Exhibit 10.5
EQUITY LINE OF CREDIT AGREEMENT
AGREEMENT dated as of the 14th day of August 2001, (the "Agreement") between
DRH Investment Company, LLC, Dutchess Private Equities Fund, L.P.
(collectively, the "Investors"), whose addresses are listed on Schedule I
attached hereto, and FLEXXTECH CORPORATION, a corporation organized and
existing under the laws of the State of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company may issue and sell to the Investors, from time
to time as provided herein, and the Investors shall purchase shares of the
Company's common stock, par value $0.001 (the "Common Stock"), for a total
purchase price of up to Ten Million ($10,000,000.00) Dollars; and
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") promulgated under the Securities Act, and the
regulations promulgated thereunder, and or upon such other exemption from the
registration requirements of the Securities Act as may be available with
respect to any or all of the investments to be made hereunder; and
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Certain Definitions
Section 1.1 "Advance" shall mean the portion of the Commitment
Amount requested by the Company in the Advance Notice.
Section 1.2 "Advance Closing" shall mean one of the closings of a
purchase and sale of Common Stock pursuant to Section 2.1.
Section 1.3 "Advance Closing Date" shall mean the date of an
Advance Closing
Section 1.4 "Advance Notice Date" shall mean each date on which the
Company delivers to the Investors an Advance Notice requiring the Investors to
advance funds to the Company subject to the terms of this Agreement. An
Advance Notice shall be deemed delivered on (i) the Trading Day if it is
received by facsimile or otherwise by the Investors prior to 12:00 noon
Eastern Time, or (ii) the immediately succeeding Trading Day if it is received
by facsimile or otherwise after 12:00 noon Eastern Time on a Trading Day or at
any time on a day which is not a Trading Day. No Advance Notice may be deemed
delivered on any day that is not a Trading Day. No Advance Notice Date shall
be less than thirteen (13) Trading Days after the prior Advance Notice Date.
Section 1.5 "Advance Date" shall mean the date the Escrow Agent is
in receipt of the funds from the Investors and is in possession of free
trading shares from the Company and therefore funds can be released to the
Company and free trading shares can be released to the Investors. No Advance
Date shall be less than thirteen (13) Trading Days after an Advance Notice
Date or less than thirteen (13) Trading Days after a previous Advance Date.
Section 1.6 "Advance Notice" shall mean a notice to the Investors
from the Company setting forth the Advance that the Company requests from the
Investors and the proposed Advance Date, for such Advance, substantially in
the form of Exhibit D annexed hereto.
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Section 1.7 "Average Daily Volume" shall be computed using the forty
(40) Trading Days prior to the respective Advance Date.
Section 1.8 "Bid Price" shall mean, on any date, the closing bid
price (as reported by Bloomberg L.P.) of the Common Stock on the Principal
Market or if the Common Stock is not traded on a Principal Market, the highest
reported bid price for the Common Stock, as furnished by the National
Association of Securities Dealers, Inc.
Section 1.9 "Commitment Amount" shall mean the aggregate amount of
up to $10,000,000.00, which the Investors have agreed to provide to the
Company in order to purchase the Company's Common Stock pursuant to the terms
and conditions of this Agreement.
Section 1.10 "Commitment Period" shall mean the period commencing
the Effective Date and expiring on the earlier to occur of (x) the date on
which the Investors shall have made Advances pursuant to this Agreement in the
aggregate amount of $10,000,000.00, (y) the date this Agreement is terminated
pursuant to Section 2.5, or (z) the date occurring thirty-six (36) months from
the Effective Date.
Section 1.11 "Common Stock" shall mean the Company's common stock,
par value $0.001.
Section 1.12 "Condition Satisfaction Date" shall have the meaning
set forth in Section 7.2.
Section 1.13 "Damages" shall mean any loss, claim, damage,
liability, costs and expenses (including, without limitation, reasonable
attorney's fees and disbursements and costs and expenses of expert witnesses
and investigation).
Section 1.14 "Effective Date" shall mean the date on which the SEC
first declares the Registration Statement, thereby effective, registering the
resale of the Registrable Securities as set forth in Section 7.2(a).
Section 1.15 "Escrow Agent" shall mean First Union National Bank.
Section 1.16 "Escrow Agreement" shall mean the Escrow Agreement,
dated the date hereof, among the Company, the Investors and the Escrow Agent
named therein, substantially in the form of Exhibit B annexed hereto.
Section 1.17 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.18 "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially
interfere with the ability of the Company to enter into and perform any of its
obligations under this Agreement or the Registration Rights Agreement in any
material respect.
Section 1.19 "Market Price" shall mean the lowest closing Bid Price
of the Common Stock reported during the Pricing Period.
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Section 1.20 "Maximum Advance Amount" shall be equal to two hundred
percent (200%) of the Average Daily Volume of the Common Stock multiplied by
the lowest closing bid price for the Common Stock during the forty (40)
Trading Days prior to the respective Advance Notice Date, but in no event more
than $1,000,000.
Section 1.21 "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section 1.22 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
Section 1.23 "Placement Agent" shall mean May Xxxxx Group, Inc.
Section 1.24 "Pricing Period" shall mean the ten (10) consecutive
Trading Day period beginning on the first trading day after the Advance Notice
Date.
Section 1.25 "Principal Market" shall mean the Nasdaq National
Market, the Nasdaq SmallCap Market, the Over-The-Counter Bulletin Board, the
American Stock Exchange or the New York Stock Exchange, whichever is at the
time the principal trading exchange or market for the Common Stock.
Section 1.26 "Purchase Price", as to any Pricing Period, shall be
set at 91% of the Market Price for the same Pricing Period.
Section 1.27 "Registrable Securities" shall mean the shares of
Common Stock (i) in respect of which the Registration Statement has not been
declared effective, or if declared effective has thereafter been suspended, by
the SEC, (ii) which have not been sold under circumstances meeting all of the
applicable conditions of Rule 144 (or any similar provision then in force)
under the Securities Act ("Rule 144") or (iii) which have not been otherwise
been resold to a holder who may trade such shares without restriction under
the Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend.
Section 1.28 "Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated the date hereof, between the Investors
and the Company regarding the filing of the Registration Statement for the
resale of the Registrable Securities, entered into between the Company and the
Investors, substantially in the form of Exhibit A annexed hereto.
Section 1.29 "Registration Statement" shall mean a registration
statement on Form SB-1, Form SB-2 or Form S-3 (if use of such form is then
available to the Company pursuant to the rules of the SEC and, if not, on such
other form promulgated by the SEC for which the Company then qualifies and
which counsel for the Company shall deem appropriate, and which form shall be
available for the resale of the Registrable Securities to be registered
thereunder in accordance with the provisions of this Agreement and the
Registration Rights Agreement, and in accordance with the intended method of
distribution of such securities), for the registration of the resale by the
Investors of the Registrable Securities under the Securities Act.
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Section 1.30 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.31 "SEC" shall mean the U.S. Securities and Exchange
Commission.
Section 1.32 "Securities Act" shall mean the Securities Act of
1933, as amended.
Section 1.33 "Securities Purchase Agreement" shall mean the
Securities Purchase Agreement, dated the date hereof, between the Company and
the Purchasers named therein.
Section 1.34 "SEC Documents" shall mean Annual Reports on Form
10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and
Proxy Statements of the Company as supplemented to the date hereof, filed by
the Company for a period of at least twelve (12) months immediately preceding
the date hereof or the Advance Date, as the case may be, until such time as
the Company no longer has an obligation to maintain the effectiveness of the
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.35 "Trading Day" shall mean any day during which the
Principal Market for the Company's Common Stock shall be open for trading.
ARTICLE II.
Advances
Section 2.1 Advances.
Upon the terms and conditions set forth herein (including without
limitation, the provisions of Article VII), on any Advance Notice Date the
Company may request an Advance by the Investors by the delivery of an Advance
Notice. The number of shares of Common Stock that the Company shall issue to
the Investors in exchange for the respective Advance shall be determined by
dividing the amount of the Advance requested by the Advance Notice by the
Purchase Price for the respective Pricing Period. No fractional shares shall
be issued in response to any Advance Notice, and fractional shares resulting
therefrom shall be rounded to the next higher whole number of shares.
Section 2.2 Advance Notice.
At any time during the Commitment Period, the Company may deliver an
Advance Notice to the Investors, subject to the conditions set forth in
Section 2.7 and Section 7.2; provided, that, the amount for each Advance as
designated by the Company in the applicable Advance Notice shall not be more
than the Maximum Advance Amount applicable to the respective Advance Notice
Date. The aggregate amount of the Advances pursuant to this Agreement shall
not exceed the Commitment Amount. There will be a minimum of thirteen (13)
Trading Days between any two Advance Notice Dates. Subject to the conditions
set forth in this Agreement, following the Investors' receipt of a validly
delivered Advance Notice, the Investors shall be required to purchase from the
Company during the related Pricing Period that number of shares having an
aggregate Purchase Price equal to the lesser of (i) the dollar amount set
forth in the Advance Notice, and (ii) 150% of the total Average Daily Volume
during the Pricing Period multiplied by the Purchase Price, but only if said
shares bear no restrictive legend, are not subject to stop transfer
instructions and are being held in escrow
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on the respective Advance Closing Date.
Section 2.2 Mechanics
(a) Advance Closings. At the Advance Closing held on each
Advance Date, which shall be thirteen (13) Trading Days after an Advance
Notice Date, (i) the Company shall deliver to the Escrow Agent under the
Escrow Agreement shares of the Company's Common Stock representing the amount
of the Advance by the Investors pursuant to Section 2.1, registered in the
name of the Investors which shall be delivered to the Investors or otherwise
in accordance with the Escrow Agreement, and (ii) the Investors shall deliver
to the Escrow Agent the amount of the Advance specified in the Advance Notice
by wire transfer of immediately available funds which shall be delivered to
the Company, or otherwise, in accordance with the Escrow Agreement. In lieu of
delivering physical certificates representing the Common Stock and provided
that the Transfer Agent then is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of
the Investors, the Company shall use its commercially reasonable efforts to
cause the Transfer Agent to electronically transmit the shares of Common Stock
by crediting the account of each of the Investors' prime broker (which shall
be specified by that Investor a reasonably sufficient time in advance) with
DTC through its Deposit Withdrawal Agent Commission ("DWAC") system, and
provide proof satisfactory to the Escrow Agent of such delivery. In addition,
on or prior to the Advance Closing Date, each of the Company and the Investors
shall deliver to the other through the Escrow Agent all documents, instruments
and writings required to be delivered or reasonably requested by either of
them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Payment of funds to the Company and
delivery of the Company's Common Stock to the Investors shall occur in
accordance with the conditions set forth above and those contained in the
Escrow Agreement; provided, that to the extent the Company has not paid the
fees, expenses, and disbursements of the Investors' counsel and the Placement
Agent in accordance with Sections 12.4 and 12.5, the amount of such fees,
expenses, and disbursements may be deducted by the Investors (and shall be
paid to the relevant party) from the amount of the Advance with no reduction
in the amount of shares of the Company's Common Stock to be delivered on such
Advance Date.
(b) Partial Release of Shares. After Investors' receipt of
an Advance Notice, but prior to the related Advance Closing Date, the
Investors may authorize the Escrow Agent to release, every five (5) Trading
Days, a portion of the dollar amount stated in the Advance Notice from escrow
to the Company in exchange for a fixed number of shares, subject to the
following conditions:
(i) The Investors shall fill out and sign a form for the
partial release of the Advance Notice amount and shares (the "Partial Release
Form" attached hereto as Exhibit E). The Partial Release Form shall set forth
the number of shares to be released to Investors and the dollar amount the
Escrow Agent shall wire to the Company.
(ii) The Partial Release Form shall be filled out and
signed by the appropriate Investor and faxed to the Company and its attorney
prior to 12:00 p.m. New York City time.
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The number of Shares stated in the Partial Release Form shall be equal
to the dollar amount to be released divided by 91% of the lowest closing bid
price during that number of Trading Days in the Pricing Period that have
expired.
The Company and Investor agree that on the related Closing Date, an
adjustment shall be made so that the terms set forth in the Private Equity
Subscription Agreement shall be honored with the balance of the Investment
Amount being released to the Company and the balance of Shares owed to
Investor being released to Investor.
Section 2.3 Suspension of Registration Statement. If subsequent
to any Advance Closing, the Registration Statement is suspended or becomes
subject to a stop order, other than due to the acts of the Investors or the
Placement Agent, for any period exceeding twenty Trading Days (20) days, the
Company shall pay an amount equal to two percent (2%) of the Purchase Price
of all Common Stock held by the Investors purchased pursuant to this Agreement
for each twenty Trading Day (20) day period or portion thereof; provided, that
the Company shall not be required to pay such amount to the Investors in
connection with any period commencing upon the filing of a post-effective
amendment to such Registration Statement and ending upon the date on which
such post-effective amendment is declared effective by the SEC.
Section 2.4 Termination of Investment.
(a) The obligation of the Investors to make an Advance to the
Company pursuant to this Agreement shall terminate permanently (including with
respect to an Advance Date that has not yet occurred) if (i) there shall occur
any stop order or suspension of the effectiveness of the Registration
Statement for an aggregate of thirty (30) Trading Days, other than due to the
acts of the Investors or the Placement Agent, during the Commitment Period or
(ii) the Company shall at any time fail materially to comply with the
requirements of Section 6.3, 6.4 or 6.7; provided, that this termination
provision shall not apply to any period commencing upon the filing of a
post-effective amendment to such Registration Statement and ending upon the
date on which such post effective amendment is declared effective by the SEC.
(b) Notwithstanding the provisions of this Agreement, if the
Company does not receive an Advance from the Investors pursuant to an Advance
Notice calculated as determined herein, within the time prescribed herein,
this Agreement can be terminated at the discretion of the Company, or if
during any ninety (90) calendar day period after the Effective Date the
Company cannot supply the Investors with an Advance Notice pursuant to this
Agreement.
Section 2.5 Agreement to Advance Funds.
(a) The Investors will advance the amount specified in the
Advance Notice to the Company after the completion of each of the following
conditions and the other conditions set forth in this Agreement:
(i) the execution and delivery by the Company, and the
Investors, of this Agreement, and the Exhibits hereto;
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(ii) the Escrow Agent shall have received the shares of
Common Stock applicable to the Advance;
(iii) the Company's Registration Statement with respect to
the resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement shall have been declared effective by the SEC
and no stop order relating thereto shall be in effect;
(iv) the Company shall have obtained all permits and
qualifications required by any applicable state for the offer and sale of the
Registrable Securities, or shall have the availability of exemptions
therefrom. The sale and issuance of the Registrable Securities shall be
legally permitted by all laws and regulations to which the Company is subject;
(v) the Company shall have filed with the SEC within the
time periods required by the SEC's regulations all reports, notices and other
documents required under the Exchange Act and applicable SEC regulations; and
(vi) the conditions set forth in Section 7.2 shall have
been satisfied.
(b) Notwithstanding any other provision of this Agreement to the
contrary, (i) unless otherwise permitted by the Principal Market, at no time
will the Company request an Advance that would result in the issuance to the
Investors of an aggregate number of shares of the Common Stock which exceeds
19.9% of the number of shares of the Common Stock issued and outstanding on
the initial Advance Closing Date without obtaining stockholder approval of
such excess issuance, and (ii) the Company may not deliver an Advance Notice
to the extent that, after such purchase by either Investor, the sum of the
number of shares of the Common Stock beneficially owned by either Investor and
its affiliates would result in beneficial ownership by either Investor and its
affiliates of more than 4.99% of the then outstanding shares of the Common
Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act.
Section 2.6 Registration Sales of Shares; Lock-Up Period.
(a) During the Commitment Period, the Company shall not,
without the prior consent of the Investors, issue or sell (i) any Common
Stock, or (ii) issue or sell any warrant, option, right, contract, call, or
other security or instrument granting the holder thereof the right to acquire
Common Stock, other than those warrants, options, rights, contracts, calls and
other securities outstanding on the date hereof and disclosed on Schedule 4.3.
Exceptions to this are (a) private transactions that would not, in the written
opinion of counsel to the Company, be integrated with the sales made by the
Investors and (b) shares issued under stock option plans authorized by the
Company and its stockholders.
(b) On the date of this Agreement the Company shall obtain
from each officer, director and Affiliate, as defined below, a lock-up
agreement, as defined below, in the form annexed hereto as Schedule 2.7(a)
agreeing to only sell in compliance with the volume limitation of Rule 144. As
used herein, "Affiliate" shall have the meaning given it under Rule 405
promulgated under the Securities Act.
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Section 1.2 Shareholder Approval. To the extent that the
Company's obligations under this Agreement are subject to approval of the
shareholders of the Company pursuant to the Nevada General Corporation Law,
such approval will be duly obtained prior to the first Advance Date.
ARTICLE III.
Representations and Warranties of Investors
Investors hereby represent and warrant to, and agree with, the Company
that the following are true and as of the date hereof and as of each Advance
Closing Date:
Section 3.1 Organization and Authorization. Investors are duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest
and the execution and delivery of this Agreement by the Investors, the
performance by each Investor of its obligations hereunder and the consummation
by the Investors of the transactions contemplated hereby have been duly
authorized and requires no other proceedings on the part of the Investors.
The Investors have the right, power and authority to execute and deliver this
Agreement and the Registration Rights Agreement. This Agreement has been duly
executed and delivered by the Investors and, assuming the execution and
delivery hereof and acceptance thereof by the Company, will constitute the
legal, valid and binding obligations of the Investors, enforceable against the
Investors in accordance with its terms, except as such enforceability may be
limited by general principles of equity or by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally, the enforcement of creditors' rights and remedies.
Section 3.2 Evaluation of Risks. The Investors have such knowledge
and experience in financial tax and business matters as to be capable of
evaluating the merits and risks of, and bearing the economic risks entailed
by, an investment in the Company and of protecting its interests in connection
with this transaction. It recognizes that its investment in the Company
involves a high degree of risk.
Section 3.3 No Legal Advice from the Company. The Investors
acknowledge that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal counsel and
investment and tax advisors. The Investors are relying solely on such
counsel and advisors and not on any statements or representations of the
Company or any of its representatives or agents for legal, tax or investment
advice with respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction.
Section 3.4 Investment Purpose. The securities are being purchased
by the Investors for their own account, for investment and without any view to
the distribution, assignment or resale to others or fractionalization in whole
or in part. No other person has or will have a direct or indirect beneficial
interest in the securities. The Investors agree not to sell, hypothecate or
otherwise transfer the Investors' securities unless the securities are
registered under Federal and applicable state securities laws or unless, in
the opinion of counsel satisfactory to the Company, an exemption from such
laws is available.
Section 3.5 Accredited Investor. Investors are "accredited
investors" as that term is defined in Regulation D.
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Section 3.6 Information. The Investors and their advisors (and his
or its counsel), if any, have been furnished with all materials relating to
the business, finances and operations of the Company and information it deemed
material to making an informed investment decision. The Investors and their
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due
diligence investigations conducted by such Investor or its advisors, if any,
or its representatives shall modify, amend or affect the Investors' right to
rely on the Company's representations and warranties contained in this
Agreement. Each Investor understands that its investment involves a high
degree of risk.
Section 3.7 Receipt of Documents. Each Investor and its counsel has
received and read in their entirety: (i) this Agreement and the Exhibits
annexed hereto; (ii) all due diligence and other information necessary to
verify the accuracy and completeness of such representations, warranties and
covenants; (iii) the Company's Form 10-KSB for the year ended December 31,
2000 and Form 10-QSB for the period ended March 31, 2001; and (iv) answers to
all questions the Investors submitted to the Company regarding an investment
in the Company. The Investors have relied on the information contained therein
and has not been furnished any other documents, literature, memorandum or
prospectus.
Section 3.8 Registration Rights Agreement. The Investors and the
Company have duly executed and delivered the Registration Rights Agreement.
Section 3.9 No General Solicitation. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offer or sale of the shares of Common
Stock offered hereby.
Section 3.10 Not an Affiliate. The Investors are not an Affiliate
of the company.
ARTICLE IV.
Representations and Warranties of the Company
Except as stated below or on the disclosure schedules attached hereto,
the Company hereby represents and warrants to, and covenants with, the
Investors that the following are true and correct as of the date hereof and as
of each Advance Closing Date:
Section 4.1 Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect on
the Company and its subsidiaries taken as a whole.
Section 4.2 Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority
to enter into and perform this Agreement, the Registration Rights Agreement
and any related agreements, in accordance with the terms hereof
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and thereof; (ii) the execution and delivery of this Agreement, the
Registration Rights Agreement, the Escrow Agreement and any related agreements
by the Company and the consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders; (iii) except as disclosed in
Section 4.3, this Agreement, the Registration Rights Agreement, the Escrow
Agreement and any related agreements have been duly executed and delivered by
the Company; and (iv) this Agreement, the Registration Rights Agreement,
Escrow Agreement and any related agreements constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general
principles of equity or by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally,
the enforcement of creditors' rights and remedies.
Section 4.3 Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 100,000,000 shares of Common Stock,
par value $.001, of which 15,194,862 shares are issued and outstanding. All
of such outstanding shares of the Common Stock have been validly issued and
are fully paid and nonassessable. Except as disclosed on Schedule 4.3, no
shares of Common Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company.
Except as disclosed on Schedule 4.3, as of the date hereof, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries
or options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company or any of its subsidiaries,
(ii) there are no outstanding debt securities and (iii) there are no
agreements or arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of their securities under the
Securities Act (except pursuant to the Registration Rights Agreement). There
are no securities or instruments containing anti-dilution or similar
provisions that will be triggered in this Agreement or any related agreement
or the consummation of the transactions described herein or therein. The
Company has furnished to the Investors true and correct copies of the
Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "Articles of Incorporation"), and the Company's Bylaws, as in
effect on the date hereof (the "Bylaws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of
the holders thereof in respect thereto.
Section 4.4 No Conflict. Subject to Sections 2.8 and 7.2, the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby will not
(i) result in a violation of the Articles of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the Company or
Bylaws or (ii) conflict with or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market)
applicable to the Company or any of its subsidiaries or by which any property
or
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asset of the Company or any of its subsidiaries is bound or affected, which
would have a Material Adverse Effect on the Company. Except as set forth in
Schedule 4.4, neither the Company nor its subsidiaries is in violation of any
term of or in default under its Articles of Incorporation or Bylaws or their
organizational charter or bylaws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or
any statute, rule or regulation applicable to the Company or its subsidiaries.
The business of the Company and its subsidiaries is not being conducted, and
shall not be conducted in violation of any material law, ordinance, regulation
of any governmental entity. Except as specifically contemplated by this
Agreement and as required under the Securities Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company
is required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its subsidiaries are
unaware of any facts or circumstance which might give rise to any of the
foregoing.
Section 4.5 SEC Documents; Financial Statements. The Company has
filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC under 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 incorporated by reference
therein, being hereinafter referred to as the "SEC Documents"). The Company
has delivered to the Investors or its representatives, or made available
through the SEC's website at xxxx://xxx.xxx.xxx, true and complete copies of
the SEC Documents. As of their respective dates, all of the financial
statements of the Company disclosed in the SEC Documents (the "Financial
Statements") complied as to form in all material respects with applicable
accounting requirements and the rules and regulations of the SEC applicable
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investors which is
not included in the SEC Documents contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Section 4.6 Disclosure. None of the SEC Documents contains any
untrue statements of material fact or omits to state any material fact
required to be stated therein necessary to make the statements made, in light
of the circumstances under which they were made, not misleading.
Section 4.7 No Default. Except as disclosed in Schedule 4.7, to the
Company's actual knowledge, neither the Company nor any of its subsidiaries is
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it is or its property is bound. Except as set forth in Schedule 4.7,
neither the execution, the delivery by
11
the Company, nor the performance by the Company of its obligations under this
Agreement or any of the exhibits or attachments hereto will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under its Articles of
Incorporation, Bylaws, any material indenture, mortgage, deed of trust or
other material agreement applicable to the Company or any of its subsidiaries
or instrument to which the Company or any of its subsidiaries is a party or by
which it is bound, or any statute, or any decree, judgment, order, rules or
regulation of any court or governmental agency or body having jurisdiction
over the Company or its properties, in each case which default, lien or charge
is likely to cause a Material Adverse Effect on the Company's business or
financial condition of the Company and its subsidiaries, taken as a whole.
Section 4.8 Absence of Events of Default. Except as set forth in
Schedule 4.7, no event of default, as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice or
the passage of time or both, would become an event of default (as so defined),
has occurred and is continuing, which could or would have a Material Adverse
Effect.
Section 4.9 Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. The Company and its
subsidiaries do not have any actual knowledge of any infringement by the
Company or its subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks,
service xxxx registrations, trade secret or other similar rights of others,
and, to the knowledge of the Company, there is no claim, action or proceeding
being made or brought against, or to the Company's knowledge, being threatened
against, the Company or its subsidiaries regarding trademark, trade name,
patents, patent rights, invention, copyright, license, service names, service
marks, service xxxx registrations, trade secret or other infringement; and the
Company and its subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
Section 4.10 Employee Relations. Neither the Company nor any of
its subsidiaries is involved in any labor dispute nor, to the actual knowledge
of the Company or any of its subsidiaries, is any such dispute threatened.
None of the Company's or its subsidiaries' employees is a member of a union
and the Company and its subsidiaries believe that their relations with their
employees are good.
Section 4.11 Environmental Laws. The Company and its subsidiaries
are (i) in compliance with any and 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) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance with
all terms and conditions of any such permit, license or approval.
Section 4.12 Title. Except as set forth in Schedule 4.12, each of
the Company and its subsidiaries has good and marketable title to its
properties and material assets owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Company. Any real property
and facilities held under lease by
12
the Company or its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
Section 4.13 Insurance. The Company and each of its subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to
be prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a whole.
Section 4.14 Regulatory Permits. The Company and its subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.
Section 4.15 Internal Accounting Controls. The Company and each of
its subsidiaries maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Section 4.16 No Material Adverse Breaches, etc. Except as set
forth in the SEC Documents, neither the Company nor any of its subsidiaries is
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company's
officers has or is expected in the future to have a material adverse effect on
the business, properties, operations, financial condition, results of
operations or prospects of the Company or its subsidiaries. Neither the
Company nor any of its subsidiaries is in breach of any contract or agreement
which breach, in the judgment of the Company's officers, has or is expected to
have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
subsidiaries.
Section 4.17 Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending against or affecting the Company, the Common
Stock or any of the Company's subsidiaries, wherein an unfavorable decision,
ruling or finding would (i) have a material adverse effect on the transactions
contemplated hereby (ii) adversely affect the validity or enforceability of,
or the authority or ability of the Company to perform its obligations under,
this Agreement or any of the documents contemplated herein, or (iii) except as
expressly disclosed in the SEC Documents, have a material adverse effect on
the business, operations,
13
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
Section 4.18 Subsidiaries. Except as disclosed in the SEC
Documents, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.
Section 4.19 Other Outstanding Securities/Financing Restrictions.
Other than warrants and options to acquire shares of Common Stock as disclosed
in Schedule 4.3, there are no other warrants and options registered with the
SEC, which are available for sale as unrestricted ("free trading") stock.
Section 4.20 Tax Status. Except as disclosed in Schedule 4.20, the
Company and each of its subsidiaries have made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that
the Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has
paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
Section 4.21 Absence of Certain Developments. Except as provided in
the SEC Documents or on Schedule 4.21, since the date of the financial
statement contained in the most recently filed Form 10-KSB or 10-QSB,
whichever is most current, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities
or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to
any liabilities (absolute or contingent) except current liabilities incurred
in the ordinary course of business which are comparable in nature and amount
to the current liabilities incurred in the ordinary course of business during
the comparable portion of its prior fiscal year, as adjusted to reflect the
current nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash
or other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
14
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets
or intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of
business or to the Investors or their representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $50,000.00;
(x) entered into any other material transaction, whether
or not in the ordinary course of business;
(xi) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries.
Section 4.22 Certain Transactions. Except as set forth in the SEC
Documents or Schedule 4.22, none of the officers, directors, or employees of
the Company is presently a party to any transaction with the Company (other
than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has
a substantial interest or is an officer, director, trustee or partner.
Section 4.23 Fees and Rights of First Refusal. Except as set forth
in the SEC Documents, the Company is not obligated to offer the securities
offered hereunder or under the Securities Purchase Agreement on a right of
first refusal basis or otherwise to any third parties including, but not
limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties.
Section 4.24 Use of Proceeds. The Company represents that the net
proceeds from this offering will be used as provided on Schedule 4.24. In no
event shall the net proceeds from this
15
offering be used by the Company for the payment (or loaned to any such
person for the payment) of any judgment, or other liability, incurred by any
executive officer, officer, director, or employee of the Company.
Section 4.25 Further Representation and Warranties of the Company.
(a) For so long as any securities issuable hereunder held by the
Investors remain outstanding, the Company acknowledges, represents, warrants
and agrees that it will use commercially reasonable efforts to maintain the
listing of its Common Stock on NASD Bulletin Board and/or the NASDAQ Small Cap
Stock Market and/or the Over-The-Counter Bulletin Board and/or the American
Stock Exchange.
(b) The Company acknowledges and agrees that the Investors
are acting solely in the capacity of arm's length investor with respect to
this Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Investors are not acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereunder and any advice given by
each Investor or any of its representatives or agents in connection with this
Agreement and the transactions contemplated hereunder is merely incidental to
the Investors' purchase of the shares of the Common Stock to be purchased
under this Agreement. The Company further represents to the Investors that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation by the Company and its own representatives and counsel.
Section 4.26 Opinion of Counsel. The Investors shall receive an
opinion letter from counsel to the Company (updated where applicable) on the
date of this Agreement and on each Advance Closing Date substantially in the
form of Exhibit C.
Section 4.27 Dilution. The Company is aware and acknowledges that
issuance of shares of the Company's Common Stock could cause substantial
dilution to existing shareholders and could significantly increase its issued
and outstanding shares of Common Stock, thereby exerting a negative effect on
the trading price of the Common Stock.
ARTICLE V.
Indemnification
Section 5.1 Indemnification. (a) In consideration of the Investors'
execution and delivery of this Agreement, and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Investors, and all of their officers,
directors, employees and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Investor Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Investor Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by the Investor
Indemnitees or any of them as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or warranty made by
the Company in this Agreement or the Registration Rights Agreement or any
other certificate, instrument or document contemplated hereby
16
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement or the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby,
or (c) any cause of action, suit or claim brought or made against such
Investor Indemnitee not arising out of any action or inaction of an Investor
Indemnitee, and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the Indemnitees. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible
under applicable law.
(a) In consideration of the Company's execution and delivery
of this Agreement, and in addition to all of the Investors' other obligations
under this Agreement, the Investors shall defend, protect, indemnify and hold
harmless the Company and all of its officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Company
Indemnitees") from and against any and all Indemnified Liabilities incurred by
the Indemnitees or any of them as a result of, or arising out of, or relating
to (a) any misrepresentation or breach of any representation or warranty made
by the Investors in this Agreement or any instrument or document contemplated
hereby or thereby executed by the Investors, (b) any breach of any covenant,
agreement or obligation of the Investors contained in this Agreement, the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Investors, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach by the Investors and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Company Indemnitees. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible
under applicable law.
ARTICLE VI.
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect, and the
Company shall comply in all material respects with the terms thereof.
Section 6.2 Listing of Common Stock. The Company shall maintain
the Common Stock's authorization for quotation on the Over-The-Counter
Bulletin Board.
Section 6.3 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(g) of the Exchange
Act, will file in a timely manner all reports and other documents required of
it as a reporting company under the Exchange Act and will not take any action
or file any document (whether or not permitted by Exchange Act or the rules
thereunder, to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Exchange Act.
Section 6.4 Transfer Agent Instructions. Upon each Advance
Closing and the effectiveness of the Registration Statement the Company will
deliver instructions to its transfer agent to issue to the Investors and
deliver to the Escrow Agent shares of Common Stock free of legends.
17
Section 6.5 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6 Notice of Certain Events Affecting Registration;
Suspension of Right to Make an Advance. The Company will immediately notify
the Investors upon its becoming aware of the occurrence of any of the
following events in respect of a registration statement or related prospectus
relating to an offering of Registrable Securities: (i) receipt of any request
for additional information by the SEC or any other Federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the registration statement or
related prospectus; (ii) the issuance by the SEC or any other Federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; (iv) the happening of any event that makes
any statement made in the Registration Statement or related prospectus of any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case
of the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the
case of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investors any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investors any Advance Notice during the
continuation of any of the foregoing events.
Section 6.7 Expectations Regarding Advance Notices. Within ten
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company must notify the
Investors, in writing, as to its reasonable expectations as to the dollar
amount it intends to raise during such calendar quarter, if any, through the
issuance of Advance Notices. Such notification shall constitute only the
Company's good faith estimate and shall in no way obligate the Company to
raise such amount, or any amount, or otherwise limit its ability to deliver
Advance Notices. The failure by the Company to comply with this provision can
be cured by the Company's notifying the Investors, in writing, at any time as
to its reasonable expectations with respect to the current calendar quarter.
Section 6.8 Consolidation; Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all the assets of the
Company to another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes all of the
obligations of the Company under this Agreement by written instrument
satisfactory in form and substance to the Investors, including the obligation
to deliver to the Investors such shares of stock and/or securities as the
Investors are entitled to receive pursuant to this Agreement.
18
Section 6.9 Issuance of the Company's Common Stock. The sale of
the shares of Common Stock shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state securities law.
Section 6.10 Qualification as a Foreign Corporation. Prior to the
initial Advance Closing, the Company shall have qualified to do business as a
foreign corporation in California and Texas.
Section 6.11 Certain Indebtedness. Prior to the initial Advance
Closing, the Company shall have used its best efforts to convert the existing
demand note payable to Comerica Bank into a note with a scheduled maturity of
not sooner than July 31, 2002.
ARTICLE VII.
Conditions for Advance and Conditions to Advance Closing
Section 7.1 Conditions Precedent to the Obligations of the Company.
The obligation hereunder of the Company to issue and sell the shares of Common
Stock to the Investors incident to each Advance Closing is subject to the
satisfaction, or waiver by the Company, at or before each such Advance
Closing, of each of the conditions set forth below.
(a) Accuracy of the Investors' Representation and Warranties.
The representations and warranties of the Investors shall be true and correct
in all material respects as of the date of this Agreement and as of the date
of each such Advance Closing as though made at each such time.
(b) Performance by the Investors. The Investors shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Investors at or prior to such Advance
Closing.
Section 7.2 Conditions Precedent to the Right of the Company to
Deliver an Advance Notice and the Obligation of the Investors to Purchase
Shares of Common Stock. The right of the Company to deliver an Advance Notice
and the obligation of the Investors hereunder to acquire and pay for shares of
the Company's Common Stock incident to an Advance Closing is subject on (i)
the date of delivery of such Advance Notice and (ii) the applicable Advance
Closing Date (each a "Condition Satisfaction Date"), to each of the following
conditions:
(a) Registration of the Common Stock with the SEC. The
Company shall have filed the Registration Statement with the SEC and, subject
to the requirements of the Registration Rights Agreement, the Registration
Statement shall have previously become effective and shall remain effective on
each Condition Satisfaction Date and (i) neither the Company nor the Investors
shall have received notice that the SEC has issued or intends to issue a stop
order with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investors are reasonably satisfied
that the SEC no longer is considering or intends to take such action), and
(ii) no other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist. The Registration
Statement shall have been declared effective by the SEC prior to the first
Advance Notice Date.
19
(b) Authority. The Company shall have obtained all permits
and qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions there from. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(c) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company shall be true and correct as
of each Condition Satisfaction Date as though made at each such time (except
for representations and warranties specifically made as of a particular date)
with respect to all periods, and as to all events and circumstances occurring
or existing to and including each Condition Satisfaction Date.
(d) Performance by the Company. The Company shall have
performed, satisfied and complied with all covenants, agreements and
conditions required by this Agreement and the Registration Rights Agreement to
be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any
of the transactions contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the
Company's most recent SEC Document, there has occurred no event that had or is
reasonably likely to have a Material Adverse Effect.
(g) No Suspension of Trading in or Delisting of Common Stock.
The trading of the Common Stock is not suspended by the SEC or the Principal
Market (if the Common Stock is traded on a Principal Market). The issuance of
shares of Common Stock with respect to the applicable Advance Closing, if any,
shall not violate the shareholder approval requirements of the Principal
Market (if the Common Stock is traded on a Principal market). The Company
shall not have received any notice threatening the continued listing of the
Common Stock on the Principal Market (if the Common Stock is traded on a
Principal Market).
(h) Maximum Advance Amount. The amount of the advance
requested by the Company does not exceed the Maximum Advance Amount.
(i) No Knowledge. The Company has no knowledge of any event
more likely than not to have the effect of causing such Registration Statement
to be suspended or otherwise ineffective.
(j) Other. On each Condition Satisfaction Date, the
Investors shall have received a certificate executed by an executive officer
of the Company contained in the Advance Notice/Compliance Certificate in the
form attached hereto as Exhibit D.
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ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1 Due Diligence Review. Prior to the filing of the
Registration Statement the Company shall make available for inspection and
review by the Investors, their advisors and representatives, any underwriter
participating in any disposition of the Registrable Securities on behalf of
the Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, NASD or other
filing, all financial and other records, all SEC Documents and other filings
with the SEC, and all other corporate documents and properties of the Company
as may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made
or submitted by any of them), prior to and from time to time after the filing
and effectiveness of the Registration Statement for the sole purpose of
enabling the Investors and such representatives, advisors and underwriters and
their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to
the Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as
being non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to
disclosing any non-public information hereunder, require the Investors'
advisors and representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate non-public information
to any investors who purchase stock in the Company in a public offering, to
money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives of
the Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed
in the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in
light of the circumstances in which they were made, not misleading. Nothing
contained in this Section 8.2 shall be construed to mean that such persons or
entities other than the Investors (without the written consent of the
Investors prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement
contains an untrue statement of material fact or omits a material fact
21
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX.
Choice of Law/Jurisdiction
Section 9.1 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws. The parties further agree that
any action between them shall be heard in New York City, New York, and
expressly consent to the jurisdiction and venue of the Supreme Court of New
York and the United States District Court for the Southern District of New
York for the adjudication of any civil action asserted pursuant to this
paragraph.
ARTICLE X.
Assignment
Section 10.1 No Assignment. This Agreement shall not be
assignable.
ARTICLE XI.
Notices
Section 11.1 Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile, provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party; (iii) three
(3) days after being sent by U.S. certified mail, return receipt requested, or
(iv) one (1) day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same.
The addresses and facsimile numbers for such communications shall be:
If to the Company, to:
FLEXXTECH CORPORATION,
0000 X. Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxx, Xxxxxxxx & Xxxxxx LLP
0000 XxXxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
22
If to the Investors, to its address and facsimile number on Schedule I, with
copies to the Investors' counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change
in address or facsimile number.
ARTICLE XII.
Miscellaneous
Section 12.1 Counterparts. This Agreement may be executed in two
or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. In the event any signature
page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages to
be physically delivered to the other party within five (5) days of the
execution and delivery hereof.
Section 12.2 Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Investors,
the Company, their affiliates and persons acting on their behalf with respect
to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set
forth herein or therein, neither the Company nor any Investor makes any
representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the party to be charged with enforcement.
Section 12.3 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement shall be Bloomberg, L.P. or any successor thereto.
Section 12.4 Fees and Expenses.
(a) The Company and May Xxxxx Group, Inc. have entered into that
certain Placement Agent Agreement (the "Placement Agent Agreement"), dated the
date hereof, pursuant to which the Company as agreed to pay certain fees all
as set forth therein.
(b) The Company acknowledges that Dutchess Advisors, Ltd.
("DAL") has acted and is acting in an advisory capacity to Dutchess Private
Equities Fund, L.P. in connection with this Agreement and the transactions
contemplated hereby and accordingly the Company has agreed to pay the advisory
fees of DAL as set forth in this Section. Upon execution of this Agreement,
the Company shall issue to DAL that number of shares of Common Stock as shall
be equal to $96,000.00 divided by the closing bid price of the Company's
Common Stock on the date this Agreement is executed by the Investors and the
Company. DAL shall also receive 2.8% of the gross proceeds of each dollar
amount to be paid to the Company on a respective Advance Closing Date, which
amount shall be paid directly out of escrow. Upon execution of this
Agreement, the Company shall issue to Duthcess Private Equities Fund, L.P., as
a commitment fee, that number of shares of Common Stock
23
as shall be equal to $24,000.00 divided by the closing bid price of the
Company's Common Stock on the date this Agreement is executed by the Investors
and the Company.
Section 12.5 Legal Fees. Each of the parties shall pay its own
fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby, except that the Company will pay the
sum of Fifteen Thousand and No/100 Dollars ($15,000), to McGuireWoods LLP for
legal fees and will further pay the disbursements of such law firm incurred in
the preparation and negotiation of this Agreement. The Company hereby directs
such amount to be paid directly from the proceeds of the Initial Advance.
Section 12.6 Brokerage. Each of the parties hereto represents that
it has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party,
other than as set forth in the Placement Agency Agreement. The Company on the
one hand, and the Investors, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 12.7 Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to
the other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herein.
24
IN WITNESS WHEREOF, the parties hereto have caused this Equity Line of
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
COMPANY:
FLEXXTECH CORPORATION
By: ________________________________
Name:
Title:
INVESTOR:
DRH INVESTMENT COMPANY, LLC
By: ________________________________
Name: Xxxxxx Xxxxxxxxx
Title: Managing Member
INVESTOR:
By: ________________________________
Name:
Title:
