SECURITIES PURCHASE AGREEMENT
THIS AGREEMENT dated as of the
16th day of July 2010 (the “Agreement”) between
TANGIERS INVESTORS, LP,
a Delaware limited partnership (the “Investor”), and MEGOLA, INC., 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
shall issue and sell to the Investor, as provided herein, and the Investor shall
purchase from the Company up to Five Million Dollars ($5,000,000) of the
Company’s common stock, par value $0.001 per share (the “Common Stock”);
and
WHEREAS, such investments will
be made in reliance upon the provisions of Regulation D (“Regulation D”) of the
Securities Act of 1933, as amended, and the regulations promulgated thereunder
(the “Securities
Act”), and or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.
NOW, THEREFORE, the parties hereto
agree as follows:
ARTICLE
I.
Certain
Definitions
Section
1.1. “Advance” shall mean
the portion of the Commitment Amount requested by the Company in the Advance
Notice.
Section
1.2. “Advance Date” shall
mean the first (1st)
Trading Day after expiration of the applicable Pricing Period for each
Advance.
Section
1.3. “Advance Notice” shall
mean a written notice in the form of Exhibit A attached
hereto to the Investor executed by an officer of the Company and setting forth
the Advance amount that the Company requests from the Investor.
Section
1.4. “Advance Notice Date”
shall mean each date the Company delivers (in accordance with Section 2.2(b) of
this Agreement) to the Investor an Advance Notice requiring the Investor to
advance funds to the Company, subject to the terms of this Agreement. No Advance
Notice Date shall be less than ten (10) Trading Days after the prior Advance
Notice Date.
Section
1.5. “Bid Price” shall
mean, on any date, the closing bid price (as reported by Bloomberg L.P.) of the
Common Stock on the Principal Market or if the Common Stock is not traded on a
Principal Market, the highest reported bid price for the Common Stock, as
furnished by the Financial Industry Regulatory Authority.
Section
1.6. “Closing” shall mean
one of the closings of a purchase and sale of Common Stock pursuant to Section
2.3.
Section
1.7. “Commitment Amount”
shall mean the aggregate amount of up to Five Million Dollars ($5,000,000) that
the Investor has agreed to provide to the Company in order to purchase the
Company’s Common Stock pursuant to the terms and conditions of this
Agreement.
Section
1.8. “Commitment Period”
shall mean the period commencing on the Effective Date, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of the Commitment
Amount, (y) the date this Agreement is terminated pursuant to Section 10.2 or
(z) the date occurring twenty-four (24) months after the Effective Date or
thirty six (36) months after the Effective Date if twenty-four (24) months after
the Effective Date the Company files either an amendment to the then effective
registration statement or a new registration statement is declared
effective.
Section
1.9. “Common Stock” shall
mean the Company’s common stock, par value $0.001per share whether issued to the
Investor directly or underlying warrants issued to the Investor.
Section
1.10. “Condition Satisfaction
Date” shall have the meaning set forth in Section 7.2.
Section
1.11. “Damages” shall mean
any loss, claim, damage, liability, costs and expenses (including, without
limitation, reasonable attorney’s fees and disbursements and costs and expenses
of expert witnesses and investigation).
Section
1.12. “Effective Date” shall
mean the date on which the SEC first declares effective a Registration Statement
registering the resale of the Registrable Securities as set forth in Section
7.2(a).
Section
1.13. “Exchange Act” shall
mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
Section
1.14. “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
1.15. “Market Price” shall
mean the lowest daily volume weighted average price of the Common Stock during
the Pricing Period.
Section
1.16. “Maximum Advance
Amount” The maximum dollar amount of each Advance will be equal to the
average daily trading volume in dollar amount during the ten (10) trading days
preceding the Advance Date. No Advance will be made in an amount lower than the
Minimum Advance Amount (defined below) or higher than Two Hundred Fifty Thousand
Dollars ($250,000).
Section
1.17. “Minimum Advance
Amount” shall be Five Thousand Dollars ($5,000) per Advance
Notice.
Section
1.18. “FINRA” shall mean the
Financial Industry Regulatory Authority.
Section
1.19. “Person” shall mean an
individual, a corporation, a partnership, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section
1.20. “Pricing Period” shall
mean the five (5) consecutive Trading Days after the Advance Notice Date subject
to the terms and conditions provided herein.
Section
1.21. “Principal Market”
shall mean the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq
Capital Market, the American Stock Exchange, the OTC Bulletin Board or the New
York Stock Exchange, or whichever is at the time the principal trading exchange
or market for the Common Stock.
Section
1.22. “Purchase Price” shall
be set at eighty-five percent (85%) of the Market Price during the Pricing
Period.
Section
1.23. “Registrable
Securities” shall mean the shares of Common Stock to be issued
hereunder and
underlying any warrants that may be issued by the Company to the
Investor from time to time pursuant to this Agreement; (i) in respect of which
the Registration Statement has not been declared effective by the SEC, (ii)
which have not been sold under circumstances meeting all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act (“Rule
144”) or (iii) which have not been otherwise transferred to a holder who
may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend.
Section
1.24. “Registration Rights
Agreement” shall mean the Registration Rights Agreement dated the date
hereof, regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the
Investor.
Section
1.25. “Registration
Statement” shall mean a registration statement on Form S-1 (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
Investor of the Registrable Securities under the Securities
Act.
Section
1.26. “Regulation D” shall
have the meaning set forth in the recitals of this Agreement.
Section
1.27. “SEC” shall mean the
United States Securities and Exchange Commission.
Section
1.28. “Securities Act” shall
have the meaning set forth in the recitals of this Agreement.
Section
1.29. “SEC Documents” shall
mean Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and Proxy Statements of the Company as supplemented to the
date hereof, filed by the Company for a period of at least twelve (12) months
immediately preceding the date hereof or the Advance Date, as the case may be,
until such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section
1.30. “Trading Day” shall
mean any day during which the New York Stock Exchange shall be open for
business.
Section
1.31. “VWAP” shall mean the
volume weighted average price of the Company’s Common Stock as quoted by
Bloomberg, LP.
ARTICLE
II.
Advances
Section
2.1. Advances.
Subject
to the terms and conditions of this Agreement (including, without limitation,
the provisions of Article VII hereof), the Company, at its sole and exclusive
option, may issue and sell to the Investor, and the Investor shall purchase from
the Company, shares of the Company’s Common Stock by the delivery, in the
Company’s sole discretion, of Advance Notices. The number of shares of Common
Stock that the Investor shall purchase pursuant to each Advance shall be
determined by dividing the amount of the Advance by the Purchase Price. No
fractional shares shall be issued. Fractional shares shall be rounded to the
next higher whole number of shares. The aggregate maximum amount of all Advances
that the Investor shall be obligated to make under this Agreement shall not
exceed the Commitment Amount.
Section
2.2. Mechanics.
(a) Advance Notice. At
any time during the Commitment Period, the Company may require the Investor to
purchase shares of Common Stock by delivering an Advance Notice to the Investor,
subject to the conditions set forth in Section 7.2; provided, however, the
amount for each Advance as designated by the Company in the applicable Advance
Notice shall not be less than the Minimum Advance Amount, nor more than the
Maximum Advance Amount and the aggregate amount of the Advances pursuant to this
Agreement shall not exceed the Commitment Amount. The Company acknowledges that
the Investor may sell shares of the Company’s Common Stock corresponding with a
particular Advance Notice after the Advance Notice is received by the Investor.
There shall be a minimum of ten (10) Trading Days between each Advance Notice
Date.
(b) Date of Delivery of Advance
Notice. An Advance Notice shall be deemed delivered on (i) the Trading
Day it is received by facsimile or otherwise by the Investor if such notice is
received prior to 5:00 pm Eastern Time, or (ii) the immediately succeeding
Trading Day if it is received by facsimile or otherwise after 5:00 pm Eastern
Time on a Trading Day or at any time on a day which is not a Trading Day. No
Advance Notice may be deemed delivered on a day that is not a Trading
Day.
Section
2.3. Closings. On each
Advance Date (i) the Company shall deliver to the Investor such number of shares
of the Common Stock registered in the name of the Investor as shall equal (x)
the amount of the Advance specified in such Advance Notice pursuant to Section
2.1 herein, divided by (y) the Purchase Price and (ii) upon receipt of such
shares, the Investor shall deliver to the Company the amount of the Advance
specified in the Advance Notice by wire transfer of immediately available funds.
Provided, however, that if the Company is not DWAC eligible, then the Investor
shall be allowed to deliver the amount of any Advance specified in the Advance
Notice within three (3) to five (5) business days after the Pricing
Period. The parties understand that the Company’s DWAC eligibility
will not affect their ability to obtain Advances under this Agreement, but may
extend the timing of an Advance Date. In addition, on or prior to the Advance
Date, each of the Company and the Investor shall deliver to the other all
documents, instruments and writings required to be delivered by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. To the extent the Company has not paid the fees, expenses,
and disbursements in accordance with Section 12.4, the undisputed amount of such
fees, expenses, and disbursements may be deducted by the Investor (and shall be
paid to the relevant party) directly out of the proceeds of the Advance with no
reduction in the amount of shares of the Company’s Common Stock to be delivered
on such Advance Date.
(a) Company’s Obligations Upon
Closing.
On each
Advance Date:
(i)
The Company shall deliver to the
Investor the shares of Common Stock applicable to the Advance in accordance with
Section 2.3. The certificates evidencing such shares shall be free of
restrictive legends, provided such shares are registered pursuant to an
effective registration statement.
(ii) the
Company’s Registration Statement with respect to the resale of the shares of
Common Stock delivered in connection with the Advance shall have been declared
effective by the SEC;
(iii) the
Company shall have obtained all material permits and qualifications required by
any applicable state for the offer and sale of the Registrable Securities, or
shall have the availability of exemptions therefrom. The sale and issuance of
the Registrable Securities shall be legally permitted by all laws and
regulations to which the Company is subject;
(iv) the
Company shall have filed with the SEC in a timely manner all reports, notices
and other documents required of a “reporting company” under the Exchange Act and
applicable Commission regulations; and
(v) the
fees as set forth in Section 12.4 below shall have been paid or can be withheld
as provided in Section 2.3.
(b) Investor’s Obligations Upon
Closing. Upon receipt of the shares referenced in Section 2.3(a)(i) above
and provided the Company is in compliance with its obligations in Section 2.3,
the Investor shall deliver to the Company the amount of the Advance specified in
the Advance Notice by wire transfer of immediately available funds.
Section
2.5. Hardship. In
the event the Investor sells shares of the Company’s Common Stock after receipt
of an Advance Notice and the Company fails to perform its obligations as
mandated in Section 2.3, and specifically the Company fails to deliver to the
Investor on the Advance Date the shares of Common Stock corresponding to the
applicable Advance pursuant to Section 2.3(a)(i), the Company acknowledges that
the Investor shall suffer financial hardship and, provided that the Investor has
performed its obligations pursuant to Section 2.3, and therefore the Company
shall be liable for any and all losses, commissions, fees, or financial hardship
caused to the Investor, provided, however that the amount of any such losses
shall not in any event exceed the applicable Advance.
ARTICLE
III.
Representations
and Warranties of Investor
Investor
hereby represents and warrants to, and agrees with, the Company that the
following are true and correct as of the date hereof and as of each Advance
Date:
Section
3.1. Organization and
Authorization. The Investor is duly incorporated or organized and validly
existing in the jurisdiction of its incorporation or organization and has all
requisite power and authority to purchase and hold the securities issuable
hereunder. The decision to invest and the execution and delivery of this
Agreement by such Investor, the performance by such Investor of its obligations
hereunder and the consummation by such Investor of the transactions contemplated
hereby have been duly authorized and requires no other proceedings on the part
of the Investor. The undersigned has the right, power and authority to execute
and deliver this Agreement and all other instruments (including, without
limitations, the Registration Rights Agreement), on behalf of the Investor. This
Agreement has been duly executed and delivered by the Investor and, assuming the
execution and delivery hereof and acceptance thereof by the Company, will
constitute the legal, valid and binding obligations of the Investor, enforceable
against the Investor in accordance with its terms.
Section
3.2. Evaluation of Risks.
The Investor has such knowledge and experience in financial, tax and business
matters as to be capable of evaluating the merits and risks of, and bearing the
economic risks entailed by, an investment in the Company and of protecting its
interests in connection with this transaction. It recognizes that its investment
in the Company involves a high degree of risk.
Section
3.3. No Legal Advice From the
Company. The Investor acknowledges that it had the opportunity to review
this Agreement and the transactions contemplated by this Agreement with his or
its own legal counsel and investment and tax advisors. The Investor is relying
solely on such counsel and advisors and not on any statements or representations
of the Company or any of its representatives or agents for legal, tax or
investment advice with respect to this investment, the transactions contemplated
by this Agreement or the securities laws of any jurisdiction.
Section
3.4. Investment Purpose.
The securities are being purchased by the Investor for its own account, and for
investment purposes. The Investor agrees not to assign or in any way transfer
the Investor’s rights to the securities or any interest therein and acknowledges
that the Company will not recognize any purported assignment or transfer except
in accordance with applicable Federal and state securities laws. No other person
has or will have a direct or indirect beneficial interest in the securities. The
Investor agrees not to sell, hypothecate or otherwise transfer the Investor’s
securities unless the securities are registered under Federal and applicable
state securities laws or unless, in the opinion of counsel satisfactory to the
Company, an exemption from such laws is available.
Section
3.5. Accredited Investor.
The Investor is and shall be on each Advance Date, an “Accredited Investor”
as that term is defined in Rule 501(a)(3) of Regulation D of the Securities
Act. The Company may seek any written reasonable assurances from the
Investor of the Investor’s status as an “accredited investor” on or prior to any
Advance Date.
Section
3.6. Information. The Investor and its
advisors (and its counsel), if any, have been furnished with all materials
relating to the business, finances and operations of the Company and information
it deemed material to making an informed investment decision. The Investor and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence
investigations conducted by such Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor’s right to rely on
the Company’s representations and warranties contained in this Agreement. The
Investor understands that its investment involves a high degree of
risk. The Investor has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to this transaction.
Section
3.7. Receipt of Documents.
The Investor and its counsel have received and read in their entirety: (i) this
Agreement and the Exhibits annexed hereto; (ii) all due diligence and other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company’s most recent
periodic filings filed with the SEC; and (iv) answers to all questions the
Investor submitted to the Company regarding an investment in the Company; and
the Investor has relied on the information contained therein and has not been
furnished any other documents, literature, memorandum or
prospectus.
Section
3.8. Registration Rights
Agreement. The Investor has entered into the Registration Rights
Agreement dated the date hereof.
Section
3.9.
Reserved
Section
3.10. Not an Affiliate. The
Investor is not an officer, director or a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with the Company or any “Affiliate” of the
Company (as that term is defined in Rule 405 of the Securities
Act).
Section
3.11. Trading Activities.
The Investor’s trading activities with respect to the Company’s Common Stock
shall be in compliance with all applicable federal and state securities laws,
rules and regulations and the rules and regulations of the Principal Market on
which the Company’s Common Stock is listed or traded. Neither the Investor nor
its affiliates has an open short position in the Common Stock of the Company,
the Investor agrees that it shall not, and that it will cause its affiliates not
to, engage in any short sales of or hedging transactions with respect to the
Common Stock, provided
that the Company acknowledges and agrees that upon receipt of an Advance Notice
the Investor has the right to sell the shares to be issued to the Investor
pursuant to the Advance Notice during the applicable Pricing
Period.
Section
3.12 Reliance on
Exemptions. The Investor understands that the
Common Stock is being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Investor’ compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Investor set forth here in order to
determine the availability of such exemptions and the eligibility of such
Investor to acquire the Common Stock.
Section
3.13 No Governmental
Review. The Investor understands that no United States,
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Common Stock issuable
pursuant to this Agreement or the fairness or suitability of the investment in
the Common Stock nor have such authorities passed upon or endorsed the merits of
the offering of the Common Stock.
ARTICLE
IV.
Representations
and Warranties of the Company
Except as
stated below, on the disclosure schedules attached hereto or in the SEC
Documents (as defined herein), the Company hereby represents and warrants to,
and covenants with, the Investor that the following are true and correct as of
the date hereof:
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 corporate power to own its properties and to carry on its business as
now being conducted. Each of the Company and its subsidiaries (if any) 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 and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement and any related agreements by the Company and
the consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by the Company’s Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement and any
related agreements have been duly executed and delivered by the Company, (iv)
this Agreement, the Registration Rights Agreement and assuming the execution and
delivery thereof and acceptance by the Investor and any related agreements
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and
remedies.
Section
4.3. Capitalization. The
authorized capital stock of the Company consists of 200,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock (with various series),
$0.001 par value per share (“Preferred Stock”), of
which 26,663,180 shares of Common Stock and 1,379,516 shares of Preferred
Stock are issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. 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. As of the date
hereof, except for the financing transactions and acquisitions previously
disclosed to the Investor and as set forth in Schedule 4.3; (i) there are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities (iii) there are no
outstanding registration statements other than on Form S-8 and (iv) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the Securities
Act (except pursuant to the Registration Rights Agreement). There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by this Agreement or any related agreement or the consummation
of the transactions described herein or therein. The Company has furnished to
the Investor true and correct copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s By-laws, as in effect on the date
hereof (the “By-laws”), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
Section
4.4. No Conflict. Subject
to the Company’s Certificate of Incorporation, the execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby will not (i) result in a violation of
the Certificate of Incorporation, any certificate of designations of any
outstanding series of preferred stock of the Company or By-laws or (ii) conflict
with or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market on which the Common Stock is quoted)
applicable to the Company or any of its subsidiaries or by which any material
property or asset of the Company or any of its subsidiaries is bound or affected
and which would cause a Material Adverse Effect. Neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted in violation of any material
law, ordinance, and 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.
Section
4.5. SEC Documents; Financial
Statements. As of their respective dates, the financial statements of the
Company disclosed on the Company’s website and disclosed to the Investor (the
“Financial
Statements”) complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations with respect
thereto. Such Financial Statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and, fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investor contains any
untrue statement of a material fact or omits to 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. 10b-5. None of the
documents provided to the Investor include any untrue statements of material
fact, nor do they omit 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. The
Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its property is bound (which has not been waived)
and neither the execution, nor the delivery by the Company, nor the performance
by the Company of its obligations under this Agreement or any of the exhibits or
attachments hereto will conflict with or result in the breach or violation
(which has not been waived) of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under its Certificate of
Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company
is a party or by which it is bound, or any statute, or any decree, judgment,
order, rules or regulation of any court or governmental agency or body having
jurisdiction over the Company or its properties, in each case which default,
lien or charge is likely to cause a Material Adverse Effect on the Company’s
business or financial condition.
Section
4.8. Absence of Events of
Default. No Event of Default, as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice or
the passage of time or both, would become an Event of Default (as so defined),
has occurred and is continuing, which would have a Material Adverse Effect on
the Company’s business, properties, prospects, financial condition or results of
operations.
Section
4.9. Intellectual Property
Rights. The Company and its subsidiaries own or possess adequate rights
or licenses to use all material trademarks, trade names, service marks, service
xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights necessary to conduct their respective businesses as now conducted. The
Company and its subsidiaries do not have any knowledge of any infringement by
the Company or its subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks, service
xxxx registrations, trade secret or other similar rights of others, and, to the
knowledge of the Company, there is no claim, action or proceeding being made or
brought against, or to the Company’s knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
xxxx registrations, trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
Section
4.10. Employee Relations.
Neither the Company nor any of its subsidiaries is involved in any labor dispute
nor, to the knowledge of the Company or any of its subsidiaries, is any such
dispute threatened. None of the Company’s or its subsidiaries’ employees is a
member of a union and the Company and its subsidiaries believe that their
relations with their employees are good.
Section
4.11. Environmental Laws.
The Company and its subsidiaries are (i) in compliance with any and all
applicable material foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”),
(ii) have received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval.
Section
4.12. Title. The Company
has good and marketable title to its properties and material assets owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company. Any real property and facilities held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
Section
4.13. 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 material certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
Section
4.15. No Material Adverse
Breaches, etc. 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
4.16. Absence of
Litigation. Except as disclosed in Schedule 4.16, 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) have a Material Adverse Effect on the business,
operations, properties, financial condition or results of operation of the
Company and its subsidiaries taken as a whole.
Section
4.17. Subsidiaries. The
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity
other than what is reported in the Company’s SEC filings.
Section
4.18. Tax Status. Except as
disclosed in Schedule 4.18, the Company and each of its subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
Section
4.19. Certain Transactions.
Except as disclosed in Schedule 4.19, the Company is not presently a party to
any transaction with the Company (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
Section
4.20. Fees and Rights of First
Refusal. The Company is not obligated to offer the securities
offered hereunder on a right of first refusal basis or otherwise to any third
parties including, but not limited to, current or former shareholders of the
Company, underwriters, brokers, agents or other third parties.
Section
4.21. Use of Proceeds. The
Company shall use the net proceeds from this offering for general corporate
purposes, including, without limitation, the payment of loans incurred by the
Company. However, in no event shall the Company use the net proceeds from this
offering for the payment (or loan to any such person for the payment) of any
judgment, or other liability, incurred by any executive officer, officer,
director or employee of the Company, except for any liability owed to such
person for services rendered, expense reimbursement or if any judgment or other
liability is incurred by such person originating from services rendered to the
Company, or the Company has indemnified such person from liability.
Section
4.22. Further Representation and
Warranties of the Company. For so long as any securities issuable
hereunder held by the Investor remain outstanding, the Company acknowledges,
represents, warrants and agrees that it will use its best efforts to maintain
the listing of its Common Stock on the Principal Market.
Section
4.23. Opinion of Counsel.
The Company will obtain, subject to applicable securities laws, for the
Investor, at the Company’s expense, any and all opinions of counsel which may be
reasonably required in order to sell the securities issuable hereunder without
restriction.
Section
4.24. Dilution. The
Company is aware and acknowledges that issuance of shares of the Company’s
Common Stock could cause dilution to existing shareholders and could
significantly increase the outstanding number of shares of Common
Stock.
ARTICLE
V.
Indemnification
The
Investor and the Company represent to the other the following with respect to
itself:
Section
5.1. Indemnification.
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(a)
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In
consideration of the Investor’s execution and delivery of this Agreement,
and in addition to all of the Company’s other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless
the Investor, and all of its officers, directors, partners, employees and
agents (including, without limitation, those retained in connection with
the transactions contemplated by this Agreement) (collectively, the
“Investor Indemnitees”) from and against any and all 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 material misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, (b) any material 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, (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 Investor Indemnitees, or
(d) any failure (whether purposeful or not) on the part of the
transfer agent to effectuate the transfer of shares or any of the
transactions contemplated hereunder. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible
under applicable law.
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(b)
In consideration of the Company’s execution and delivery of this Agreement, and
in addition to all of the Investor’s other obligations under this Agreement, the
Investor shall defend, protect, indemnify and hold harmless the Company and all
of its officers, directors, shareholders, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Company Indemnitees”)
from and against any and all Indemnified Liabilities incurred by the Company
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any material misrepresentation or breach of any representation or warranty made
by the Investor in this Agreement, the Registration Rights Agreement, or any
instrument or document contemplated hereby or thereby executed by the Investor,
(b) any material breach of any covenant, agreement or obligation of the
Investor(s) contained in this Agreement, the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor, or (c) any cause of action, suit or claim brought or
made against such Company Indemnitee based on misrepresentations or due to a
breach by the Investor 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 Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(c)
The obligations of the parties to indemnify or make contribution under this
Section 5.1 shall survive termination.
ARTICLE
VI.
Covenants
of the Company
Section
6.1. RESERVED.
Section
6.2. Listing of Common
Stock. After obtaining its listing on the Over-the-Counter Bulletin
Board, the Company shall maintain the Common Stock’s authorization for quotation
on the Over-the-Counter Bulletin Board during the term of the Commitment
Period.
Section
6.3. Exchange Act
Registration. During the term of the Commitment Period, the Company will
cause its Common Stock to continue to be registered under Section 12(g) of the
Exchange Act, will file in a timely manner all reports and other documents
required of it as a reporting company under the Exchange Act and will not take
any action or file any document (whether or not permitted by Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Exchange
Act.
Section
6.4. Transfer Agent
Instructions. Upon effectiveness of the Registration Statement the
Company shall deliver instructions to its transfer agent to issue shares of
Common Stock to the Investor free of restrictive legends on or before each
Advance Date.
Section
6.5. Corporate Existence.
During the Commitment period, the Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
Section
6.6. Notice of Certain Events
Affecting Registration; Suspension of Right to Make an Advance. The
Company will immediately notify the Investor upon its becoming aware of the
occurrence of any of the following events in respect of a registration statement
or related prospectus relating to an offering of Registrable Securities: (i)
receipt of any request for additional information by the SEC or any other
Federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the registration
statement or related prospectus; (ii) the issuance by the SEC or any other
Federal or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus of any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company’s
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Advance Notice during the
continuation of any of the foregoing events. The Investor understands
and acknowledges that receipt of any of the information requested herein may, at
the time provided to the Investor, constitute material, non-public inside
information, and the Investor agrees to conduct itself accordingly based on
applicable law,
Section
6.7. Restriction on Sale of
Capital Stock. Following the effectiveness of the Registration Statement,
the Company shall not, without the prior written consent of the Investor, (i)
issue or sell any Common Stock or Preferred Stock without consideration or for a
consideration per share less than the Bid Price of the Common Stock determined
immediately prior to its issuance, or (ii) issue or sell any Preferred Stock warrant, option,
right, contract, call, or other security or instrument granting the holder
thereof the right to acquire Common Stock without consideration or for a
consideration per share less than the Bid Price of the Common Stock determined
immediately prior to its issuance. Notwithstanding the foregoing this Section
shall not apply in respect of an Exempt Issuance or an underwritten public
offering of Common Stock. For purposes of this Agreement “Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers, directors or consultants of the Company pursuant to any stock or
option plan duly adopted for such purpose, by a majority of the non-employee
members of the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, (c) any financing that the Company has in
place prior to the date of this Agreement, (d) a private placement(s) of the
Company’s stock in an amount equal to $1,000,000 and (e) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities. In no event may the Investor unreasonably withhold
approval of additional financing to the Company from third parties except as
such financing is an equity line of credit financing. In the event
the Company elects to obtain additional financing during the term of this
Agreement, the Company shall immediately provide the Investor written notice of
such intent (the “Financing Notice”). The Financing Notice shall
contain all of the terms, and parties related to the financing. In
the event that the Company provides the Investor the Financing Notice then the
Investor shall have five business days to respond to such Financing
Notice. Should five business days pass without the Investor providing
a response to the Company, then the Investor shall be deemed to have approved of
the additional financing contained in the notice provided by the
Company.
Section
6.8. Consolidation;
Merger. During the Commitment Period, the Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all the assets of the Company to
another entity (a “Consolidation Event”)
unless the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligation to deliver to the Investor such shares of
stock and/or securities as the Investor is entitled to receive pursuant to this
Agreement.
Section
6.9. Issuance of the Company’s
Common Stock. The sale of the shares of Common Stock shall be made in
accordance with the provisions and requirements of Regulation D and any
applicable state securities law.
Section
6.10. Review of Public
Disclosures. All SEC filings (including, without limitation, all filings
required under the Exchange Act, which include Forms 10-Q and 10-QSB, 10-K and
10K-SB, 8-K, etc) and other public disclosures made by the Company, including,
without limitation, all press releases, investor relations materials, and
scripts of analysts meetings and calls, shall be reviewed and approved for
release by the Company’s attorneys and, if containing financial information, the
Company’s independent certified public accountants.
Section
6.11. Market
Activities. The Company will not, directly or indirectly, (i) take
any action designed to cause or result in, or that constitutes or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Common Stock or (ii) sell, bid for or purchase the Common Stock, or pay anyone
any compensation for soliciting purchases of the Common Stock.
ARTICLE
VII.
Conditions
Precedent
Section
7.1. Conditions Precedent to the
Obligations of the Company. The obligation hereunder of the Company to
issue and sell the shares of Common Stock to the Investor incident to each
Closing is subject to the satisfaction, or waiver by the Company, at or before
each such Closing, of each of the conditions set forth below.
(a) Accuracy of the Investor’s
Representations and Warranties. The representations and warranties of the
Investor shall be true and correct in all material respects.
(b) Performance by the
Investor. The Investor shall have performed, satisfied and complied in
all respects with all covenants, agreements and conditions required by this
Agreement and the Registration Rights Agreement to be performed, satisfied or
complied with by the Investor at or prior to such Closing.
Section
7.2. Conditions Precedent to the
Right of the Company to Deliver an Advance Notice. The right of the
Company to deliver an Advance Notice is subject to the fulfillment by the
Company, on such Advance Notice (a “Condition Satisfaction
Date”), of each of the following conditions:
(a) Registration of the Common
Stock with the SEC. The Company shall have filed with the SEC a
Registration Statement with respect to the resale of the Registrable Securities
in accordance with the terms of the Registration Rights Agreement. As set forth
in the Registration Rights Agreement, the Registration Statement shall have
previously become effective and shall remain effective on each Condition
Satisfaction Date and (i) neither the Company nor the Investor shall have
received notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC’s concerns
have been addressed and the Investor is reasonably satisfied that the SEC no
longer is considering or intends to take such action), and (ii) no other
suspension of the use or withdrawal of the effectiveness of the Registration
Statement or related prospectus shall exist. The Registration Statement must
have been declared effective by the SEC prior to the first Advance Notice
Date.
(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 therefrom. The sale and issuance of the shares of Common Stock shall
be legally permitted by all laws and regulations to which the Company is
subject.
(c) Fundamental Changes.
There shall not exist any fundamental changes to the information set forth in
the Registration Statement which would require the Company to file a
post-effective amendment to the Registration Statement.
(d) Performance by the
Company. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this
Agreement and the Registration Rights Agreement to be performed, satisfied or
complied with by the Company at or prior to each Condition Satisfaction
Date.
(e) No Injunction. No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or 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)
No Suspension of
Trading in or Delisting of Common Stock. The trading of the Common Stock
is not suspended by the SEC or the Principal Market (if the Common Stock is
traded on a Principal Market). The issuance of shares of Common Stock with
respect to the applicable Closing, if any, shall not violate the shareholder
approval requirements of the Principal Market (if the Common Stock is traded on
a Principal Market). The Company shall not have received any notice threatening
the continued listing of the Common Stock on the Principal Market (if the Common
Stock is traded on a Principal Market).
(g) Maximum Advance
Amount. The amount of an Advance requested by the Company shall not
exceed the Maximum Advance Amount. In addition, in no event shall the number of
shares issuable to the Investor pursuant to an Advance cause the aggregate
number of shares of Common Stock beneficially owned by the Investor and its
affiliates to exceed nine and 9/10 percent (9.9%) of the then outstanding Common
Stock of the Company. For the purposes of this section beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange
Act.
(h) No Knowledge. The
Company has no knowledge of any event which would be more likely than not to
have the effect of causing such Registration Statement to be suspended or
otherwise ineffective.
(i) Executed Advance
Notice. The Investor shall have received the Advance Notice executed by
an officer of the Company and the representations contained in such Advance
Notice shall be true and correct as of each Condition Satisfaction
Date.
ARTICLE
VIII.
Due
Diligence Review; Non-Disclosure of Non-Public Information
Section
8.1. Non-Disclosure of Non-Public
Information.
(a) Except
as may be required by the Investor herein, the Company covenants and agrees that
it shall refrain from disclosing, and shall cause its officers, directors,
employees and agents to refrain from disclosing, any material non-public
information to the Investor without also disseminating such information to the
public, unless prior to disclosure of such information the Company identifies
such information as being material non-public information and provides the
Investor with the opportunity to accept or refuse to accept such material
non-public information for review.
(b) Except
as provided herein, nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
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 California without regard to the principles of conflict of laws.
The parties further agree that any action between them shall be heard in the
State of California, and expressly consent to the jurisdiction and venue of the
courts, sitting in California and the United States District Court of California
for the adjudication of any civil action asserted pursuant to this
paragraph.
ARTICLE
X.
Assignment;
Termination
Section
10.1. Assignment. Neither
this Agreement nor any rights of the Company hereunder may be assigned to any
other Person.
Section
10.2. Termination.
(a) The
obligations of the Investor to make Advances under Article II hereof shall
terminate twenty-four (24) months after the Effective Date or thirty six (36)
months after the Effective Date if twenty-four (24) months after the Effective
Date the Company filed either an amendment to the then effective registration
statement or a new registration statement was declared effective. The Company’s
obligations under this Agreement shall terminate on the date that the Investor
is no longer obligated to make Advances, or upon thirty (30) days written notice
to the Investor of the Company’s intention to terminate this Agreement, provided
however, that the Company’s obligations regarding Section 12.4 of this Agreement
shall not terminate until the entire Commitment Fee has been issued to the
Investor.
(b) The
obligation of the Investor to make an Advance to the Company pursuant to this
Agreement shall terminate permanently (including with respect to an Advance Date
that has not yet occurred) in the event that (i) there shall occur any stop
order or suspension of the effectiveness of the Registration Statement for an
aggregate of ninety (80) Trading Days, other than due to the acts of the
Investor, during the Commitment Period, or (ii) the Company shall at any time
fail materially to comply with the requirements of Article VI and such failure
is not cured within thirty (30) days after receipt of written notice from the
Investor, provided, however, that this
termination provision shall not apply to any period commencing upon the filing
of a post-effective amendment to such Registration Statement and ending upon the
date on which such post effective amendment is declared effective by the
SEC.
ARTICLE
XI.
Notices
Section
11.1. Notices. Any notices,
consents, waivers, or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have
been delivered (i) upon receipt, when delivered personally; (ii) upon receipt,
when sent by facsimile, provided a copy is mailed by U.S. certified mail, return
receipt requested; (iii) three (3) days after being sent by U.S. certified mail,
return receipt requested, or (iv) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
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If
to the Company, to:
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Megola,
Inc.
000
Xxxx Xxxxxx, Xxxxx 000
Xxxxx
Xxxxxx, Xxxxxxx X0X 0X0
c/o
Xxxx Xxxxxxx
|
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Telephone:
(000) 000-0000
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Facsimile:
(000)000-0000
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Tangiers
Investors, LP
|
|
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If
to the Investor(s):
|
Xxxxxxx
Xxxxxx
|
|
000
Xxxx Xxxxxxxx
Xxxxx
000
|
|
|
Xxx
Xxxxx, Xxxxxxxxxx 00000
|
|
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Telephone:
000-000-0000
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Facsimile:
000-000-0000
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Each
party shall provide five (5) days’ prior written notice to the other party of
any change in address or facsimile number.
ARTICLE
XII.
Miscellaneous
Section
12.1. Counterparts. This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party. In
the event any signature page is delivered by facsimile transmission, the party
using such means of delivery shall cause four (4) additional original executed
signature pages to be physically delivered to the other party within five (5)
days of the execution and delivery hereof, though failure to deliver such copies
shall not affect the validity of this Agreement.
Section
12.2. Entire Agreement;
Amendments. This Agreement supersedes all other prior oral or written
agreements between the Investor, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by an instrument in writing signed by the party to be charged with
enforcement.
Section
12.3. Reporting Entity for the
Common Stock. The reporting entity relied upon for the determination of
the trading price or trading volume of the Common Stock on any given Trading Day
for the purposes of this Agreement shall be Bloomberg, L.P. or any successor
thereto. The written mutual consent of the Investor and the Company shall be
required to employ any other reporting entity.
Section
12.4. Commitment Fee. Upon
the date of execution of the Securities Purchase Agreement, the Company shall be
required to issue the Purchaser two hundred and fifty thousand dollars
($250,000) worth of restricted Common Stock as a commitment fee. The number of
shares will be determined based on the division of the dollar value of the
Commitment Fee by the Formula Price. The commitment fee shares shall have
piggyback registration rights and shall be issued in tranches in accordance with
the following schedule:
a)
$75,000 worth of Common Stock shall be issued 25 days after the execution of the
Securities Purchase Agreement (“Tranche #1”);
b)
$75,000 worth of Common Stock shall be issued to the Investor upon the earlier
of the Company’s S-1 Registration Statement being declared effective by the SEC
or 90 days following the execution of this Agreement (“Tranche
#2”);
c)
$100,000 worth of Common Stock shall be issued within 90 days after the date
that Tranche #2 was issued to the Investor (“Tranche #3”).
The
amount of the Investor Shares issued to the Investor in each of aforementioned
Tranches shall be calculated by dividing the dollar amount of each such Tranche
by the lowest VWAP of the Company’s Common Stock during the ten (10) business
days immediately preceding the date on which such Tranche is issued, as quoted
on Bloomberg, LP. The Second, and Third Tranches of Investor Shares must be
issued only in the event that at the time that each such Tranche is due an
equivalent amount of Advances must have already been paid to the Company equal
to the amount of the Tranche that is to be paid pursuant to the terms of this
Agreement. In the event that a lesser amount of Advances have been made, the
amount of investor shares issued will be decreased by a pro-rata amount.
The Investor’s Shares shall be deemed fully earned as of the date
hereof.
It is the
Company’s full intention that the Investor receives the full value of the
Commitment Fee. Therefore, in the event that the Investor is unable to obtain at
least $250,000 of value through the sale of the Shares underlying the Commitment
Fee, whether because of a decline in the Company’s stock price or for whatever
reason, then the Company shall issue to the Company that number of shares to the
Investor that would allow the Investor to obtain a minimum of $250,000 through
the sale of such Shares. The Investor shall provide the Company any
and all documentation necessary to confirm to the Company that it has received
or not received at least $250,000 worth of value from the sale of the Shares
underlying the Commitment Fee.
Section
12.5. Brokerage. Each of
the parties hereto represents that it has had no dealings in connection with
this transaction with any finder or broker who will demand payment of any fee or
commission from the other party. The Company on the one hand, and the
Investor, on the other hand, agree to indemnify the other against and hold the
other harmless from any and all liabilities to any person claiming brokerage
commissions or finder’s fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby.
Section
12.6. Confidentiality. If
for any reason the transactions contemplated by this Agreement are not
consummated, each of the parties hereto shall keep confidential any information
obtained from any other party (except information publicly available or in such
party’s domain prior to the date hereof, and except as required by court order)
and shall promptly return to the other parties all schedules, documents,
instruments, work papers or other written information without retaining copies
thereof, previously furnished by it as a result of this Agreement or in
connection herein.
[SIGNATURE
PAGE TO FOLLOW]
IN WITNESS WHEREOF, the
parties hereto have caused this Securities Purchase Agreement to be executed by
the undersigned, thereunto duly authorized, as of the date first set forth
above.
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COMPANY:
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MEGOLA,
INC.
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Name:
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Xxxx
Xxxxxxx
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Title:
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Chief
Executive Officer
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INVESTOR:
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TANGIERS
INVESTORS, LP
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By:
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Tangiers
Capital, LLC
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Its:
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General
Partner
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EXHIBIT
A
ADVANCE
NOTICE
MEGOLA,
INC.
The
undersigned, _______________________ hereby certifies, with respect to the sale
of shares of Common Stock of MEGOLA, INC.. (the “Company”) issuable in
connection with this Advance Notice, delivered pursuant to the Securities
Purchase Agreement (the “Agreement”), as
follows:
1. The
undersigned is the duly elected ______________ of the Company.
2. There
are no fundamental changes to the information set forth in the Registration
Statement which would require the Company to file a post effective amendment to
the Registration Statement.
3. The
Company has performed in all material respects all covenants and agreements to
be performed by the Company and has complied in all material respects with all
obligations and conditions contained in the Agreement on or prior to the Advance
Notice Date, and shall continue to perform in all material respects all
covenants and agreements to be performed by the Company through the applicable
Advance Date. All conditions to the delivery of this Advance Notice are
satisfied as of the date hereof.
4. The
undersigned hereby represents, warrants and covenants that it has made all
filings (“SEC
Filings”) required to be made by it pursuant to applicable securities
laws (including, without limitation, all filings required under the Securities
Exchange Act of 1934, which include Forms 10-Q, 10-K or 8-K, etc.). All SEC
Filings and other public disclosures made by the Company, including, without
limitation, all press releases, analysts meetings and calls, etc. (collectively,
the “Public
Disclosures”), have been reviewed and approved for release by the
Company’s attorneys and, if containing financial information, the Company’s
independent certified public accountants. None of the Company’s Public
Disclosures contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
5. The
Advance requested is _____________________.
The
undersigned has executed this Certificate this ____ day of
_________________.
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MEGOLA,
INC.
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By:
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Name:
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Title:
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If
Returning This Advance Notice via Facsimile Please Send To:
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If
by Mail, via Federal Express To:
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Tangiers
Investors, LP
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000
Xxxx Xxxxxxxx Xxxxx 000, Xxxxx 000, Xxx Xxxxx, XX
00000
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