ____________
Occasionally __________ _____________ ____________
Never __________ _____________ ____________
(e) For individual Investors, do you expect your current level of income to
significantly decrease in the foreseeable future:
YES_______ NO_______
(f) For trust, corporate, partnership and other institutional Investors, do you
expect your total assets to significantly decrease in the foreseeable future:
YES_______ NO_______
(g) For all Investors, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:
YES_______ NO_______
(h) For all Investors, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?
YES_______ NO_______
(i) For all Investors, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?
YES_______ NO_______
3. MANNER IN WHICH TITLE IS TO BE HELD. (circle one)
-----------------------------------
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of
Survivorship (both parties
must sign)
(d) Partnership*
(e) Tenants in Common
(f) Company*
(g) Trust*
(h) Other
34
*If Securities are being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.
4. NASD AFFILIATION.
-----------------
Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
_________________________________________________________
_________________________________________________________
_________________________________________________________
If Investor is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
___________________________________
Name of NASD Member Firm
By: ______________________________
Authorized Officer
Date: ____________________________
5. The undersigned is informed of the significance to the Company of
the foregoing representations and answers contained in the Confidential Investor
Questionnaire and such answers have been provided under the assumption that the
Company will rely on them.
Sign Name: _______________________________
Print Name (and title if applicable): _______________________________
Date: _______________________________
35
EXHIBIT C1
FORM OF WARRANT AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
EXERCISED, SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
NANOPIERCE TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions. In consideration of good and
-------------------------------
valuable consideration, the receipt of which is hereby acknowledged by
NANOPIERCE TECHNOLOGIES, INC., a Nevada corporation (the "Company"), or
registered assigns (the "Holder") is hereby granted the right to purchase at any
time until 5:00 P.M., New York City time, on January 20, 2009 (the "Expiration
Date"), __________________ (_____) fully paid and nonassessable shares of the
Company's Common Stock, $.0001 par value per share (the "Common Stock"), at an
initial exercise price per share (the "Exercise Price") of $0.25 per share,
subject to further adjustment as set forth herein.
2. Exercise of Warrants. This Warrant is exercisable in whole or
---------------------
in part at any time and from time to time, prior to the earlier of the
Expiration Date and the date fixed for redemption under Section 8(a), below.
Such exercise shall be effectuated by submitting to the Company (either by
delivery to the Company or by facsimile transmission as provided in Section 8
hereof) a completed and duly executed Notice of Exercise (substantially in the
form attached to this Warrant) as provided in this paragraph. The date such
Notice of Exercise is faxed or delivered to the Company shall be the "Exercise
Date," provided that the Holder of this Warrant tenders this Warrant to the
Company within five business days thereafter.
(a) The Notice of Exercise shall be executed by the Holder of
this Warrant and shall indicate the number of shares then being purchased
pursuant to such exercise. Upon surrender of this Warrant, together with
appropriate payment of the Exercise Price for the shares of Common Stock
purchased, the Holder shall be entitled to receive a certificate or certificates
for the shares of Common Stock so purchased.
(b) The Holder must pay the Exercise Price per share of
Common Stock for the shares then being exercised in cash or by certified or
official bank check.
3. Reservation of Shares. The Company hereby agrees that at all
-----------------------
times during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant
36
such number of shares of its Common Stock as shall be required for issuance upon
exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
------------------------------
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof,
---------------------
be entitled to any rights of a stockholder in the Company, either at law or
equity. The rights of the Holder are limited to those expressed in this Warrant
and are not enforceable against the Company except to the extent set forth
herein.
6. Protection Against Dilution and Other Adjustments.
------------------------------------------------------
6.1 The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 6; provided, that there shall be no adjustment in the
number of Warrant Shares issuable upon exercise of this Warrant upon any
adjustment of the Exercise Price pursuant to this Section 6. Upon each such
adjustment of the Exercise Price pursuant to this Section 6, the Holder shall
thereafter prior to the Expiration Date be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
6.2 If the Company, at any time while this Warrant is outstanding,
(i) shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock or
on any other class of capital stock and not the Common Stock payable in shares
of Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
6.3 In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common
37
Stock is converted into other securities, cash or property, then the Holder
shall have the right thereafter to exercise this Warrant only into the shares of
stock and other securities and property receivable upon or deemed to be held by
holders of Common Stock following such reclassification, consolidation, merger,
sale, transfer or share exchange, and the Holder shall be entitled upon such
event to receive such amount of securities or property equal to the amount of
Warrant Shares such Holder would have been entitled to had such Holder exercised
this Warrant immediately prior to such reclassification, consolidation, merger,
sale, transfer or share exchange. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this Section 6.3 upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
6.4 If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
6.2, 6.3 and 6.5), then in each such case the Exercise Price shall be determined
by multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
6.5 If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock for a consideration per share less
than the Exercise Price then in effect, except for (i) the granting of options
or warrants to employees, officers, directors and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company; (ii) shares issued upon exercise of any
currently outstanding warrants or options and upon conversion of any currently
outstanding convertible debenture or (iii) shares issued pursuant to the
Investment Agreement then, forthwith upon such issue or sale, the Exercise Price
shall be reduced to the price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance, and (ii) the number
of shares of Common Stock which the aggregate consideration received (or to be
received, assuming exercise or conversion in full of such rights, warrants and
convertible securities) for the issuance of such additional shares of Common
Stock would purchase at the Exercise Price, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
6.6 For the purposes of this Section 6, the following clauses
shall also be applicable:
38
(i) Record Date. In case the Company shall take a record
------------
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(a) All calculations under this Section 6 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(b) Whenever the Exercise Price is adjusted pursuant to
Section 6.4 above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm), in which case the adjustment shall
be equal to the average of the adjustments recommended by each of the Appraiser
and such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
(c) If:
(i) the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or
property; or
39
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs
of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
7. Exercise and Transfer to Comply with the Securities Act;
---------------------------------------------------------------
Registration Rights.
--------------------
7.1 Exercise and Transfer. This Warrant has not been
------------------------
registered under the Securities Act of 1933, as amended, (the "Act") and has
been issued to the Holder for investment and not with a view to the distribution
of either the Warrant or the Warrant Shares. This Warrant may not be exercised,
and neither this Warrant nor any of the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act relating to such security or an opinion of counsel satisfactory to
the Company that registration is not required under the Act. Each certificate
for the Warrant, the Warrant Shares and any other security issued or issuable
upon exercise of this Warrant shall contain a legend on the face thereof, in
form and substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section 7.
7.2 Registration Rights. Reference is made to Article V of
---------------------
the Securities Purchase Agreement between the Holder and the Company pursuant to
which this Warrant was issued. The Company's obligations under said Article V
and the other terms and conditions thereof are incorporated herein by reference.
7.3 The Holder is limited in the amount of this Warrant it may
exercise. In no event shall the Holder be entitled to exercise any amount of
this Warrant in excess of that amount upon exercise of which the sum of (1) the
number of shares of Common Stock beneficially owned (as such term is defined
under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934 (the
1934 Act")) by the Holder, and (2) the number of Warrant Shares issuable upon
the exercise of any Warrants then owned by Holder, would result in beneficial
ownership, at any one point in time, by the Holder of more than 9.99% of the
outstanding shares of Common Stock of the Company, as determined in accordance
with Rule13d-1(j). Furthermore, the Company shall not process any exercise that
would result in beneficial
40
ownership by the Holder of more than 9.99% of the outstanding shares of Common
Stock of the Company. Nothing stated herein shall restrict the Investor from
beneficially owning in the aggregate more than 9.99% of the outstanding shares
of Common Stock of the Company, as long as the 9.99% is not owned by such
Investor at any one point in time.
8. Intentionally deleted.
-----------------------
9. Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
Xxxx X. Xxxxxxxxx, President and CEO
NanoPierce Technologies, Inc.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
(p) 000-000-0000
(f) 000-000-0000
(ii) if to the Holder, to the address set below the Holder's
acceptance on page 4, below.
Any party may be notice given in accordance with this Section 8 if any of the
parties designates another address or person for receipt of notices hereunder.
10. Supplements and Amendments; Whole Agreement. This Warrant may
-------------------------------------------
be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant contains the full understanding of the parties
hereto with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
11. Governing Law. This Warrant shall be deemed to be a contract
--------------
made under the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York, or the state courts of the State of New York sitting in the
City of New York, in connection with any dispute arising under this Warrant.
Each of the parties hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
12. Jury Trial Waiver. The Company and the Holder hereby waive a
-----------------
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other in respect of any matter arising out or in
connection with this Warrant.
41
12. Counterparts. This Warrant may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
13. Descriptive Headings. Descriptive headings of the several
---------------------
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
___ day of January, 2004.
NANOPIERCE TECHNOLOGIES, INC.
By: ________________________________________
Xxxx X. Xxxxxxxxx President and CEO
42
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant dated as of,, to purchase shares of the Common Stock,
no par value, of NANOPIERCE TECHNOLOGIES, INC. and tenders herewith payment in
accordance with Section 1 of said Common Stock Purchase Warrant.
_ CASH:$ ____________________ = (Exercise Price x Exercise Shares)
Payment is being made by:
_ enclosed check
_ wire transfer
_ other
I understand that I may only exercise this Warrant if there is a
registration statement relating to the exercise of this Warrant that is
effective under federal and applicable state law, or alternatively if there is
an exemption from registration available under federal and applicable state
(which exemption must be established to the satisfaction of NanoPierce
Technologies, Inc.). In each case, I understand that NanoPierce Technologies,
Inc. may require that I provide it information regarding my financial status,
state of residence, and other information necessary to determine whether the
exercise is subject to an effective registration statement or to determine
whether an applicable exemption is available.
Please deliver the stock certificate to:
Dated:
[Name of Holder]
By:
43
EXHIBIT C2
FORM OF WARRANT AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
EXERCISED, SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
NANOPIERCE TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions. In consideration of good and
-------------------------------
valuable consideration, the receipt of which is hereby acknowledged by
NANOPIERCE TECHNOLOGIES, INC., a Nevada corporation (the "Company"), or
registered assigns (the "Holder") is hereby granted the right to purchase at any
time until 5:00 P.M., New York City time, on January 20, 2009 (the "Expiration
Date"), __________________ (_____) fully paid and nonassessable shares of the
Company's Common Stock, $.0001 par value per share (the "Common Stock"), at an
initial exercise price per share (the "Exercise Price") of $0.10 per share,
subject to further adjustment as set forth herein.
2. Exercise of Warrants. This Warrant is exercisable in whole or
---------------------
in part at any time and from time to time, prior to the earlier of the
Expiration Date and the date fixed for redemption under Section 8(a), below.
Such exercise shall be effectuated by submitting to the Company (either by
delivery to the Company or by facsimile transmission as provided in Section 8
hereof) a completed and duly executed Notice of Exercise (substantially in the
form attached to this Warrant) as provided in this paragraph. The date such
Notice of Exercise is faxed or delivered to the Company shall be the "Exercise
Date," provided that the Holder of this Warrant tenders this Warrant to the
Company within five business days thereafter.
(a) The Notice of Exercise shall be executed by the Holder of
this Warrant and shall indicate the number of shares then being purchased
pursuant to such exercise. Upon surrender of this Warrant, together with
appropriate payment of the Exercise Price for the shares of Common Stock
purchased, the Holder shall be entitled to receive a certificate or certificates
for the shares of Common Stock so purchased.
(b) The Holder must pay the Exercise Price per share of
Common Stock for the shares then being exercised in cash or by certified or
official bank check.
3. Reservation of Shares. The Company hereby agrees that at all
-----------------------
times during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant
44
such number of shares of its Common Stock as shall be required for issuance upon
exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
------------------------------
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof,
---------------------
be entitled to any rights of a stockholder in the Company, either at law or
equity. The rights of the Holder are limited to those expressed in this Warrant
and are not enforceable against the Company except to the extent set forth
herein.
6. Protection Against Dilution and Other Adjustments.
------------------------------------------------------
6.1 The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 6; provided, that there shall be no adjustment in the
number of Warrant Shares issuable upon exercise of this Warrant upon any
adjustment of the Exercise Price pursuant to this Section 6. Upon each such
adjustment of the Exercise Price pursuant to this Section 6, the Holder shall
thereafter prior to the Expiration Date be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
6.2 If the Company, at any time while this Warrant is outstanding,
(i) shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock or
on any other class of capital stock and not the Common Stock payable in shares
of Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
6.3 In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common
45
Stock is converted into other securities, cash or property, then the Holder
shall have the right thereafter to exercise this Warrant only into the shares of
stock and other securities and property receivable upon or deemed to be held by
holders of Common Stock following such reclassification, consolidation, merger,
sale, transfer or share exchange, and the Holder shall be entitled upon such
event to receive such amount of securities or property equal to the amount of
Warrant Shares such Holder would have been entitled to had such Holder exercised
this Warrant immediately prior to such reclassification, consolidation, merger,
sale, transfer or share exchange. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this Section 6.3 upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
6.4 If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
6.2, 6.3 and 6.5), then in each such case the Exercise Price shall be determined
by multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
6.5 If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock for a consideration per share less
than the Exercise Price then in effect, except for (i) the granting of options
or warrants to employees, officers, directors and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company; (ii) shares issued upon exercise of any
currently outstanding warrants or options and upon conversion of any currently
outstanding convertible debenture or (iii) shares issued pursuant to the
Investment Agreement then, forthwith upon such issue or sale, the Exercise Price
shall be reduced to the price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance, and (ii) the number
of shares of Common Stock which the aggregate consideration received (or to be
received, assuming exercise or conversion in full of such rights, warrants and
convertible securities) for the issuance of such additional shares of Common
Stock would purchase at the Exercise Price, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
6.6 For the purposes of this Section 6, the following clauses
shall also be applicable:
46
(i) Record Date. In case the Company shall take a record
------------
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(d) All calculations under this Section 6 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted pursuant to
Section 6.4 above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm), in which case the adjustment shall
be equal to the average of the adjustments recommended by each of the Appraiser
and such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
(f) If:
(i) the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or
property; or
47
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs
of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
7. Exercise and Transfer to Comply with the Securities Act;
---------------------------------------------------------------
Registration Rights.
--------------------
7.1 Exercise and Transfer. This Warrant has not been
------------------------
registered under the Securities Act of 1933, as amended, (the "Act") and has
been issued to the Holder for investment and not with a view to the distribution
of either the Warrant or the Warrant Shares. This Warrant may not be exercised,
and neither this Warrant nor any of the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act relating to such security or an opinion of counsel satisfactory to
the Company that registration is not required under the Act. Each certificate
for the Warrant, the Warrant Shares and any other security issued or issuable
upon exercise of this Warrant shall contain a legend on the face thereof, in
form and substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section 7.
7.2 Registration Rights. Reference is made to Article V of
---------------------
the Securities Purchase Agreement between the Holder and the Company pursuant to
which this Warrant was issued. The Company's obligations under said Article V
and the other terms and conditions thereof are incorporated herein by reference.
7.3 The Holder is limited in the amount of this Warrant it may
exercise. In no event shall the Holder be entitled to exercise any amount of
this Warrant in excess of that amount upon exercise of which the sum of (1) the
number of shares of Common Stock beneficially owned (as such term is defined
under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934 (the
1934 Act")) by the Holder, and (2) the number of Warrant Shares issuable upon
the exercise of any Warrants then owned by Holder, would result in beneficial
ownership, at any one point in time, by the Holder of more than 9.99% of the
outstanding shares of Common Stock of the Company, as determined in accordance
with Rule13d-1(j). Furthermore, the Company shall not process any exercise that
would result in beneficial
48
ownership by the Holder of more than 9.99% of the outstanding shares of Common
Stock of the Company. Nothing stated herein shall restrict the Investor from
beneficially owning in the aggregate more than 9.99% of the outstanding shares
of Common Stock of the Company, as long as the 9.99% is not owned by such
Investor at any one point in time.
8. Intentionally deleted.
-----------------------
9. Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
Xxxx X. Xxxxxxxxx, President and CEO
NanoPierce Technologies, Inc.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
(p) 000-000-0000
(f) 000-000-0000
(ii) if to the Holder, to the address set below the Holder's
acceptance on page 4, below.
Any party may be notice given in accordance with this Section 8 if any of the
parties designates another address or person for receipt of notices hereunder.
10. Supplements and Amendments; Whole Agreement. This Warrant may
-------------------------------------------
be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant contains the full understanding of the parties
hereto with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
11. Governing Law. This Warrant shall be deemed to be a contract
--------------
made under the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York, or the state courts of the State of New York sitting in the
City of New York, in connection with any dispute arising under this Warrant.
Each of the parties hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
12. Jury Trial Waiver. The Company and the Holder hereby waive a
-----------------
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other in respect of any matter arising out or in
connection with this Warrant.
49
12. Counterparts. This Warrant may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
13. Descriptive Headings. Descriptive headings of the several
---------------------
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
___ day of January, 2004.
NANOPIERCE TECHNOLOGIES, INC.
By: _________________________________________
Xxxx X. Xxxxxxxxx President and CEO
50
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant dated as of_____________,______, to purchase shares
of the Common Stock, no par value, of NANOPIERCE TECHNOLOGIES, INC. and tenders
herewith payment in accordance with Section 1 of said Common Stock Purchase
Warrant.
_ CASH:$ ____________________ = (Exercise Price x Exercise Shares)
Payment is being made by:
_ enclosed check
_ wire transfer
_ other
I understand that I may only exercise this Warrant if there is a
registration statement relating to the exercise of this Warrant that is
effective under federal and applicable state law, or alternatively if there is
an exemption from registration available under federal and applicable state
(which exemption must be established to the satisfaction of NanoPierce
Technologies, Inc.). In each case, I understand that NanoPierce Technologies,
Inc. may require that I provide it information regarding my financial status,
state of residence, and other information necessary to determine whether the
exercise is subject to an effective registration statement or to determine
whether an applicable exemption is available.
Please deliver the stock certificate to:
Dated:
[Name of Holder]
By:
51
SCHEDULE OF EXCEPTIONS
Schedule 3.3 None
Schedule 3.7 None
Schedule 3.8 None
