SECURITIES PURCHASE AGREEMENT
Power
Efficiency Corporation
0000
Xxxxxx Xxxxxx Xxxxxxx
Xxxxx
000
Xxx
Xxxxx, XX 00000
Ladies
& Gentlemen:
Each
undersigned investor set forth on the Schedule of Investors attached as Annex
I
hereto (each, an “Investor” and, collectively, the “Investors”), hereby confirms
its agreement with you as follows:
1. This
Securities Purchase Agreement (the “Agreement”) is made as of October ____, 2007
between Power Efficiency Corporation, a Delaware corporation (the “Company”),
and each of the Investors.
2. The
Company has authorized the sale and issuance of up to 140,000
units
(the “Units”) to the Investors in a private placement offering (the “Offering”)
commencing as of the date hereof and continuing through December 31, 2007 (the
“Termination Date”). Each Unit consists of one share of preferred stock of the
Company, par value $0.001 per share (the “Preferred Stock”) and a warrant in
substantially the form attached hereto as Annex III to purchase a number of
shares of common stock of the Company, par value $0.001 per share (the “Common
Stock”) equal to 100% of the total Units purchased by such Investor pursuant to
this Agreement (each a “Warrant” and collectively for all Investors, the
“Warrants”). Initially, one share of Preferred Stock shall be convertible into
two shares of Common Stock, subject to adjustment as set forth in the
Certificate of Designation setting forth the rights, preferences and privileges
of the Preferred Stock.
3. The
Company and the Investors agree that each Investor will, severally and not
jointly, purchase from the Company and the Company will issue and sell to the
Investors that number of Units as set forth opposite each Investor’s name on
Annex I attached hereto, for a purchase price of $50.00 per Unit, pursuant
to
the Terms and Conditions for Purchase of Units attached hereto as Annex II
and
incorporated herein by reference as if fully set forth herein (the “Terms and
Conditions”). Notwithstanding the foregoing, certain Investors, as well as
certain officers and directors of the Company may purchase Units in the
Offering, with the purchase price therefore being paid through the cancellation
of deferred compensation owed, or promissory notes payable, to such Investors,
officers or directors. Unless otherwise requested by the Investor, certificates
representing the Preferred Stock and the Warrants purchased by the Investor
will
be registered in the Investor’s name and address as set forth on Annex
I.
4. Each
Investor represents that, except as set forth below, (a) it has had no position,
office or other material relationship within the past three years with the
Company or persons known to it to be affiliates of the Company and (b) it has
no
direct or indirect affiliation or association with any Financial Industry
Regulatory Authority (“FINRA”) member as of the date hereof.
Exceptions:
(If
no
exceptions, write “none.” If left blank, response will be deemed to be
“none.”)
Please
confirm the foregoing correctly sets forth the agreement between us by signing
in the space provided below for that purpose. By executing this Agreement,
you
acknowledge that the Company may use or rely upon (i) the information in
paragraph 4 above, (ii) the representations and warranties in Section 5 of
the
Terms and Conditions, solely with respect to the Investors and (iii) the name
and address information below in preparation of the Registration Statement
(as
defined in Annex II).
|
AGREED
AND ACCEPTED:
|
|
|
POWER
EFFICIENCY CORPORATION
By:
________________________
Name:
Xxxxxx X. Xxxxxxxx
Title:
Chairman & CEO
|
INVESTORS:
[ENTITY]
By:
____________________________________
Name:
__________________________________
Title:
___________________________________
Address:
Name
in which securities should be registered (if different):
_____________________________________________
|
|
[ENTITY]
By:
____________________________________
Name:
__________________________________
Title:
___________________________________
Address:
Name
in which securities should be registered (if different):
_____________________________________________
|
2
|
[ENTITY]
By: ____________________________________
Name:
__________________________________
Title:
___________________________________
Address:
Name in which securities should be registered (if different): _____________________________________________
|
|
|
[ENTITY]
By:
____________________________________
Name:
__________________________________
Title:
___________________________________
Address:
Name in which securities should be registered (if different): _____________________________________________
|
|
|
[ENTITY]
By:
____________________________________
Name:
__________________________________
Title:
___________________________________
Address:
Name in which securities should be registered (if different): _____________________________________________
|
3
ANNEX
I
SCHEDULE
OF INVESTORS
|
NAME
AND ADDRESS OF PURCHASER
|
NUMBER
OF UNITS
|
AGGREGATE
PURCHASE PRICE
|
|
[Entity]
[Address]
|
$
|
|
|
[Entity]
[Address]
|
$
|
|
|
[Entity]
[Address]
|
$
|
|
|
[Entity]
[Address]
|
$
|
|
|
[Entity]
[Address]
|
$
|
|
|
[Entity]
[Address]
|
$
|
|
|
TOTAL
|
$
|
4
THE
UNITS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, AND, UNLESS SO REGISTERED,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT.
THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL
SUMMARY OF TERMS AND CONDITIONS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE UNITS ARE BEING OFFERED PURSUANT TO EXEMPTIONS FROM
REGISTRATION REQUIREMENTS PROVIDED BY SECTION 4(2) OF THE SECURITIES ACT,
REGULATION D AND RULE 506 THEREUNDER, CERTAIN STATE SECURITIES LAWS AND CERTAIN
RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. THE UNITS MAY NOT BE
TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THIS DOCUMENT
DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
ANNEX
II
TERMS
AND CONDITIONS FOR PURCHASE OF UNITS
1. Authorization
and Sale of the Units.
Subject
to these Terms and Conditions, the Company has authorized the sale and issuance
of up to 140,000
Units.
2. Agreement
to Sell and Purchase the Units.
At each
Closing (as defined in Section 3), the Company will sell to each Investor,
and
such Investor will severally purchase from the Company, upon the terms and
conditions hereinafter set forth, the number of Units set forth opposite such
Investor’s name in Annex I to the Securities Purchase Agreement (the
“Agreement”) to which these Terms and Conditions are attached as Annex II, at
the purchase price set forth thereon.
3. Delivery
of the Preferred Stock and Warrants at Closing.
A
closing on the purchase and sale of the Units (each, a “Closing”) shall occur at
such time or times as the Company determines at the offices of the Company’s
counsel. At each Closing, the Company shall deliver to each Investor, versus
payment therefor, (i) one or more stock certificates representing the number
of
shares of Preferred Stock and (ii) one or more Warrants underlying the number
of
Units set forth opposite such Investor’s name in Annex I of the Agreement, each
such certificate or Warrant to be held in the name of such Investor or, if
so
indicated on the signature page of the Agreement, in the name of a nominee
designated by the Investor. The Preferred Stock certificates and the Warrants
shall bear an appropriate restrictive legend as required by applicable
securities laws.
5
The
Company’s obligation to issue the Units to the Investors shall be subject to the
following conditions, any one or more of which may be waived by the Company:
(a)
receipt by the Company of a certified or official bank check or wire transfer
of
funds in the full amount of the purchase price for the Units being purchased
hereunder, (b) receipt of aggregate investments for not less than 90,000 Units
and (c) the accuracy of the representations and warranties made by the Investors
and the fulfillment of those undertakings of the Investors.
Each
Investor’s obligation to purchase the Units shall be subject to the following
conditions, any one or more of which may be waived by such Investor: (a) the
representations and warranties of the Company set forth herein shall be true
and
correct as of the date of each Closing in all material respects and (b) the
Investor shall have received such documents as such Investor shall reasonably
have requested, including compliance and Secretary’s certificates and, subject
to the accuracy of the information and the representations and warranties
required to be provided by each Investor, as to exemption from the registration
requirements of the Securities Act of 1933, as amended (the “Securities
Act”).
4. Representations,
Warranties and Covenants of the Company.
Except
as otherwise described in the Disclosure Schedule delivered to the Investors
prior to the execution of this Agreement, the Company hereby represents and
warrants to, and covenants with, the Investors, as follows:
4.1 Organization.
The
Company is duly organized and validly existing under the laws of the
jurisdiction of its organization. Each of the Company and its Subsidiaries
(as
defined in Rule 405 under the Securities Act) has full power and authority
to
own, operate and occupy its properties and to conduct its business as presently
conducted and as described in the documents filed by the Company under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), since the end
of its most recently completed fiscal year through the date hereof, including,
without limitation, its most recent reports on Form 10-KSB and Form 10-QSB
(collectively, the “Exchange Act Documents”) and is registered or qualified to
do business and in good standing in each jurisdiction in which the nature of
the
business conducted by it or the location of the properties owned or leased
by it
requires such qualification and where the failure to be so qualified would
have
a material adverse effect upon the condition (financial or otherwise), earnings,
business or business prospects, properties or operations of the Company and
its
Subsidiaries, considered as one enterprise (a “Material Adverse Effect”), and no
proceeding has been instituted in any such jurisdiction, revoking, limiting
or
curtailing, or seeking to revoke, limit or curtail, such power and authority
or
qualification.
4.2 Due
Authorization and Valid Issuance.
The
Company has all requisite power and authority to execute, deliver and perform
its obligations under the Agreement, and the Agreement has been duly authorized
and validly executed and delivered by the Company and constitutes the legal,
valid and binding agreement of the Company enforceable against the Company
in
accordance with its terms, except as rights to indemnity and contribution may
be
limited by state or federal securities laws or the public policy underlying
such
laws, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’ and
contracting parties’ rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Furthermore,
the Company has complied with Delaware Corporations Code Section 144(a).
6
4.3 Non-Contravention.
The
execution and delivery of the Agreement, the issuance and sale of the Units
under the Agreement, the fulfillment of the terms of the Agreement and the
consummation of the transactions contemplated hereby will not (A) conflict
with
or constitute a violation of, or default (with the passage of time or otherwise)
under, (i) any material bond, debenture, note or other evidence of indebtedness,
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any Subsidiary
is a party or by which it or any of its Subsidiaries or their respective
properties are bound, (ii) the charter, bylaws or other organizational documents
of the Company or any Subsidiary, or (iii) any law, administrative regulation,
ordinance or order of any court or governmental agency, arbitration panel or
authority applicable to the Company or any Subsidiary or their respective
properties other than in relation to any offering of securities under Section
5
of the Securities Act or (iv) any offering of securities under Section 5 of
the
Securities Act, assuming compliance by the Investors with the terms and
conditions hereof and the truthfulness and accuracy of the Investors'
representations and warranties set forth in Section 5 hereof, except in the
case
of clauses (i), (iii) and (iv) for any such conflicts, violations or defaults
which are not reasonably likely to have a Material Adverse Effect, individually
or in the aggregate, or (B) result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction whatsoever upon any of
the
material properties or assets of the Company or any Subsidiary or an
acceleration of indebtedness pursuant to any obligation, agreement or condition
contained in any material bond, debenture, note or any other evidence of
indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or any Subsidiary is a party or
by
which any of them is bound or to which any of the material property or assets
of
the Company or any Subsidiary is subject. No consent, approval, authorization
or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, or other governmental body in the United States
or
any other person is required for the execution and delivery of the Agreement
and
the valid issuance and sale of the Units to be sold and issued pursuant to
the
Agreement, other than such as have been made or obtained, and except for any
post-closing securities filings or notifications required to be made under
federal or state securities laws.
4.4 Capitalization.
As of
the date hereof and prior to giving effect to the issuance of the Units,
Disclosure Schedule 4.4 sets forth the capitalization of the Company on an
outstanding basis and on a fully-diluted basis. Disclosure Schedule 4.4 also
sets forth (i) any capital stock granted pursuant to an employee benefit plan
and (ii) any outstanding warrants, options or other securities. The Units to
be
sold and issued pursuant to the Agreement have been duly authorized, and when
issued and paid for in accordance with the terms of the Agreement, will be
duly
and validly issued, fully paid and nonassessable (other than as to a lawful
offering of securities under Section 5 of the Securities Act) and as to a lawful
offering of securities under Section 5 of the Securities Act, assuming the
correctness of the representations and warranties of the Investors set forth
in
Section 5 hereof. Except as set forth in or contemplated by the Agreement or
as
described in the Disclosure Schedule, no preemptive right, co-sale right, right
of first refusal, registration right, or other similar right exists with respect
to the Units or the issuance and sale thereof. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Units.
7
4.5 Legal
Proceedings.
Except
as set forth on the Disclosure Schedule, there is no material legal or
governmental proceeding pending or, to the knowledge of the Company, threatened
(i) to which the Company or any Subsidiary is or may be a party or of which
the
business or property of the Company or any Subsidiary is subject or (ii) which
adversely affects or challenges the legality, validity or enforceability of the
Agreement.
4.6 Disclosure.
The
representations and warranties of the Company contained in this Section 4 as
of
the date hereof, do not contain any untrue statement of a material fact or
omit
to state a material fact required to be stated therein or necessary to make
the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.7 Common
Stock Listing.
The
Common Stock is registered pursuant to Section 12(g) of the Exchange Act and
is
quoted on The Over-the-Counter Bulletin Board (the “OTCBB”), and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or removal of the Common
Stock from the OTCBB, nor has the Company received any notification that the
SEC
is contemplating terminating such registration.
4.8 Reporting
Status.
The
Company has filed in a timely manner all documents that the Company was required
to file under the Exchange Act during the 12 months preceding the date of this
Agreement. The following documents complied in all material respects with the
SEC’s requirements as of their respective filing dates, and the information
contained therein as of the date thereof did not contain an untrue statement
of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under
which they were made, not misleading:
(a) Annual
Report on Form 10-KSB for the years ended December 31, 2005 and December 31,
2006;
(b) Definitive
Proxy Statement for the Annual Meeting held on June 8, 2007;
(c) Quarterly
Reports on Form 10-QSB for the quarters ended September 30, 2006, March 31,
2007
and June 30, 2007; and
(d) All
other
documents, if any, filed by the Company with the SEC during the 12 months
preceding the date of this Agreement pursuant to the reporting requirements
of
the Exchange Act.
4.9 No
Manipulation of Stock.
Neither
the Company, nor any of its directors, officers or controlling persons, has
taken or will, in violation of applicable law, take, any action designed to
or
that might reasonably be expected to cause or result in, or which has
constituted, stabilization or manipulation of the price of the Common Stock
to
facilitate the sale or resale of the Units.
8
4.10 Company
not an “Investment Company”.
The
Company has been advised of the rules and requirements under the Investment
Company Act of 1940, as amended (the “Investment Company Act”). The Company is
not, and immediately after receipt of payment for the Units will not be, an
“investment company” or an entity “controlled” by an “investment company” within
the meaning of the Investment Company Act and shall conduct its business in
a
manner so that it will not become subject to the Investment Company
Act.
4.11 Foreign
Corrupt Practices; Xxxxxxxx-Xxxxx Act.
(a) Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any
corrupt funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(b) The
Company is in compliance in all material respects with all provisions of the
Xxxxxxxx-Xxxxx Act of 2002 that are applicable to it as of the date of each
Closing.
4.12 Environmental.
Except
as would not, individually or in the aggregate, reasonably be expected to have
a
Material Adverse Effect (i) the Company and its Subsidiaries are in compliance
with and not subject to any known liability under applicable Environmental
Laws
(as defined below), (ii) the Company has made all filings and provided all
notices required under any applicable Environmental Law, and has, and is in
compliance with, all permits required under any applicable Environmental Laws
and each of them is in full force and effect, (iii) (a) there is no pending
civil, criminal or administrative action, or pending hearing or suit, (b) the
Company has not received any demand, claim or notice of violation and (c) to
the
knowledge of the Company, there is no investigation, proceeding, notice or
demand letter or request for information threatened against the Company, in
the
case of each of (a), (b) and (c), under any Environmental Law, (iv) no lien,
charge, encumbrance or restriction has been recorded under any Environmental
Law
with respect to any assets, facility or property owned, operated, leased or
controlled by the Company, (v) the Company has not received notice that it
has
been identified as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(“CERCLA”), or any comparable state law and (vi) no property or facility of the
Company is (a) listed or, to the knowledge of the Company, proposed for listing
on the National Priorities List under CERCLA or is (b) listed in the
Comprehensive Environmental Response, Compensation, Liability Information System
List promulgated pursuant to CERCLA, or on any comparable list maintained by
any
state or local governmental authority.
9
For
purposes of this Agreement, “Environmental Laws” means all applicable federal,
state and local laws or regulations, codes, orders, decrees, judgments or
injunctions issued, promulgated, approved or entered thereunder, relating to
pollution or protection of public or employee health and safety or the
environment, including, without limitation, laws relating to (i) emissions,
discharges, releases or threatened releases of Hazardous Materials (as defined
below) into the environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), (ii) the manufacture,
processing, distribution, use, generation, treatment, storage, disposal,
transport or handling of Hazardous Materials and (iii) underground and above
ground storage tanks and related piping, and emissions, discharges, releases
or
threatened releases therefrom. The term “Hazardous Material” means (a) any
“hazardous substance,” as defined in the Comprehensive Environmental Response,
the Resource Conservation and Recovery Act, as amended, (b) any “hazardous
waste,” as defined by the Resource Conservation and Recovery Act, as amended,
(c) any petroleum or petroleum product, (d) any polychlorinated biphenyl and
any
pollutant or contaminant or hazardous, dangerous or toxic chemical, material,
waste or substance.
4.13 Accountants.
Xxxxx
& Co., LLC, who have certified certain financial statements filed with the
SEC as part of, or incorporated by reference in, the Company's Annual Report
on
Form 10-KSB for the fiscal year ended December 31, 2006, are independent public
accountants as required by the Exchange Act and the rules and regulations
thereunder.
4.14 Taxes.
Except
as set forth on the Disclosure Schedule, the Company has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of
a
tax deficiency which has been or might be asserted or threatened against it
which would have a Material Adverse Effect.
4.15 Transfer
Taxes.
On the
date of each Closing, all securities transfer or other taxes (other than income
taxes) which are required to be paid in connection with the sale and transfer
of
the Units to be sold to the Investors hereunder will be, or will have been,
fully paid or provided for by the Company and all laws imposing such taxes
will
be or will have been fully complied with.
4.16 Private
Offering.
Assuming the correctness of the representations and warranties of the Investors
set forth in Section 5 hereof, the offer and sale of Units hereunder is exempt
from registration under the Securities Act. The Company will not distribute
prior to the final Closing, any offering materials in connection with this
Offering and sale of the Units other than the documents of which this Agreement
is a part, including the Disclosure Schedule, or the Exchange Act Documents.
The
Company has not in the past nor will it hereafter take any action to sell,
offer
for sale or solicit offers to buy any securities of the Company which would
bring the offer, issuance or sale of the Units as contemplated by this
Agreement, within the provisions of Section 5 of the Securities Act, unless
such
offer, issuance or sale was or shall be within the exemptions of Section 4
of
the Securities Act.
4.17 Use
of
Proceeds.
The
Company shall use the proceeds from the Offering for repayment of debt, working
capital, strategic acquisitions, if any, and general corporate
purposes.
10
4.18 Transactions
with Affiliates.
Other
than as set forth on the Disclosure Schedule, as of the date hereof, the Company
has no current plans to enter into any, agreement, contract or arrangement
with
any of its officers, directors or other affiliates.
4.19 Brokers
or Finders.
Except
as disclosed in the Disclosure Schedule, the Company has not dealt with any
broker or finder in connection with the transactions contemplated by the
Agreement, and Company has not incurred, and shall not incur, directly or
indirectly, any liability for any brokerage or finders’ fees or agents
commissions or any similar charges in connection with the transactions
contemplated by the Agreement.
4.20 Employee
Relations.
Neither
the Company nor any of its Subsidiaries is involved in any union or 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 is a party
to
a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relations with their employees are good. No executive officer (as
defined in Rule 501(f) of the Securities Act) has notified the Company that
such
officer intends to leave the Company or otherwise terminate such officer's
employment with the Company. No executive officer, to the best knowledge of
the
Company and its Subsidiaries, is, or is now expected to be, in violation of
any
material term of any employment contract, confidentiality, nondisclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing
matters.
4.21 No
Misleading Statements.
The
representations and warranties of the Company contained in this Agreement,
the
Annexes, Exhibits and Disclosure Schedules hereto and all other documents and
information furnished to the Investors and their representatives pursuant hereto
are complete and accurate in all material respects and do not include any untrue
statement of a material fact or omit to state any material fact necessary to
make any statements made not misleading. There is no material fact relating
to
the Company or the Units that has not been set forth or described in this
Agreement or in the Disclosure Schedules hereto or in the Exchange Act
Documents.
5. Representations
Warranties and Covenants of the Investors.
5.1 Each
Investor, severally and not jointly, represents and warrants to, and covenants
with, the Company that: (i) the Investor is an “accredited investor” as defined
in Rule 501(a) of Regulation D under the Securities Act and the Investor is
also
knowledgeable, sophisticated and experienced in making, and is qualified to
make, decisions with respect to investments in shares presenting an investment
decision like that involved in the purchase of the Units, including investments
in securities issued by the Company and investments in comparable companies,
and
has requested, received, reviewed and considered all information it deemed
relevant in making an informed decision to purchase the Units; (ii) the Investor
is acquiring the Units set forth in Annex I to the Agreement in the ordinary
course of its business and for its own account for investment only and with
no
present intention of distributing any of such Units or any arrangement or
understanding with any other persons regarding the distribution of such Units,
except in accordance with applicable securities law; (iii) the Investor will
not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose
of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Units except in compliance with the Securities Act, applicable
state securities laws and the respective rules and regulations promulgated
thereunder; (iv) the Investor has answered all questions in the Agreement for
use in preparation of the Registration Statement and the answers thereto are
true, correct and complete in all material respects as of the date hereof and
will be true, correct and complete in all material respects as of the date
of
each Closing; and (v) the Investor has, in connection with its decision to
purchase the Units set forth in Annex I to the Agreement, relied only upon
the
Exchange Act Documents (which are incorporated herein by reference and which
Investor acknowledges it has reviewed), the representations and warranties
of
the Company contained herein and the Disclosure Schedules. Each Investor
understands its acquisition of the Units has not been registered under the
Securities Act or registered or qualified under any state securities law in
reliance on specific exemptions therefrom, which exemptions may depend upon,
among other things, the bona fide nature of the Investor’s investment intent as
expressed herein. Investor understands the Units purchased hereunder have to
be
held indefinitely unless there is an effective Registration Statement under
the
Securities Act with respect to the Units or an exemption from registration
available under the Securities Act and applicable state securities laws, and
the
Investor is able to bear the economic risk of an investment in the
Units.
11
5.2 Each
Investor, severally and not jointly, acknowledges, represents and agrees that
no
action has been or will be taken in any jurisdiction outside the United States
by the Company that would permit an offering of the Units, or possession or
distribution of offering materials in connection with the issue of the Units,
in
any jurisdiction outside the United States where legal action by the Company
for
that purpose is required. Each Investor outside the United States will comply
with all applicable laws and regulations in each foreign jurisdiction in which
it purchases, offers, sells or delivers Units or has in its possession or
distributes any offering material, in all cases at its own expense.
5.3 Each
Investor, severally and not jointly, hereby covenants with the Company not
to
make any sale of the Units, the Preferred Stock, the Warrants or the Common
Stock underlying either of the Preferred Stock or Warrants without complying
with the provisions of this Agreement, including Section 7.2 hereof and all
securities laws, and the Investor acknowledges that the certificates evidencing
the Preferred Stock and the Warrants will be imprinted with a legend that
prohibits their transfer except in accordance therewith. Upon the earlier of
(i)
the Registration Statement becoming effective and (ii) Rule 144(k) becoming
available, the Investors shall be entitled to exchange their certificates
representing the Common Stock and Warrants for certificates that do not contain
any restrictive legend. Each Investor acknowledges that there may occasionally
be times when the Company determines that it must suspend the use of the
prospectus forming a part of the Registration Statement, as set forth in Section
7.2(c).
5.4 Each
Investor, severally and not jointly, further represents and warrants to, and
covenants with, the Company that (i) the Investor has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, (ii) the execution
and delivery of this Agreement, the purchase of the Units under the Agreement,
the fulfillment of the terms of the Agreement and the consummation of the
transactions contemplated hereby will not conflict with or constitute a
violation of, or default (with the passage of time or otherwise) under the
charter, bylaws or other organizational documents of the Investor, and (iii)
this Agreement constitutes a valid and binding obligation of the Investor
enforceable against the Investor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered
in
a proceeding in equity or at law) and except as the indemnification agreements
of the Investors herein may be legally unenforceable.
12
5.5 Investor
will not use any of the restricted Units acquired pursuant to this Agreement
to
cover any short position in the Common Stock of the Company if doing so would
be
in violation of applicable securities laws.
5.6 Each
Investor understands that nothing in the Exchange Act Documents, this Agreement
or any other materials presented to the Investors in connection with the
purchase and sale of the Units constitutes legal, tax or investment advice.
The
Investor has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of Units.
5.7 Except
as
disclosed in the Disclosure Schedule, the Investors have not dealt with any
broker or finder in connection with the transactions contemplated by the
Agreement, and the Investors have not incurred, and shall not incur, directly
or
indirectly, any liability for any brokerage or finders’ fees or agents
commissions or any similar charges in connection with the transactions
contemplated by the Agreement.
5.8 Investor
is not purchasing the Units as a result of any advertisement, article, notice
or
other communication regarding the Units published in any newspaper, magazine
or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
5.9 Each
Investor has independently evaluated the merits of its decision to purchase
Units, such decision has been independently made by such Investor and such
Investor confirms that it has only
relied
on the advice of its own business and/or legal counsel and not on the advice
of
the Company’s or any other Investor’s business and/or legal counsel in making
such decision.
5.10 Each
Investor acknowledges that certain officers and directors of the Company may
purchase Units in the Offering, with the purchase price therefore being paid
through the cancellation of deferred compensation owed to such officers or
directors.
6. Survival
of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Investors herein shall survive the execution of this Agreement, the delivery
to the Investors of the Units being purchased and the payment
therefor.
7. Registration
of the Units; Compliance with the Securities Act.
13
7.1 Registration
Procedures and Other Matters.
The
Company shall:
(a) use
its
reasonable best efforts, subject to receipt of necessary information from the
Investors after prompt request from the Company to the Investors to provide
such
information, prepare and file with the SEC, not later than 60 days from the
Termination Date (the “Filing Date”), a registration statement on Form SB-2 or
such other successor form (except that if the Company is not then eligible
to
register for resale the Registrable Securities (as defined below) on Form SB-2,
in which case such registration shall be on any form available for registration)
(the “Registration Statement”) to enable the resale of the shares of Common
Stock underlying the Preferred Stock and the shares of Common Stock underlying
the Warrants (the “Registrable Securities”) by the Investors from time to time
through the OTCBB quotation system or in other privately-negotiated
transactions;
(b) use
its
reasonable best efforts, subject to receipt of necessary information from the
Investors after prompt request from the Company to the Investors to provide
such
information, to cause the Registration Statement to become effective, not later
than 120 days from the Termination Date (the “Effectiveness Date”), such efforts
to include, without limiting the generality of the foregoing, preparing and
filing with the SEC in such 120-day period any financial statements required
to
be filed prior to the effectiveness of such Registration Statement;
(c) use
its
reasonable best efforts to prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep the Registration Statement current,
effective and free from any material misstatement or omission to state a
material fact for a period not exceeding, with respect to each Investor’s
Registrable Securities purchased hereunder, the earlier of (i) the second
anniversary of the final Closing date, (ii) the date on which the Investors
may
sell all Registrable Securities then held by the Investors without restriction
by the volume limitations of Rule 144(e) of the Securities Act, or (iii) such
time as all Registrable Securities purchased by the Investors in this Offering
have been sold pursuant to a registration statement;
(d) furnish
to the Investors with respect to the Registrable Securities registered under
the
Registration Statement such number of copies of the Registration Statement,
prospectuses and preliminary prospectuses in conformity with the requirements
of
the Securities Act and such other documents as the Investors may reasonably
request, in order to facilitate the public sale or other disposition of all
or
any of the Registrable Securities by the Investors; provided, however, the
obligation of the Company to deliver copies of prospectuses or preliminary
prospectuses to the Investors shall be subject to the receipt by the Company
of
reasonable assurances from the Investors that the Investors will comply with
the
applicable provisions of the Securities Act and of such other securities or
blue
sky laws as may be applicable in connection with any use of such prospectuses
or
preliminary prospectuses.
(e) file
documents required of the Company for normal blue sky clearance in states
specified in writing by the Investors and use its reasonable best efforts to
maintain such blue sky qualifications during the period the Company is required
to maintain the effectiveness of the Registration Statement pursuant to Section
7.1(c); provided, however, that the Company shall not be required to qualify
to
do business or consent to service of process in any jurisdiction in which it
is
not now so qualified or has not so consented;
14
(f) otherwise
use commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the Securities Act and the Exchange Act, and take
such other actions as may be reasonably necessary to facilitate the registration
of the Registrable Securities hereunder;
(g) bear
all
expenses in connection with the procedures in paragraph (a) through (e) of
this
Section 7.1 and the registration of the Registrable Securities pursuant to
the
Registration Statement; and
(h) advise
the Investors, promptly after it shall receive notice or obtain knowledge of
the
issuance of any stop order by the SEC delaying or suspending the effectiveness
of the Registration Statement or of the initiation or threat of any proceeding
for that purpose; and it will promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal at the earliest possible
moment if such stop order should be issued.
With
a
view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any
time
permit the Investors to sell Registrable Securities to the public without
registration, the Company covenants and agrees to: (i) make and keep public
information available, as those terms are understood and defined in Rule 144,
until the earlier of (A) such date as all of the Investors’ Registrable
Securities may be resold pursuant to Rule 144(k) or any other rule of similar
effect or (B) such date as all of the Investors’ Registrable Securities shall
have been resold; (ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and under
the
Exchange Act; and (iii) furnish to the Investors upon request, as long as the
Investors owns any Registrable Securities, (A) a written statement by the
Company that it has complied with the reporting requirements of the Securities
Act and the Exchange Act; (B) a copy of the Company’s most recent Annual Report
on Form 10-KSB or Quarterly Report on Form 10-Q-SB and (C) such other
information as may be reasonably requested in order to avail the Investors
of
any rule or regulation of the SEC that permits the selling of such Registrable
Securities without registration.
In
no
event at any time before the initial Registration Statement becomes effective
with respect to the Units shall the Company publicly announce or file any other
registration statement, other than (i) registrations on Form S-8 and (ii)
maintaining the effectiveness of the currently effective registration statements
of the Company, without the prior written consent of a majority in interest
of
the Investors.
The
Company understands the Investors disclaim being underwriters, but an Investor
being deemed an underwriter by the SEC shall not relieve the Company of any
obligations it has hereunder. In the event the SEC determines any Registration
Statement filed pursuant hereto constitutes a primary offering of securities
by
the Company and/or requires any Investor to be named as an underwriter,
Investors understand and agree the Company may reduce, on a pro rata basis,
the
total number of Registrable Securities to be registered on behalf of each such
Investor, and the
Company shall not be required to pay any penalty, financial or otherwise to
any
Investor.
In the
event of such reduction, the affected Investors shall have demand registration
rights until such time as: (i) all Registrable Securities have been registered
pursuant to an effective Registration Statement, (ii) the Registrable Securities
may be resold without restriction pursuant to Rule 144 of the Act or (iii)
the
Investor agrees to be named as an underwriter in any such registration
statement. Investors acknowledge and agree the provisions of this paragraph
may
apply to more than one Registration Statement and that the SEC may limit or
condition any subsequent Registration Statement. If
the
Company receives notice from the SEC that it deems any Investor an
“underwriter”, the Company shall notify all Investors of same within five (5)
business days of the date of receipt of such notice.
15
In
no
event will any registered holder of Registrable Securities be entitled to
receive a net-cash settlement in lieu of physical settlement in shares of Common
Stock, regardless of whether any of such holder’s Registrable Securities are
registered pursuant to an effective registration statement.
7.2 Transfer
of Units After Registration; Suspension.
(a) Each
Investor agrees that it will not effect any disposition of the Registrable
Securities or its right to purchase the Registrable Securities that would
constitute a sale within the meaning of the Securities Act except as
contemplated in the Registration Statement referred to in Section 7.1 and as
described below or as otherwise permitted by law, and that it will promptly
notify the Company of any changes in the information set forth in any
Registration Statement regarding the Investor or its plan of
distribution.
(b) Except
in
the event that paragraph (c) below applies, the Company shall (i) if deemed
necessary by the Company, prepare and file from time to time with the SEC a
post-effective amendment to any Registration Statement or a supplement to the
related prospectus or a supplement or amendment to any document incorporated
therein by reference or file any other required document so that such
Registration Statement will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to
make the statements therein not misleading, and so that, as thereafter delivered
to purchasers of the Registrable Securities being sold thereunder, such
prospectus will not contain an untrue statement of a material fact or omit
to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) provide the Investors copies of any documents filed
pursuant to Section 7.2(b)(i); and (iii) inform each Investor that the Company
has complied with its obligations in Section 7.2(b)(i) (or that, if the Company
has filed a post-effective amendment to the Registration Statement which has
not
yet been declared effective, the Company will notify the Investors to that
effect, will use its best efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly notify the
Investors when the amendment has become effective).
16
(c) Subject
to paragraph (d) below, in the event (i) of any request by the SEC or any other
federal or state governmental authority during the period of effectiveness
of
any Registration Statement for amendments or supplements to a Registration
Statement or related prospectus or for additional information; (ii) of the
issuance by the SEC or any other federal or state governmental authority of
any
stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose; (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Units for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; or (iv)
of
any event or circumstance which, upon the advice of its counsel, necessitates
the making of any changes in any Registration Statement or related prospectus,
or any document incorporated or deemed to be incorporated therein by reference,
so that, in the case of the Registration Statement, it will not contain any
untrue statement of a material fact or any omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the prospectus, it will not contain any
untrue statement of a material fact or any omission to state a 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;
then
the Company shall deliver a certificate in writing to the Investors (the
“Suspension Notice”) to the effect of the foregoing and, upon receipt of such
Suspension Notice, the Investors will refrain from selling any Registrable
Securities pursuant to the Registration Statement (a “Suspension”) until the
Investors’ receipt of copies of a supplemented or amended prospectus prepared
and filed by the Company, or until it is advised in writing by the Company
that
the current prospectus may be used, and has received copies of any additional
or
supplemental filings that are incorporated or deemed incorporated by reference
in any such prospectus. In the event of any Suspension, the Company will use
its
reasonable best efforts to cause the use of the prospectus so suspended to
be
resumed as soon as reasonably practicable within 20 business days after the
delivery of a Suspension Notice to the Investors.
(d) Notwithstanding
the foregoing paragraphs of this Section 7.2, the Investors shall not be
prohibited from selling Registrable Securities under any Registration Statement
as a result of Suspensions on more than two occasions of not more than 30 days
each in any twelve month period, unless, in the good faith judgment of the
Company’s Board of Directors, upon the written advice of counsel, continuing a
Suspension is necessary to prevent the disclosure of material nonpublic
information where such disclosure would be materially injurious to the Company,
in which event the Company shall use reasonable best efforts to terminate such
Suspension at the earliest date practicable.
(e) Provided
that a Suspension is not then in effect, the Investors may sell Registrable
Securities under a Registration Statement in the manner set forth under the
caption “Plan of Distribution” in the prospectus, provided that they arrange for
delivery of a current prospectus to the transferee of such Registrable
Securities and provided that they comply with all applicable laws. Upon receipt
of a request therefor, the Company has agreed to provide an adequate number
of
current prospectuses to the Investors and to supply copies to any other parties
requiring such prospectuses.
(f) In
the
event of a sale of Registrable Securities by the Investors pursuant to a
Registration Statement, the Investors must also deliver to the Company’s
transfer agent, with a copy to the Company, a Certificate of Subsequent Sale
substantially in the form attached hereto as Exhibit A, so that the Registrable
Securities may be properly transferred.
17
7.3 Indemnification.
For the
purpose of this Section 7.3:
(a) the
term
“Selling Stockholder” shall include the Investors and any affiliate of such
Investors;
(b) the
term
“Registration Statement” shall include the prospectus in the form first filed
with the SEC pursuant to Rule 424(b) of the Securities Act or filed as part
of
the Registration Statement at the time of effectiveness if no Rule 424(b) filing
is required, exhibit, supplement or amendment included in or relating to the
Registration Statement referred to in Section 7.1; and
(c) the
term
“untrue statement” shall include any untrue statement or alleged untrue
statement of a material fact, or any omission or alleged omission to state
(1)
if in the Registration Statement (and excluding the prospectus from such defined
term solely for the purposes of describing the applicable standard), a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (2) if in the prospectus, a 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.
(i) The
Company agrees to indemnify and hold harmless each Selling Stockholder from
and
against any losses, claims, damages or liabilities to which such Selling
Stockholder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon (i) any untrue statement
contained in a Registration Statement as amended at the time of effectiveness,
or (ii) any failure by the Company to fulfill any undertaking included in a
Registration Statement as amended at the time of effectiveness, and the Company
will reimburse such Selling Stockholder for any reasonable legal or other
expenses reasonably incurred in investigating, defending or preparing to defend
any such action, proceeding or claim, provided, however, that the Company shall
not be liable in any such case to the extent that such loss, claim, damage
or
liability arises out of, or is based upon, an untrue statement made in such
Registration Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Selling Stockholder
specifically for use in preparation of the Registration Statement or for any
transaction effected by any Selling Stockholder following receipt of a
Suspension Notice, which notice is given in compliance with the terms hereof
and
of a duration in compliance with the terms hereof, which transaction is effected
by such Selling Stockholder in violation of Section 7.2(c) above and is not
subsequently remedied. The Company shall reimburse each Selling Stockholder
for
the amounts provided for herein on demand as such expenses are
incurred.
(ii) Each
Investor agrees to indemnify and hold harmless the Company (and each person,
if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, each officer of the Company who signs a Registration Statement and each
director of the Company) from and against any losses, claims, damages or
liabilities to which the Company (or any such officer, director or controlling
person) may become subject (under the Securities Act or otherwise), insofar
as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon: any untrue statement contained
in any Registration Statement if such untrue statement was made in reliance
upon
and in conformity with written information furnished by or on behalf of the
Investor specifically for use in preparation of the Registration Statement
or
for any transaction effected by any Selling Stockholder following receipt of
a
Suspension Notice, which notice is given in compliance with the terms hereof
and
of a duration in compliance with the terms hereof, which is not subsequently
remedied, or for any transaction effected by any Selling Stockholder following
receipt of a Suspension Notice, which notice is given in compliance with the
terms hereof and of a duration in compliance with the terms hereof, which
transaction is effected by such Selling Stockholder in violation of Section
7.2(c) above and is not subsequently remedied, and the Investor will reimburse
the Company (or such officer, director or controlling person), as the case
may
be, for any legal or other expenses reasonably incurred in investigating,
defending or preparing to defend any such action, proceeding or claim. The
Investor shall reimburse the Company for the amounts provided for herein on
demand as such expenses are incurred.
18
(iii) Promptly
after receipt by any indemnified person of a notice of a claim or the beginning
of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 7.3, such indemnified person shall
notify the indemnifying person in writing of such claim or of the commencement
of such action, but the omission to so notify the indemnifying person will
not
relieve it from any liability which it may have to any indemnified person under
this Section 7.3 (except to the extent that such omission materially and
adversely affects the indemnifying person’s ability to defend such action) or
from any liability otherwise than under this Section 7.3. Subject to the
provisions hereinafter stated, in case any such action shall be brought against
an indemnified person, the indemnifying person shall be entitled to participate
therein, and, to the extent that it shall elect by written notice delivered
to
the indemnified person promptly after receiving the aforesaid notice from such
indemnified person, shall be entitled to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified person. After notice from
the indemnifying person to such indemnified person of its election to assume
the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any reasonable legal expenses subsequently incurred
by
such indemnified person in connection with the defense thereof, provided,
however, that if there exists or shall exist a conflict of interest that would
make it inappropriate, in the opinion of counsel to the indemnified person,
for
the same counsel to represent both the indemnified person and such indemnifying
person or any affiliate or associate thereof, the indemnified person shall
be
entitled to retain its own counsel at the expense of such indemnifying person;
provided, however, that no indemnifying person shall be responsible for the
fees
and expenses of more than one separate counsel (together with appropriate local
counsel) for all indemnified parties. In no event shall any indemnifying person
be liable in respect of any amounts paid in settlement of any action unless
the
indemnifying person shall have approved the terms of such settlement; provided
that such consent shall not be unreasonably withheld. No indemnifying person
shall, without the prior written consent of the indemnified person, effect
any
settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could have been a party and indemnification could
have
been sought hereunder by such indemnified person, unless such settlement
includes an unconditional release of such indemnified person from all liability
on claims that are the subject matter of such proceeding.
(iv) If
the
indemnification provided for in this Section 7.3 is unavailable to or
insufficient to hold harmless an indemnified person under subsection (a) or
(b)
above in respect of any losses, claims, damages or liabilities (or actions
or
proceedings in respect thereof) referred to therein, then each indemnifying
person shall contribute to the amount paid or payable by such indemnified person
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Investors on the other in
connection with the statements or omissions or other matters which resulted
in
such losses, claims, damages or liabilities (or actions in respect thereof),
as
well as any other relevant equitable considerations. The relative fault shall
be
determined by reference to, among other things, in the case of an untrue
statement, whether the untrue statement relates to information supplied by
the
Company on the one hand or the Investors on the other and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement. The Company and the Investors agree that it would not
be
just and equitable if contribution pursuant to this subsection (d) were
determined by any method of allocation which does not take into account the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified person as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in
this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
subsection (d), the Investors shall not be required to contribute any amount
in
excess of the amount by which the net amount received by the Investors from
the
sale of the Registrable Securities to which such loss relates exceeds the amount
of any damages which such Investors have otherwise been required to pay by
reason of such untrue statement. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (t) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each Investor’s obligations in this subsection to
contribute shall be in proportion to its sale of Registrable Securities to
which
such loss relates and shall not be joint with any other Selling
Stockholders.
19
(v) The
parties to this Agreement hereby acknowledge that they are sophisticated
business persons who were represented by counsel during the negotiations
regarding the provisions hereof including, without limitation, the provisions
of
this Section 7.3, and are fully informed regarding said provisions. They further
acknowledge that the provisions of this Section 7.3 fairly allocate the risks
in
light of the ability of the parties to investigate the Company and its business
in order to assure that adequate disclosure is made in a Registration Statement
as required by the Securities Act and the Exchange Act. The parties are advised
that federal or state public policy as interpreted by the courts in certain
jurisdictions may be contrary to certain of the provisions of this Section
7.3,
and the parties hereto hereby expressly waive and relinquish any right or
ability to assert such public policy as a defense to a claim under this Section
7.3 and further agree not to attempt to assert any such defense.
7.4 Termination
of Conditions and Obligations.
The
conditions precedent imposed by Section 5 or this Section 7 upon the
transferability of the Units or the Registrable Securities, as applicable,
shall
cease and terminate as to any particular Units or the Registrable Securities,
as
applicable, when such Units or the Registrable Securities, as applicable, shall
have been effectively registered under the Securities Act and sold or otherwise
disposed of in accordance with the intended method of disposition set forth
in a
Registration Statement covering the Registrable Securities or at such time
as an
opinion of counsel reasonably satisfactory to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.
20
7.5 Information
Available.
So long
as the Registration Statement is effective covering the resale of Registrable
Securities owned by the Investors, the Company will furnish to the
Investors:
(a) Unless
otherwise electronically available on XXXXX, as soon as practicable after it
is
available, one copy of (i) its Annual Report to Stockholders (which Annual
Report shall contain financial statements audited in accordance with generally
accepted accounting principles by a national firm of certified public
accountants), (ii) if not included in substance in the Annual Report to
Stockholders, its Annual Report on Form 10-KSB and (iii) its Quarterly Reports
on Form 10-QSB (the foregoing, in each case, excluding exhibits);
(b) upon
the
request of the Investors, all exhibits excluded by the parenthetical to
subparagraph (a) of this Section 7.5 as filed with the SEC and all other
information that is made available to shareholders; and
(c) upon
the
reasonable request of the Investors, an adequate number of copies of the
prospectuses to supply to any other party requiring such prospectuses. Further,
and upon the reasonable request of the Investors, the President or the Chief
Financial Officer of the Company (or an appropriate designee thereof) will
meet
with the Investors or their representative at the Company’s headquarters to
discuss all information relevant for disclosure in the Registration Statement
covering the Registrable Securities and will otherwise cooperate with any
Investor conducting an investigation for the purpose of reducing or eliminating
such Investor’s exposure to liability under the Securities Act, including the
reasonable production of information at the Company’s headquarters; provided,
that the Company shall not be required to disclose any confidential information
to or meet at its headquarters with any Investor until and unless the Investor
shall have entered into a confidentiality agreement in form and substance
reasonably satisfactory to the Company with the Company with respect
thereto.
8. Representation.
Each
Investor hereto acknowledges its interests may not necessarily coincide with
the
interests of any other Investors (the “Other Investors”). Each Investor has
consulted with, or has had the opportunity to consult with, their own legal
counsel in connection with this transaction. For the avoidance of doubt, it
shall be expressly agreed and understood that as among the Investors, each
Investor intends to and is acting individually on its own behalf only, making
its own investment decisions, not in concert with or as a group with any other
Investor, and no beneficial or pecuniary interest of any one Investor shall
be
attributed or attributable to any other Investor.
9. Notices.
All
notices, requests, consents and other communications hereunder shall be in
writing, shall be mailed (A) if within the United States by first-class
registered or certified airmail, or nationally recognized overnight express
courier, postage prepaid, or by facsimile, or (B) if delivered from outside
the
United States, by International Federal Express or facsimile, and shall be
deemed given (i) if delivered by first-class registered or certified mail,
three
business days after so mailed, (ii) if delivered by nationally recognized
overnight carrier, one business day after so mailed, (iii) if delivered by
International Federal Express, two business days after so mailed, (iv) if
delivered by facsimile, upon electronic confirmation of receipt and shall be
delivered as addressed as follows:
21
|
(a)
|
if
to the Company, to:
|
|
Power
Efficiency Corporation
|
|
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0000
Xxxxxx Xxxxxx Xxxxxxx
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Xxxxx
000
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Xxx
Xxxxx, XX 00000
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Tel:
(000) 000-0000
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Fax:
(000) 000-0000
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Attn: XX
Xxxxxxxx
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(b)
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with
a copy to:
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Ellenoff
Xxxxxxxx & Schole LLP
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000
Xxxxxxxxx Xxxxxx
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Xxx
Xxxx, Xxx Xxxx 00000
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Tel: (000)
000-0000
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Fax: (000)
000-0000
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Attn:
Xxxxx Xxxxxxxx, Esq.
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(c) if
to the
Investors, at their respective addresses on the signature pages hereto, or
at
such other address or addresses as may have been furnished to the Company in
writing, with a copy to Xxxxx Xxxxxxx, 0000 00xx
Xxxxxx
X., Xxxxxxx, XX 00000.
10. Changes.
This
Agreement may not be modified or amended except pursuant to an instrument in
writing signed by the Company and the majority in interest of the
Investors.
11. Headings.
The
headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.
12. Severability.
In case
any provision contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
13. Governing
Law; Arbitration.
13.1 This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of Delaware, without giving effect to the principles of
conflicts of law.
13.2 In
the
event any controversy or dispute shall arise between the parties under, out
of,
in connection with, or relating to this Agreement or the breach thereof, the
party initiating such controversy or making such claim shall provide to the
other party notice containing a brief and concise statement of the initiating
party’s claims, together with relevant facts supporting them. Following
the date of said notice, the parties shall make good faith efforts to settle
the
dispute. In the event the parties have been unable to reach accord using the
procedures set forth in this Section 13, either party may seek binding
arbitration before three (3) arbitrators in accordance with the rules of the
American Arbitration Association (“AAA”). Each party shall appoint one
arbitrator and the appointed arbitrators shall in turn appoint the third
arbitrator. In the event the two appointed arbitrators are unable to agree
upon the third arbitrator, the AAA shall designate the third arbitrator to
arbitrate the controversy or dispute. The arbitration shall be held in Las
Vegas, Nevada. Within thirty (30) days after initiation of arbitration,
the parties shall reach agreement upon and thereafter follow procedures assuring
that the arbitration will be concluded and the award rendered within no more
than six (6) months from selection of the three arbitrators. Failing such
agreement, AAA will design, and the parties will follow, such procedures.
THE ARBITRATORS SHALL NOT AWARD ANY PARTY PUNITIVE OR EXEMPLARY DAMAGES, AND
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT TO SEEK SUCH DAMAGES. Each
party has the right before or during the arbitration to seek and obtain from
the
appropriate court provisional remedies such as attachment, preliminary
injunction, replevin, etc., to avoid irreparable harm, maintain the status
quo
or preserve the subject matter of the arbitration.
22
14. Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered to the other
parties.
15. Expenses.
Each of
the Company and the Investors shall bear its own expenses, including fees and
costs of attorneys, accountants and financial advisors, incurred in connection
with the transactions contemplated hereunder; provided, however, that the
Company shall be responsible for the payment of legal fees that are related
to
the registration of the issued securities.
16. Confidential
Information.
Each
Investor represents to the Company that, at all times during the Offering,
the
Investor has maintained in confidence the existence of this
Offering.
17. Publicity.
The
Company and the Investors shall consult with each other in issuing any press
releases with respect to the transactions contemplated hereby, and neither
the
Company nor any Investor shall issue any such press release or otherwise make
any such public statement without the prior consent of the Company, with respect
to any press release of any Investor, and without the prior consent of a
majority in interest of the Investors, with respect to any press release of
the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall, to
the
extent not inconsistent with the disclosing party’s legal obligations, promptly
provide the other party with prior notice of such public statement or
communication.
23
Power
Efficiency Corporation
______________________,
200
Re: Power
Efficiency Corporation; Registration Statement
Dear
Selling Stockholder:
Enclosed
please find five (5) copies of a prospectus dated _____________, ____ (the
“Prospectus”) for your use in reselling your shares of common stock, par value
$0.001 per share (the “Shares”), of Power Efficiency Corporation (the
“Company”), under the Company’s Registration Statement on Form S-- (Registration
No. 333- )
(the
“Registration Statement”), which has been declared effective by the Securities
and Exchange Commission. As a selling stockholder under the Registration
Statement, you may have an obligation to comply with the Prospectus delivery
requirements under the Securities Act of 1933, as amended for each purchaser
of
your shares of Common Stock, either directly or through the broker-dealer who
executes the sale of your shares of Common Stock.
The
Company is obligated to notify you in the event that it suspends trading under
the Registration Statement in accordance with the terms of the Securities
Purchase Agreement between the Company and you. During the period that the
Registration Statement remains effective and trading thereunder has not been
suspended, you will be permitted to sell your shares of Common Stock which
are
included in the Prospectus under the Registration Statement. Upon a sale of
any
shares of Common Stock under the Registration Statement, you or your broker
will
be required to deliver to the Company’s Transfer Agent, Continental Stock
Transfer & Trust Company, (1) your restricted stock certificate(s)
representing the shares of Common Stock, (2) instructions for transfer of
the shares of Common Stock sold, and (3) a representation letter from your
broker, or from you if you are selling in a privately negotiated transaction,
or
from such other appropriate party, in the form of Exhibit A attached hereto
(the
“Certificate of Subsequent Sale”). The Representation Letter confirms that the
shares of Common Stock have been sold pursuant to the Registration Statement
and
in a manner described under the caption “Plan of Distribution” in the Prospectus
and that such sale was made in accordance with all applicable securities laws,
including the prospectus delivery requirements, if and to the extent
applicable.
Please
note that you are under no obligation to sell your shares of Common Stock during
the registration period. However, if you do decide to sell, you must comply
with
the requirements described in this letter or otherwise applicable to such sale.
Your failure to do so may result in liability under the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended. Please remember
that all sales of your shares of Common Stock must be carried out in the manner
set forth under the caption “Plan of Distribution” in the Prospectus if you sell
under the Registration Statement. The Company may require an opinion of counsel
reasonably satisfactory to the Company if you choose another method of sale.
You
should consult with your own legal advisor(s) on an ongoing basis to ensure
your
compliance with the relevant securities laws and regulations.
24
In
order
to maintain the accuracy of the Prospectus, you must notify the undersigned
upon
the sale, gift, or other transfer of any shares of Common Stock by you,
including the number of shares of Common Stock being transferred, and in the
event of any other change in the information regarding you which is contained
in
the Prospectus. For example, you must notify the undersigned if you enter into
any arrangement with a broker-dealer for the sale of shares of Common Stock
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker-dealer. Depending on the circumstances,
such transactions may require the filing of a supplement to the prospectus
in
order to update the information set forth under the caption “Plan of
Distribution” in the Prospectus.
Should
you need any additional copies of the Prospectus, or if you have any questions
concerning the foregoing, please write to me at Power Efficiency Corporation,
0000 Xxxxxx Xxxxxx Xxxxxxx, Xxxxx 000, Xxx Xxxxx, XX 00000. Thank
you.
Sincerely,
Chief
Executive Officer
25
Exhibit
A
CERTIFICATE
OF SUBSEQUENT SALE
Continental
Stock Transfer and Trust Company
00
Xxxxxxx Xxxxx
Xxx
Xxxx,
XX 00000
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RE:
|
Sale
of Shares Common Stock and/or Warrants of Power Efficiency Corporation
(the “Company”) pursuant to the Company’s Prospectus dated ______ __, 2007
(the “Prospectus”)
|
Dear
Sir/Madam:
The
undersigned hereby certifies, in connection with the sale of shares of Common
Stock or Warrants of the Company included in the table of Selling Stockholders
in the Prospectus, that the undersigned has sold the shares and/or warrants
pursuant to the Prospectus and in a manner described under the caption “Plan of
Distribution” in the Prospectus and that such sale complies with all securities
laws applicable to the undersigned, including, without limitation, if and to
the
extent applicable, the Prospectus delivery requirements of the Securities Act
of
1933, as amended.
Selling
Stockholder (the beneficial
owner):____________________________________________
Record
Holder (e.g., if held in name of
nominee):________________________________________
Restricted
Stock Certificate
No.(s):__________________________________________________
Number
of
Shares of Common Stock
Sold:_____________________________________________
Restricted
Warrant No.(s):
________________________________________________________
Number
of
Warrants Sold:
________________________________________________________
Date
of
Sale:___________________________________________________________________
In
the
event that you receive a stock certificate(s) representing more shares of Common
Stock than have been sold by the undersigned, then you should return to the
undersigned a newly issued certificate for such excess shares in the name of
the
Record Holder [and BEARING A RESTRICTIVE LEGEND]. Further, you should place
a
stop transfer on your records with regard to such certificate.
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Dated:__________________________________
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Very
truly yours,
By:_____________________________
Print
Name:_______________________
Title:____________________________
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