STANDBY EQUITY DISTRIBUTION AGREEMENT
THIS
AGREEMENT
dated as
of the 11th
day of
April 2008 (the “Agreement”)
between
YA GLOBAL INVESTMENTS, L.P.,
a
Cayman Islands exempt limited partnership (the “Investor”),
and
HYDROGEN ENGINE CENTER, 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, from time to time
as
provided herein, and the Investor shall purchase from the Company up to Four
Million Dollars ($4,000,000) 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; and
WHEREAS,
the
Company has engaged Growth Energy Capital Advisors (the “Placement
Agent”),
to
act as the Company’s exclusive placement agent in connection with the sale of
the Company’s Common Stock to the Investor hereunder pursuant to the Placement
Agent Agreement dated the date hereof by and among the Company, the Placement
Agent and the Investor (the “Placement
Agent Agreement”);
and
WHEREAS,
on
____________________ the Company and Xxxxxx’x State Bank (“FSB”)
entered into a loan (the “Original
FSB Agreement”)
pursuant to which the Company owes FSB Five Hundred Ninety-Four Thousand Two
Hundred Forty-Six Dollars ($594,246); and
WHEREAS,
on
March
27, 2008, the Original FSB Agreement was amended (as amended, the “FSB
Agreement”)
to
extend the due date of the loan to March 27, 2009; and
WHEREAS,
the
Company has applied to the Iowa State Bank (“ISB”)
for a
credit line of at least Two Hundred Fifty Thousand Dollars ($250,000) (the
“ISB
Credit Line”).
NOW,
THEREFORE,
the
parties hereto agree as follows:
Article
I. Certain
Definitions
Section
1.01 “Advance”
shall
mean the portion of the Commitment Amount requested by the Company in the
Advance Notice.
Section
1.02 “Advance
Date”
shall
mean the first (1st)
Trading
Day after expiration of the applicable Pricing Period for each
Advance.
Section
1.03 “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
1.04 “Advance
Notice Date”
shall
mean each date the Company delivers (in accordance with Section 2.02(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 five (5) Trading Days after the prior Advance Notice
Date.
Section
1.05 “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
1.06 “Closing”
shall
mean one of the closings of a purchase and sale of Common Stock pursuant to
Section 2.03.
Section
1.07 “Commitment
Amount”
shall
mean the aggregate amount of up to Four Million Dollars ($4,000,000) which
the
Investor has agreed to provide to the Company in order to purchase the Company’s
Common Stock pursuant to the terms and conditions of this
Agreement.
Section
1.08 “Commitment
Period”
shall
mean the period commencing on the Effective Date, and expiring on the date
this
Agreement is terminated pursuant to Section 10.02.
Section
1.09 “Common
Stock”
shall
mean the Company’s common stock, par value $0.001 per share.
Section
1.10 “Condition
Satisfaction Date”
shall
have the meaning set forth in Section 7.02.
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 “FINRA”
shall
mean the Financial Industry Regulatory Authority.
Section
1.15 “Material
Adverse Effect”
shall
mean any condition, circumstance, or situation that is likely to result in,
or
reasonably is expected to result in (i) a material adverse effect on the
legality, validity or enforceability of the Agreement, (ii) a material adverse
effect on the results of operations, assets, business or condition (financial
or
otherwise) of the Company, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis
its obligations under this Agreement or the Registration Rights Agreement in
any
material respect.
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Section
1.16 “Market
Price”
shall
mean the lowest daily VWAP of the Common Stock during the Pricing
Period.
Section
1.17 “Maximum
Advance Amount”
shall
be Three Hundred Fifty Thousand Dollars ($350,000) per Advance Notice.
Section
1.18 “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
1.19 “Placement
Agent”
shall
mean Growth Energy Capital Advisors, a registered broker-dealer.
Section
1.20 “Pricing
Period”
shall
mean the five (5) consecutive Trading Days after the Advance Notice Date,
subject to any reduction pursuant to Section 2.02(c).
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, whichever is at the time the principal trading exchange
or
market for the Common Stock.
Section
1.22 “Purchase
Price”
shall
be set at ninety three percent (93%) of the Market Price during the Pricing
Period.
Section
1.23 “Registrable
Securities”
shall
mean the shares of Common Stock to be issued hereunder (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 or SB-2 (if use of such form is then
available to the Company pursuant to the rules of the SEC and, if not, on such
other form promulgated by the SEC for which the Company then qualifies and
which
counsel for the Company shall deem appropriate, and which form shall be
available for the resale of the Registrable Securities to be registered
thereunder in accordance with the provisions of this Agreement and the
Registration Rights Agreement, and in accordance with the intended method of
distribution of such 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.
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Section
1.28 “Securities
Act”
shall
have the meaning set forth in the recitals of this Agreement.
Section
1.29 “Trading
Day”
shall
mean any day during which the New York Stock Exchange shall be open for
business.
Section
1.30 “VWAP”
means,
as of any date, the daily dollar volume-weighted average price for such security
as reported by Bloomberg, LP through its “Historical Price Table Screen (HP)”
with Market: Weighted Ave function selected, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg, LP, the average of
the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by Pink Sheets
LLC.
Article
II. Advances
Section
2.01 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
2.02 Mechanics.
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(a)
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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 7.02; provided,
however,
the amount for each Advance as designated by the Company in the applicable
Advance Notice shall not be more than the Maximum Advance Amount
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 five (5) Trading Days between
each
Advance Notice Date.
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(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.
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(c) Minimum
Acceptable Price. For
the
purposes of this Agreement, the term “Minimum
Acceptable Price”
shall
mean, in connection with each Advance Notice delivered by the Company, eighty
five percent (85%) of the VWAP of the Common Stock on
the
Trading Day immediately preceding the Advance Notice Date for such Advance
Notice. Upon the issuance by the Company of an Advance Notice, the Minimum
Acceptable Price with respect to that Advance Notice shall be determined and
(i)
the Company shall automatically reduce the amount of the Advance set forth in
such Advance Notice by twenty percent (20%) (such reduced Advance, the
“Adjusted
Advance”)
for
each Trading Day during the Pricing Period that the VWAP of the Common Stock
is
below the Minimum Acceptable Price (each such day, an “Excluded
Day”),
and
(ii) each Excluded Day shall be excluded from the Pricing Period for purposes
of
determining the Market Price. The number of shares of Common Stock to be
delivered to the Investor at the Closing (in accordance with Section 2.03 of
this Agreement) shall be equal to the Adjusted Advance divided by the Purchase
Price; provided,
however,
that if
the Investor has sold shares of Common Stock on an Excluded Day the Company
shall automatically increase the Adjusted Advance by the number obtained by
multiplying the number of shares of Common Stock sold by the Investor on such
Excluded Day by ninety-three (93%) of the Minimum Acceptable Price.
Section
2.03 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
2.01 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.
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 of the Investor
in
accordance with Section 12.04, the 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.
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(a)
|
Company’s
Obligations Upon Closing.
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(i)
|
The
Company shall deliver to the Investor the shares of Common Stock
applicable to the Advance in accordance with Section 2.03. The
certificates evidencing such shares shall be free of restrictive
legends.
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(ii)
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the
Registration Statement filed pursuant to the Registration Rights
Agreement
shall be effective and available for the resale of all applicable
shares
of Common Stock to be issued in connection with the Advance and
certificates evidencing such shares shall be free of restrictive
legends;
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(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;
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5
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(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;
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(v)
|
the
Company shall pay any unpaid fees set forth in Section 12.04 below
or
shall withhold such amounts as provided in Section 2.03;
and
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(b) Investor’s
Obligations Upon Closing. Upon
receipt of the shares referenced in Section 2.03(a)(i) above and provided the
Company is in compliance with its obligations in Section 2.03, 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
2.04 Lock
Up Period.
On the
date hereof, the Company shall obtain from each officer and director a lock-up
agreement, as defined below, in the form annexed hereto as
Schedule 2.4.
Section
2.05 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 2.03, 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 2.03(a)(i), the Company acknowledges that the
Investor shall suffer financial hardship and therefore shall be liable for
any
and all losses, commissions, fees, or financial hardship caused to the
Investor.
Article
III. Representations
and Warranties of Investor
Investor
hereby represents and warrants to, and agrees with, the Company that the
following are true and correct as of the date hereof and as of each Advance
Date:
Section
3.01 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
3.02 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
3.03 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.
6
Section
3.04 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
3.05 Accredited
Investor.
The
Investor is an “Accredited
Investor”
as
that
term is defined in Rule 501(a)(3) of Regulation D of the Securities
Act.
Section
3.06 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 is in a position regarding the Company, which, based
upon
employment, family relationship or economic bargaining power, enabled and
enables such Investor to obtain information from the Company in order to
evaluate the merits and risks of this investment. The Investor has sought such
accounting, legal and tax advice, as it has considered necessary to make an
informed investment decision with respect to this transaction.
Section
3.07 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 Form 10-KSB for
the year ended December 31, 2006 and Form 10-QSB for the period ended September
30, 2007; 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
3.08 Registration
Rights Agreement.
The
parties have entered into the Registration Rights Agreement dated the date
hereof.
Section
3.09 No
General Solicitation.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection
with
the offer or sale of the shares of Common Stock offered hereby.
7
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.
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
4.01 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 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
4.02 Authorization,
Enforcement, Compliance with Other Instruments.
(i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, the Placement Agent
Agreement and any related agreements, in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Registration
Rights Agreement, the Placement Agent Agreement and any related agreements
by
the Company and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by the Company’s Board of Directors and
no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement, the Registration
Rights Agreement, the Placement Agent Agreement and any related agreements
have
been duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement, the Placement Agent Agreement and assuming the
execution and delivery thereof and acceptance by the Investor and any related
agreements constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies.
8
Section
4.03 Capitalization.
The
authorized capital stock of the Company consists of 100,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock, $0.01 par value per share
(“Preferred
Stock”),
of
which 27,590,164 shares of Common Stock and 1,932,846 shares of Preferred Stock
are issued and outstanding. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in the SEC
Documents, no shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by
the
Company. Except as disclosed in the SEC Documents, as of the date hereof,
(i) there are no outstanding options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the Company or any
of
its subsidiaries, or contracts, commitments, understandings or arrangements
by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries
or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities (iii) there
are no outstanding registration statements other than on Form S-8 and (iv)
there
are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities under
the Securities Act (except pursuant to the Registration Rights Agreement).
Except as disclosed in the SEC Documents, 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
4.04 No
Conflict.
The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby will not
(i)
result in a violation of the Certificate of Incorporation, any certificate
of
designations of any outstanding series of preferred stock of the Company or
By-laws or (ii) conflict with or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the Principal Market on which
the
Common Stock is quoted) applicable to the Company or any of its subsidiaries
or
by which any material property or asset of the Company or any of its
subsidiaries is bound or affected and which would cause a Material Adverse
Effect. Except as disclosed in the SEC Documents, neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles
of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted in violation of any material
law, ordinance, regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the Securities Act and
any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any
court or governmental agency in order for it to execute, deliver or perform
any
of its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected
on
or prior to the date hereof. The Company and its subsidiaries are unaware of
any
fact or circumstance which might give rise to any of the foregoing.
9
Section
4.05 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 Securities Exchange Act for
the two years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (all of the foregoing
filed prior to the date hereof or amended after 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”)
on
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Document prior to the expiration of any such extension.
The
Company has delivered to the Investor 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, the SEC Documents complied in
all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents (the “Financial
Statements”)
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and, fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investor 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 are or were made,
not misleading.
Section
4.06 10b-5.
The SEC
Documents do not 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.
10
Section
4.07 No
Default.
Except
as disclosed in the SEC Documents, the Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement or any of
the
exhibits or attachments hereto will conflict with or result in the breach or
violation of any of the terms or provisions of, or constitute a default or
result in the creation or imposition of any lien or charge on any assets or
properties of the Company under its Certificate of Incorporation, By-Laws,
any
material indenture, mortgage, deed of trust or other material agreement
applicable to the Company or instrument to which the Company is a party or
by
which it is bound, or any statute, or any decree, judgment, order, rules or
regulation of any court or governmental agency or body having jurisdiction
over
the Company or its properties, in each case which default, lien or charge is
likely to cause a Material Adverse Effect on the Company’s business or financial
condition.
Section
4.08 Absence
of Events of Default.
Except
for matters described in the SEC Documents and/or this Agreement, to the
knowledge of the Company 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
4.09 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.
11
Section
4.12 Title.
Except
as set forth in the SEC Documents, 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 Internal
Accounting Controls.
The
Company and each of its subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Section
4.16 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. Except as set forth
in the SEC Documents, 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.
12
Section
4.17 Absence
of Litigation.
Except
as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry
or, to the knowledge of the Company, 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,
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 Tax
Status.
Except
as disclosed in the SEC Documents, 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
4.20 Certain
Transactions.
Except
as set forth in the SEC Documents 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
4.21 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
4.22 Use
of
Proceeds.
The
Company shall use the net proceeds from this offering for general corporate
purposes, including, without limitation, the payment of loans incurred by the
Company. However, in no event shall the Company use the net proceeds from this
offering for the payment (or loan to any such person for the payment) of any
judgment, or other liability, incurred by any executive officer, officer,
director or employee of the Company, except for any liability owed to such
person for services rendered, or if any judgment or other liability is incurred
by such person originating from services rendered to the Company, or the Company
has indemnified such person from liability.
13
Section
4.23 Further
Representation and Warranties of the Company.
For so
long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that
it
will maintain the listing of its Common Stock on the Principal
Market.
Section
4.24 Opinion
of Counsel.
Investor shall receive an opinion letter from counsel to the Company on the
date
hereof.
Section
4.25 Opinion
of Counsel.
The
Company will obtain for the Investor, at the Company’s expense, any and all
opinions of counsel which may be reasonably required in order to sell the
securities issuable hereunder without restriction.
Section
4.26 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.
Section
4.27 Acknowledgment
Regarding Investor’s Purchase of Shares.
The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of an arm’s length investor with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that
the
Investor is not acting as a financial advisor or fiduciary of the Company (or
in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investor or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Investor’s purchase of the
Common Stock hereunder. The Company is aware and acknowledges that it may not
be
able to request Advances under this Agreement if it cannot obtain an effective
Registration Statement or if any issuances of Common Stock pursuant to any
Advances would violate any rules of the Principal Market. The Company further
is
aware and acknowledges that any fees paid pursuant to Section 12.4 hereunder
or
shares issued pursuant to Section 12.4(b) hereunder shall be earned on the
date
hereof and not refundable or returnable under any circumstances.
Article
V. Indemnification
The
Investor and the Company represent to the other the following with respect
to
itself:
Section
5.01 Indemnification.
|
(a)
|
In
consideration of the Investor’s execution and delivery of this Agreement,
and in addition to all of the Company’s other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold
harmless
the Investor, and all of its officers, directors, partners, employees
and
agents (including, without limitation, those retained in connection
with
the transactions contemplated by this Agreement) (collectively, the
“Investor
Indemnitees”)
from and against any and all 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 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 Investor 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.
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14
|
(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 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 breach of any covenant, agreement
or
obligation of the Investor 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
5.01
shall survive termination.
|
Article
VI.
15
Covenants
of the Company
Section
6.01 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
6.02 Listing
of Common Stock.
The
Company shall maintain the Common Stock’s authorization for quotation on the
Principal Market.
Section
6.03 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
6.04 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
6.05 Corporate
Existence.
The
Company will take all steps necessary to preserve and continue the corporate
existence of the Company.
Section
6.06 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.
16
Section
6.07 Restriction
on Sale of Capital Stock.
During
the Commitment Period, the Company shall not, without the prior written consent
of the Investor, (i) issue or sell any Common Stock or Preferred Stock without
consideration or for a consideration per share less than the Bid Price of the
Common Stock determined
immediately prior to its issuance, (ii) issue or sell any Preferred Stock
warrant, option, right, contract, call, or other security or instrument granting
the holder thereof the right to acquire Common Stock without consideration
or
for a consideration per share less than the Bid
Price
of the Common Stock determined
immediately prior to its issuance, or (iii) file any registration statement
on
Form S-8 except for the registration of shares to be issued pursuant to the
Company’s 2005 Incentive Compensation Plan. Notwithstanding this Section 6.07,
during the Commitment Period, the Company may enter into private sales of Common
Stock or Preferred Stock provided that the Investor is notified of such
sales.
Section
6.08 Consolidation;
Merger.
The
Company shall not, at any time after the date hereof, effect any merger or
consolidation of the Company with or into, or a transfer of all or substantially
all the assets of the Company to another entity (a “Consolidation
Event”)
unless
the resulting successor or acquiring entity (if not the Company) assumes by
written instrument the obligation to deliver to the Investor such shares of
stock and/or securities as the Investor is entitled to receive pursuant to
this
Agreement.
Section
6.09 Issuance
of the Company’s Common Stock.
The sale
of the shares of Common Stock under this Agreement 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 under this Agreement.
Article
VII. Conditions
for Advance and Conditions to Closing
Section
7.01 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.
17
|
(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
7.02 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. The Company shall engage
Xxxxx, Brown, Koehn, Shors & Xxxxxxx, P.C. (“Xxxxx
Xxxxx”)
as its counsel and Xxxxx Xxxxx shall consult with Xxxxxxxxxxx &
Xxxxxxxx Xxxxxxx Xxxxx Xxxxx LLP for purposes of filing the Registration
Statement. 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.
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18
|
(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 9.99% 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.
|
|
(j)
|
FSB
Agreement.
The Company shall not be in breach of or in default under the FSB
Agreement; provided, however, that if the Company and FSB have entered
into an amendment pursuant to which FSB agrees to forebear, until
the
termination of this Agreement in accordance with Section 10.02 hereof,
from exercising its rights and remedies as a result of such breach
or
default, this condition shall be deemed satisfied.
|
|
(k)
|
ISB
Loan.
ISB shall have granted the ISB Credit Line to the
Company.
|
Article
VIII. Due
Diligence Review; Non-Disclosure of Non-Public Information
Section
8.01 Non-Disclosure
of Non-Public Information.
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(a)
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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.
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19
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(b)
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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 8.01 shall be construed to mean
that
such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information)
may not
obtain non-public information in the course of conducting due diligence
in
accordance with the terms of this Agreement and nothing herein shall
prevent any such persons or entities from notifying the Company of
their
opinion that based on such due diligence by such persons or entities,
that
the Registration Statement contains an untrue statement of material
fact
or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein,
in light
of the circumstances in which they were made, not
misleading.
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Article
IX. Choice
of Law/Jurisdiction
Section
9.01 Governing
Law.
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the State of New Jersey without regard to the principles of conflict of laws.
The parties further agree that any action between them shall be heard in Xxxxxx
County, New Jersey, and expressly consent to the jurisdiction and venue of
the
Superior Court of New Jersey, sitting in Xxxxxx County, New Jersey and the
United States District Court of New Jersey, sitting in Newark, New Jersey,
for
the adjudication of any civil action asserted pursuant to this
paragraph.
Article
X. Assignment;
Termination
Section
10.01 Assignment.
Neither
this Agreement nor any rights of the Company hereunder may be assigned to any
other Person.
Section
10.02 Termination.
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(a)
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Unless
earlier terminated as provided hereunder, this Agreement shall terminate
automatically on the earliest of (i) the first day of the month next
following the 24-month anniversary of the Effective Date, or (ii)
the date
on which the Investor shall have made payment of Advances pursuant
to this
Agreement in the aggregate amount of the Commitment Amount.
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20
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(b)
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The
Company may terminate this Agreement effective upon fifteen Trading
Days’
prior written notice to the Investor; provided that (i) there are
no
Advances outstanding, and (ii) the Company has paid all amounts then
due
and owing to the Investor pursuant to this Agreement. This Agreement
may
be terminated at any time by the mutual written consent of the parties,
effective as of the date of such mutual written consent unless otherwise
provided in such written consent. In the event of any termination
of this
Agreement by the Company hereunder, so long as the Investor owns
any
shares of Common Stock issued hereunder, unless all of such shares
of
Common Stock may be resold by the Investor without registration and
without any time, volume or manner limitations pursuant to Rule 144,
the Company shall not suspend, except as provided for in the Registration
Rights Agreement and the conditions and limitations set forth therein,
or
withdraw the Registration Statement or otherwise cause the Registration
Statement to become ineffective, or voluntarily delist the Common
Stock
from, the Principal Market without listing the Common Stock on another
Principal Market.
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(c)
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The
obligation of the Investor to make an Advance to the Company pursuant
to
this Agreement shall terminate permanently (including with respect
to an
Advance Date that has not yet occurred) in the event that (i) there
shall
occur any stop order or suspension of the effectiveness of the
Registration Statement for an aggregate of fifty (50) Trading Days,
other
than due to the acts of the Investor, during the Commitment Period,
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.
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(d)
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Nothing
in this Section 10.02 shall be deemed to release the Company or the
Investor from any liability for any breach under this Agreement or
to
impair the rights of the Company and the Investor to compel specific
performance by the other party of its obligations under this Agreement.
The indemnification provisions contained in Sections 5.1 and 5.2
shall
survive termination hereunder.
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Article
XI. Notices
Section
11.01 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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0000
Xxxx Xxxxxx Xxxxxx
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Xxxxxx,
Xxxx 00000
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Attention:
Xxxxxx Xxxxxxxxxxx, CEO
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Telephone:
(000) 000-0000
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Facsimile:
(000) 000-0000
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21
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With
a copy to:
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Xxxxxxxxxxx
& Xxxxxxxx Xxxxxxx
Xxxxx Xxxxx
LLP
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000
Xxxxx Xxxxxxxx Xxxx. - Xxxxx 0000
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Xxxxx,
XX 00000
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|
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Attention: Xxxx
X. Xxxxxx, Esq.
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Telephone: (000)
000-0000
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Facsimile: (000)
000-0000
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with
a copy to:
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Xxxxx,
Brown, Koehn, Shors & Xxxxxxx PC
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The
Financial Center - Suite 2500
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000
Xxxxxx Xxxxxx
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Xxx
Xxxxxx, Xxxx 00000-0000
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Attention:
Xxxxxxx Xxxxx
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Telephone: (000)
000-0000
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Facsimile: (000)
000-0000
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If
to the Investor(s):
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YA
Global Investments, LP
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000
Xxxxxx Xxxxxx -Xxxxx 0000
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Xxxxxx
Xxxx, XX 00000
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Attention: Xxxx
Xxxxxx
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Portfolio
Manager
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Telephone: (000)
000-0000
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Facsimile: (000)
000-0000
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With
a Copy to:
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Xxxxx
Xxxxxxxx, Esq.
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000
Xxxxxx Xxxxxx - Xxxxx 0000
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Xxxxxx
Xxxx, XX 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
12.01 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.
22
Section
12.02 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
12.03 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
12.04 Fees
and Expenses.
The
Company hereby agrees to pay the following fees:
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(a)
|
Structuring
Fees.
Each of the parties shall pay its own fees and expenses (including
the fees of any attorneys, accountants, appraisers or others engaged
by
such party) in connection with this Agreement and the transactions
contemplated hereby, except that on the date hereof the Company shall
pay
a structuring fee of Ten Thousand Dollars ($10,000) to Yorkville
Advisors, LLC (“Yorkville”).
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(b)
|
Due
Diligence Fee.
Company shall pay the Investor a non-refundable due diligence fee
of Five
Thousand Dollars ($5,000) upon submission of the due diligence documents
to the Investor.
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(c)
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Commitment
Fees.
No later than the earlier of: (i) sixty (60) days from the date hereof
and
(ii) the date that the Registration Statement is deemed effective
by the
SEC (such earlier date is hereinafter referred to as the “Delivery
Date”),
the Company shall pay to the Investor One Hundred Sixty Thousand
Dollars
($160,000) in shares of Common Stock, the number which shall be determined
by dividing One Hundred Sixty Thousand Dollars ($160,000) by the
VWAP of
the Common Stock, as quoted by Bloomberg, LP, on the Delivery Date.
Such
shares if issued are hereinafter referred to as the “Investor’s
Shares”.
The Investor’s Shares shall be deemed fully earned as of the date hereof
regardless of the amount of Advances, if any, that the Company is
able to,
or choices to, request hereunder.
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(d)
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Monitoring
Fee.
The Company shall pay Yorkville, upon the receipt of an invoice therefore,
a monthly monitoring fee (“Monitoring
Fee”)
for its continuing due diligence, structuring, monitoring and managing
of
the SEDA commitment for the Investor pursuant to Yorkville’s existing
advisory obligations to the Investor. The Monitoring Fee shall be
changed
as follows: (a) $3,333 (the “Effective
Date Monitoring Fee”)
on the first business day of the first month following the Effective
Date
and (b) $3,333 on the first business day of each month following
payment
of the Effective Date Monitoring Fee.
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23
Section
12.05 Brokerage.
Each of
the parties hereto represents that it, except Gen Cap Solutions LP, 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
12.06 Confidentiality.
If for
any reason the transactions contemplated by this Agreement are not consummated,
each of the parties hereto shall keep confidential any information obtained
from
any other party (except information publicly available or in such party’s domain
prior to the date hereof, and except as required by court order) and shall
promptly return to the other parties all schedules, documents, instruments,
work
papers or other written information without retaining copies thereof, previously
furnished by it as a result of this Agreement or in connection
herein.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
24
IN
WITNESS WHEREOF,
the
parties hereto have caused this Standby Equity Distribution Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first
set
forth above.
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COMPANY:
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By:
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Name:
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Title:
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INVESTOR:
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YA
Global Investments, L.P.
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By:
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Yorkville
Advisors, LLC
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Its:
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Investment
Manager
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By:
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Name:
Xxxx Xxxxxx
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Title:
Portfolio Manager
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25
EXHIBIT
A
ADVANCE
NOTICE
HYDROGEN
ENGINGE CENTER INC.
The
undersigned, _______________________ hereby certifies, with respect to the
sale
of shares of Common Stock of HYDROGEN
ENGINGE CENTER, INC. (the
“Company”)
issuable in connection with this Advance Notice, delivered pursuant to the
Standby Equity Distribution 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 or 10-QSB, 00-X xx 00-XXX, 0-X, xxx.). 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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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: (000) 000-0000
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If
by Mail, via Federal Express To:
|
YA
Global Investments, L.P.
|
|
000
Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx Xxxx, XX
00000
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SCHEDULE
2.4
The
undersigned hereby agrees that for a period commencing on April ___, 2008 and
expiring on the termination of the Standby Equity Distribution Agreement dated
April ___, 2008 between the Company and the Investor (the “Lock-up
Period”),
except for any private sales of common stock of the Company, he, she or it
will
not, directly or indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for the purchase
or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of any securities of the Company held by them, including common
stock
or options, rights, warrants or other securities underlying, convertible into,
exchangeable or exercisable for or evidencing any right to purchase or subscribe
for any common stock (whether or not beneficially owned by the undersigned),
or
any beneficial interest therein (collectively, the “Securities”)
except
in accordance with the volume limitations set forth in Rule 144(e) of the
General Rules and Regulations under the Securities Act of 1933, as
amended.
In
order
to enable the aforesaid covenants to be enforced, the undersigned hereby
consents to the placing of legends and/or stop-transfer orders with the transfer
agent of the Company’s securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned’s investment in
the Company.
Dated:
_______________, 2008
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Signature
|
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Name:
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Address:
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City,
State, Zip Code:
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Print
Social Security Number
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or
Taxpayer I.D. Number
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