EQUITY LINE AGREEMENT
EXHIBIT
10.1
THIS
AGREEMENT
dated as
of the 20th day of March 2008 (the “Agreement”)
between MAGELLAN
GLOBAL FUND, L.P.,
a
Delaware limited partnership (the “Investor”),
and
CHINA
SHOE HOLDINGS,
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 Two
Million Dollars ($2,000,000) of the Company’s common stock, par value $
.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.
WHEREAS,
the
Company has engaged GLB Trading Inc. (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”).
ARTICLE
I.
Section
1.1
“Advance”
shall
mean the portion of the Commitment Amount requested by the Company in the
Advance Notice.
Section
1.2
“Advance
Date”
shall
mean the first (1st)
Trading
Day after expiration of the applicable Pricing Period for each
Advance.
Section
1.3
“Advance
Notice”
shall
mean a written notice in the form of Exhibit
A
attached
hereto to the Investor executed by an officer of the Company and setting forth
the Advance amount that the Company requests from the Investor.
Section
1.4
“Advance
Notice Date”
shall
mean each date the Company delivers (in accordance with Section 2.2(b) of this
Agreement) to the Investor an Advance Notice requiring the Investor to advance
funds to the Company, subject to the terms of this Agreement. No Advance
Notice Date shall be less than Ten (10) Trading Days after the prior Advance
Notice Date.
Section
1.5
“Bid
Price”
shall
mean, on any date, the closing bid price (as reported by Bloomberg L.P.) of
the
Common Stock on the Principal Market or if the Common Stock is not traded on
a
Principal Market, the highest reported bid price for the Common Stock, as
furnished by the National Association of Securities Dealers, Inc.
Section
1.6
“Closing”
shall
mean one of the closings of a purchase and sale of Common Stock pursuant to
Section 2.3.
Section
1.7
“Commitment
Amount”
shall
mean the aggregate amount of up to Two Million Dollars ($2,000,000) 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
1.8
“Commitment
Period”
shall
mean the period commencing on the earlier to occur of (i) the Effective Date,
or
(ii) such earlier date as the Company and the Investor may mutually agree in
writing, and expiring on the earliest to occur of (x) the date on which the
Investor shall have made payment of Advances pursuant to this Agreement in
the
aggregate amount of the Commitment Amount, (y) the date this Agreement is
terminated pursuant to Section 10.2 or (z) the date occurring twenty-four (24)
months after the Effective Date.
Section
1.9
“Common
Stock”
shall
mean the Company’s common stock, par value $.001 per share.
Section
1.10
“Condition
Satisfaction Date”
shall
have the meaning set forth in Section 7.2.
Section
1.11
“Damages”
shall
mean any loss, claim, damage, liability, costs and expenses (including, without
limitation, reasonable attorney’s fees and disbursements and costs and expenses
of expert witnesses and investigation).
Section
1.12
“Effective
Date”
shall
mean the date on which the SEC first declares effective a Registration Statement
registering the resale of the Registrable Securities as set forth in Section
7.2(a).
Section
1.13
“Exchange
Act”
shall
mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
Section
1.14
“Material
Adverse Effect”
shall
mean any condition, circumstance, or situation that may result in, or reasonably
be 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 the Agreement.
Section
1.15
“Market
Price”
shall
mean the average of the three (3) lowest closing bid prices of the Common Stock
during the Pricing Period
Section
1.16
“Maximum
Advance Amount”
with
respect to each Advance Notice shall mean an amount at the discretion of the
Company up to Sixty Thousand Dollars ($60,000) Put restriction amounts can
be waived at the option of the Investor.
Section
1.17
“Minimum
Acceptable Price”
with
respect to any Put shall mean the price at which the Company has the right,
but
not the obligation, to withdraw that portion of the Put.
Section
1.18
“NASD”
shall
mean the National Association of Securities Dealers, Inc.
Section
1.19
“Person”
shall
mean an individual, a corporation, a partnership, an association, a trust or
other entity or organization, including a government or political subdivision
or
an agency or instrumentality thereof.
Section
1.20
“Placement
Agent”
shall
mean GLB Trading Inc. a
registered broker-dealer.
Section
1.21
“Pricing
Period”
shall
mean the Five (5) consecutive Trading Days after the Advance Notice
Date.
Section
1.22
“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
1.23
“Purchase
Price”
shall
be set at ninety two percent (92%) of the Market Price during the Pricing
Period.
Section
1.24
“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
1.25
“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
1.26
“Registration
Statement”
shall
mean a registration statement on Form S-1, Form S-3 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
1.27
“Regulation
D”
shall
have the meaning set forth in the recitals of this Agreement.
Section
1.28
“SEC”
shall
mean the United States Securities and Exchange Commission.
Section
1.29
“Securities
Act”
shall
have the meaning set forth in the recitals of this Agreement.
Section
1.30
“SEC
Documents”
shall
mean Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and Proxy Statements of the Company as supplemented to
the
date hereof, filed by the Company for a period of at least twelve (12) months
immediately preceding the date hereof or the Advance Date, as the case may
be,
until such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section
1.31
“Trading
Day”
shall
mean any day during which the New York Stock Exchange shall be open for
business.
ARTICLE
II.
Section
2.1
Subject to the terms and conditions of this Agreement (including, without
limitation, the provisions of Article VII hereof), the Company, at its sole
and
exclusive option, may issue and sell to the Investor, and the Investor shall
purchase from the Company, shares of the Company’s Common Stock by the delivery,
in the Company’s sole discretion, of Advance Notices. The number of shares
of Common Stock that the Investor shall purchase pursuant to each Advance shall
be determined by dividing the amount of the Advance by the Purchase Price.
No fractional shares shall be issued. Fractional shares shall be rounded
to the next higher whole number of shares. The aggregate maximum amount of
all Advances that the Investor shall be obligated to make under this Agreement
shall not exceed the Commitment Amount.
Section
2.2
(a) Advance
Notice.
At any time during the Commitment Period, the Company may require the
Investor to purchase shares of Common Stock by delivering an Advance Notice
to
the Investor, subject to the conditions set forth in Section 7.2; provided,
however, the amount for each Advance as designated by the Company in the
applicable Advance Notice shall not be more than the Maximum Advance Amount
and
the aggregate amount of the Advances pursuant to this Agreement shall not
exceed
the Commitment Amount. The Company acknowledges that the Investor may sell
shares of the Company’s Common Stock corresponding with a particular Advance
Notice after the Advance Notice is received by the Investor. There shall
be a minimum of Ten (10) Trading Days between each Advance Notice
Date.
(b) Date
of Delivery of Advance Notice. An
Advance Notice shall be deemed delivered on (i) the Trading Day it is received
by facsimile or otherwise by the Investor if such notice is received prior
to
5:00 pm Eastern Time, or (ii) the immediately succeeding Trading Day if it
is
received by facsimile or otherwise after 5:00 pm Eastern Time on a Trading
Day
or at any time on a day which is not a Trading Day. No Advance Notice may
be deemed delivered on a day that is not a Trading Day.
Section
2.3
Closings.
On each Advance Date (i) the Company shall deliver to the Investor such
number of shares of the Common Stock registered in the name of the Investor
as
shall equal (x) the amount of the Advance specified in such Advance Notice
pursuant to Section 2.1 herein, divided by (y) the Purchase Price and (ii)
upon
receipt of such shares, the Investor shall deliver to the Company the amount
of
the Advance specified in the Advance Notice by wire transfer of immediately
available funds. 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 12.4, 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.
(i) The
Company shall deliver to the Investor the shares of Common Stock applicable
to
the Advance in accordance with Section 2.3. The certificates evidencing
such shares shall be free of restrictive legends.
(ii) the
Company shall maintain the effectiveness of the Registration Statement with
respect to the resale of the shares of Common Stock delivered in connection
with
the Advance;
(iii) the
Company shall obtain all material permits and qualifications required by
any
applicable state for the offer and sale of the Registrable Securities, or
have
the availability of exemptions there from. The sale and issuance of the
Registrable Securities shall be legally permitted by all laws and regulations
to
which the Company is subject;
(iv) the
Company shall file 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;
(v) the
Company shall pay all any unpaid fees set forth in Section 12.4 below or
withhold such amounts as provided in Section 2.3; and
(b) Investor’s
Obligations Upon Closing.
Upon
receipt of the shares referenced in Section 2.3(a)(i) above and provided the
Company is in compliance with its obligations in Section 2.3, the Investor
shall
deliver to the Company the amount of the Advance specified in the Advance Notice
by wire transfer of immediately available funds.
ARTICLE
III.
Investor
hereby represents and warrants to, and agrees with, the Company that the
following are true and correct as of the date hereof and as of each Advance
Date:
Section
3.1
Organization and Authorization.
The Investor is duly incorporated or organized and validly existing in the
jurisdiction of its incorporation or organization and has all requisite power
and authority to purchase and hold the securities issuable hereunder. The
decision to invest and the execution and delivery of this Agreement by such
Investor, the performance by such Investor of its obligations hereunder and
the
consummation by such Investor of the transactions contemplated hereby have
been
duly authorized and requires no other proceedings on the part of the Investor.
The undersigned has the right, power and authority to execute and deliver
this Agreement and all other instruments (including, without limitations, the
Registration Rights Agreement), on behalf of the Investor. This Agreement
has been duly executed and delivered by the Investor and, assuming the execution
and delivery hereof and acceptance thereof by the Company, will constitute
the
legal, valid and binding obligations of the Investor, enforceable against the
Investor in accordance with its terms.
Section
3.2
Evaluation of Risks.
The Investor has such knowledge and experience in financial, tax and
business matters as to be capable of evaluating the merits and risks of, and
bearing the economic risks entailed by, an investment in the Company and of
protecting its interests in connection with this transaction. It
recognizes that its investment in the Company involves a high degree of
risk.
Section
3.3
No Legal Advice From the Company.
The Investor acknowledges that it had the opportunity to review this
Agreement and the transactions contemplated by this Agreement with his or its
own legal counsel and investment and tax advisors. The Investor is relying
solely on such counsel and advisors and not on any statements or representations
of the Company or any of its representatives or agents for legal, tax or
investment advice with respect to this investment, the transactions contemplated
by this Agreement or the securities laws of any jurisdiction.
Section
3.4
Investment Purpose.
The
securities are being purchased by the Investor for its own account, and for
investment purposes. The Investor agrees not to assign or in any way
transfer the Investor’s rights to the securities or any interest therein and
acknowledges that the Company will not recognize any purported assignment or
transfer except in accordance with applicable Federal and state securities
laws.
No other person has or will have a direct or indirect beneficial interest
in the securities. The Investor agrees not to sell, hypothecate or
otherwise transfer the Investor’s securities unless the securities are
registered under Federal and applicable state securities laws or unless, in
the
opinion of counsel satisfactory to the Company, an exemption from such laws
is
available.
Section
3.5
Accredited Investor.
The Investor is an “Accredited
Investor”
as
that
term is defined in Rule 501(a)(3) of Regulation D of the Securities
Act.
Section
3.6
Information.
The Investor and its advisors (and its counsel), if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and information it deemed material to making an informed
investment decision. The Investor and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management.
Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives
shall
modify, amend or affect the Investor’s right to rely on the Company’s
representations and warranties contained in this Agreement. The Investor
understands that its investment involves a high degree of risk. The
Investor 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
3.7
Receipt of Documents.
The
Investor and its counsel have received and read in their entirety: (i)
this Agreement and the Exhibits annexed hereto; (ii) all due diligence and
other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants which would not, taken as a whole
have
a materially adverse effect on the Company and its properties, earnings or
operations; (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
3.8
Registration Rights Agreement.
The parties have entered into the Registration Rights Agreement dated the
date hereof.
Section
3.9
No General Solicitation.
Neither the Company, nor any of its affiliates, nor any person acting on
its or their behalf, has officially 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.
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 during the term of this Agreement and for a period
of ninety (90) days following the termination of this Agreement, 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.
Except
as
stated below, on the disclosure schedules attached hereto or in the SEC
Documents (as defined herein), the Company hereby represents and warrants to,
and covenants with, the Investor that the following are true and correct as
of
the date hereof:
Section
4.1
Organization and Qualification.
The Company is duly incorporated or organized and validly existing in the
jurisdiction of its incorporation or organization and has all requisite
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
Section
4.2
Authorization, Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter
into and perform this Agreement, the Registration Rights Agreement, 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.
Section
4.3
Capitalization.
The capitalization of the Company as of January 1, 2008 is as set forth on
Schedule
4.3.
Except for shares included in Schedule
4.3,
the
Company has not issued any capital stock since its most recently filed periodic
report under the Exchange Act, other than pursuant to the exercise of stock
options under the Company’s stock option plans, the issuance of shares of Common
Stock to employees, advisors or consultants as compensation for the provision
of
services or pursuant to the Company’s employee stock purchase/option plans and
pursuant to the conversion or exercise of Common Stock Equivalents outstanding
as of the date of the most recently filed periodic report under the Exchange
Act. No Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the this Agreement. Except as a result of the purchase and
sale of the Common Stock hereunder and except as disclosed in Schedule
4.3,
there
are no outstanding options, warrants, script rights to subscribe to, calls
or
commitments of any character whatsoever relating to, or securities, rights
or
obligations convertible into or exercisable or exchangeable for, or giving
any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company
or
any subsidiary is or may become bound to issue additional shares of Common
Stock. The issuance and sale of the Common Stock hereunder will not
obligate the Company to issue shares of Common Stock or other securities to
any
Person and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. 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 shares of Common Stock hereunder. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders. The Company has furnished to the Investor true and correct
copies of the Company’s Certificate of Incorporation, as amended and as in
effect on the date hereof (the “Certificate
of Incorporation”),
and
the Company’s By-laws, as in effect on the date hereof (the “By-laws”),
and
the terms of all securities convertible into or exercisable for Common Stock
and
the material rights of the holders thereof in respect thereto.
Section
4.4
No Conflict.
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.
Section
4.5
SEC Documents; Financial Statements.
The Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under the Exchange Act since
June 6, 2007. 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 financial statements of the Company disclosed in
the
SEC Documents (the “Financial
Statements”)
complied as to form in all material respects with applicable accounting
requirements and the 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 were made, not
misleading.
Section
4.6
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.
Section
4.7
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
4.8
Absence of Events of Default.
Except for matters described in the SEC Documents and/or this Agreement,
no Event of Default, as defined in the respective agreement to which the Company
is a party, and no event which, with the giving of notice or the passage of
time
or both, would become an Event of Default (as so defined), has occurred and
is
continuing, which would have a Material Adverse Effect on the Company’s
business, properties, prospects, financial condition or results of
operations.
Section
4.9
Intellectual Property Rights.
The Company and its subsidiaries own or possess adequate rights or
licenses to use all material trademarks, trade names, service marks, service
xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets
and
rights necessary to conduct their respective businesses as now conducted. The
Company and its subsidiaries do not have any knowledge of any infringement
by
the Company or its subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks, service
xxxx registrations, trade secret or other similar rights of others, and, to
the
knowledge of the Company, there is no claim, action or proceeding being made
or
brought against, or to the Company’s knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
xxxx registrations, trade secret or other infringement; and the Company and
its
subsidiaries are unaware of any facts or circumstances which might give rise
to
any of the foregoing.
Section
4.10
Employee Relations.
Neither the Company nor any of its subsidiaries is involved in any labor
dispute nor, to the knowledge of the Company or any of its subsidiaries, is
any
such dispute threatened. None of the Company’s or its subsidiaries’
employees is a member of a union and the Company and its subsidiaries believe
that their relations with their employees are good.
Section
4.11
Environmental Laws.
The Company and its subsidiaries are (i) in compliance with any and all
applicable material foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
(“Environmental
Laws”),
(ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license
or
approval.
Section
4.12
Title.
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.
Section
4.17
Absence of Litigation.
Except as set forth in the SEC Documents, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending against or
affecting the Company, the Common Stock or any of the Company’s subsidiaries,
wherein an unfavorable decision, ruling or finding would (i) have a Material
Adverse Effect on the transactions contemplated hereby (ii) adversely affect
the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of the documents
contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and
its
subsidiaries taken as a whole.
Section
4.18
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
4.19
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
4.20
Fees and Rights of First Refusal.
The Company is not obligated to offer the securities offered hereunder on
a right of first refusal basis or otherwise to any third parties including,
but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties.
Section
4.21
Use of Proceeds.
The Company shall use the net proceeds from this offering for general
corporate purposes.
Section
4.22
Further Representation and Warranties of the Company.
For so long as any securities issuable hereunder held by the Investor
remain outstanding, the Company acknowledges, represents, warrants and agrees
that it will maintain the listing of its Common Stock on the Principal
Market.
Section
4.23
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
4.24
Dilution.
The Company is aware and acknowledges that issuance of shares of the
Company’s Common Stock could cause dilution to existing shareholders and could
significantly increase the outstanding number of shares of Common Stock.
Section
4.25.
The Company is aware and acknowledges that it may not be able to request
Advances under this Agreement if it can not 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(a)(i) and 12.4(b)
hereunder or shares issued pursuant to Section 12.4(c)(ii) hereunder shall
be
earned on the date hereof and not refundable or returnable under any
circumstances.
ARTICLE
V.
The
Investor and the Company represent to the other the following with respect
to
itself:
Section
5.1
(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.
(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(s) contained
in
this Agreement, the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby executed
by
the Investor, or (c) any cause of action, suit or claim brought or made against
such Company Indemnitee based on misrepresentations or due to a
breach by the Investor and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnitees. To the extent that the foregoing undertaking by the Investor
may be unenforceable for any reason, the Investor shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.
(c) The
obligations of the parties to indemnify or make contribution under this Section
5.1 shall survive termination.
ARTICLE
VI.
Section
6.1
Registration Rights.
The Company shall cause the Registration Rights Agreement to remain in
full force and effect and the Company shall comply in all material respects
with
the terms thereof.
Section
6.2
Listing of Common Stock.
The Company shall maintain the Common Stock’s authorization for quotation
on the Principal Market.
Section
6.3
Exchange Act Registration.
The Company will cause its Common Stock to continue to be registered under
Section 12(g) of the Exchange Act, will file in a timely manner all reports
and
other documents required of it as a reporting company under the Exchange Act
and
will not take any action or file any document (whether or not permitted by
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said
Exchange Act.
Section
6.4
Transfer Agent Instructions.
Upon 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 pursuant
to
the blanket legal opinion to be delivered in accordance with the terms of
Section 3(k) of the Registration Rights Agreement.
Section
6.5
Corporate Existence.
The Company will take all steps necessary to preserve and continue the
corporate existence of the Company.
Section
6.6
Notice of Certain Events Affecting Registration; Suspension of Right to
Make
an Advance.
The Company will immediately notify the 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.
Section
6.7.
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
6.8.
Issuance of the Company’s Common Stock. The
sale of the shares of Common Stock shall be made in accordance with the
provisions and requirements of Regulation D and any applicable state
securities law.
Section
6.9.
Review of Public Disclosures.
All SEC filings (including, without limitation, all filings required under
the Exchange Act, which include Forms 10-Q and, 10-K and 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
6.10.
Market Activities.The
Company will not, directly or indirectly, (i) take any action designed to cause
or result in, or that constitutes or might reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of the Company
to
facilitate the sale or resale of the Common Stock or (ii) sell, bid for or
purchase the Common Stock, or pay anyone any compensation for soliciting
purchases of the Common Stock.
ARTICLE
VII.
Section
7.1
Conditions Precedent to the Obligations of the Company. The
obligation hereunder of the Company to issue and sell the shares of Common
Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.
(a) Accuracy
of the Investor’s Representations and Warranties.
The representations and warranties of the Investor shall be true and
correct in all material respects.
(b) Performance
by the Investor.
The Investor shall have performed, satisfied and complied in all respects
with all covenants, agreements and conditions required by this Agreement and
the
Registration Rights Agreement to be performed, satisfied or complied with by
the
Investor at or prior to such Closing.
Section
7.2
Conditions Precedent to the Right of the Company to Deliver an Advance
Notice.
The right of the Company to deliver an Advance Notice is subject to the
fulfillment by the Company, on such Advance Notice (a “Condition
Satisfaction Date”),
of
each of the following conditions:
(a) Registration
of the Common Stock with the SEC.
The Company shall have filed with the SEC a Registration Statement with
respect to the resale of the Registrable Securities in accordance with the
terms
of the Registration Rights Agreement. As set forth in the Registration
Rights Agreement, the Registration Statement shall have previously become
effective and shall remain effective on each Condition Satisfaction Date and
(i)
neither the Company nor the Investor shall have received notice that the SEC
has
issued or intends to issue a stop order with respect to the Registration
Statement or that the SEC otherwise has suspended or withdrawn the effectiveness
of the Registration Statement, either temporarily or permanently, or intends
or
has threatened to do so (unless the SEC’s concerns have been addressed and the
Investor is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of the Registration Statement or related
prospectus shall exist. The Registration Statement must have been declared
effective by the SEC prior to the first Advance Notice Date.
(b) Authority.
The Company shall have obtained all permits and qualifications required by
any applicable state in accordance with the Registration Rights Agreement for
the offer and sale of the shares of Common Stock, or shall have the availability
of exemptions therefrom. The sale and issuance of the shares of Common
Stock shall be legally permitted by all laws and regulations to which the
Company is subject.
(c) Fundamental
Changes.
There
shall not exist any fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post-effective
amendment to the Registration Statement.
(d) Performance
by the Company.
The Company shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement and the Registration Rights Agreement to be performed, satisfied
or
complied with by the Company at or prior to each Condition Satisfaction
Date.
(e) No
Injunction.
No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits or
directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions contemplated
by
this Agreement.
(f) No
Suspension of Trading in or Delisting of Common Stock.
The Common Stock is listed or 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. The Company shall not have received any notice threatening the
continued listing of the Common Stock on the Principal Market (unless the
concerns of the Principal Market have been addressed and the Investor is
reasonably satisfied that the Principal Market is no longer is considering
or
intends to take immediate action).
(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) Minimum
Acceptable Price.
COMPANY’S RIGHT TO WITHDRAW. The Company shall reserve the right, but not the
obligation, to withdrawn that portion of the Put that is below the Minimum
Acceptable Price of $0.07, by submitting to the Investor, in writing, a notice
to cancel that portion of the Put. Any shares above the Minimum Acceptable
Price
due to the investor shall be carried out by the Company under the terms of
this
Agreement.
(i) 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.
(j) Executed
Advance Notice.
The Investor shall have received the Advance Notice executed by an officer
of the Company and the representations contained in such Advance Notice shall
be
true and correct as of each Condition Satisfaction Date.
ARTICLE
VIII.
Section
8.1.
(a) The
Company covenants and agrees that neither it nor any other Person acting on
its
behalf will provide the Investor or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto the Company identifies such information as being material
non-public information and provides member of the legal and compliance
department of the Investor with the opportunity to accept or refuse to accept
such material non-public information for review. The Company acknowledges
that only members of the legal and compliance department of the Investor have
the authority to accept the receipt of material non-public information from
the
Company. The Company acknowledges that any information provided to the
Investor without first being accepted by a member of the legal and compliance
department of the Investor will be deemed not to be material non-public
information and the Investor shall be under no duty to maintain the
confidentiality of such information. The Company understands and confirms
that the Investor shall be relying on the foregoing representations in effecting
transactions in securities of the Company. The Company shall be entitled
to rely on the representations of any member of the Investor as to whether
such
person is a member of the legal and compliance department of the Investor.
(b) Nothing
herein shall require the Company to disclose non-public information to the
Investor or its advisors or representatives, and the Company represents that
it
does not disseminate non-public information to any investors who purchase stock
in the Company in a public offering, to money managers or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of
any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically
or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of
the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE
IX.
Section
9.1
Governing Law.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of California without regard to the principles of conflict
of
laws. The parties further agree that any action between them shall be
heard in San Diego County, California, and expressly consent to the jurisdiction
and venue of the Superior Court of California, sitting in San Diego County,
California and the United States District Court of California, sitting in Santa
Ana, California for the adjudication of any civil action asserted pursuant
to
this paragraph.
ARTICLE
X.
Section
10.1
Assignment.
Neither this Agreement nor any rights of the Company hereunder may be
assigned to any other Person.
Section
10.2
(a) The
obligations of the Investor to make Advances under Article II hereof shall
terminate twenty-four (24) months after the Effective Date.
(b) The
obligation of the Investor to make an Advance to the Company pursuant to this
Agreement shall terminate permanently (including with respect to an Advance
Date
that has not yet occurred) in the event that (i) there shall occur any stop
order or suspension of the effectiveness of the Registration Statement for
an
aggregate of 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.
[REMAINDER
OF PAGE LEFT BLANK]
ARTICLE
XI.
Section
11.1
Notices.
Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in writing
and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed
by U.S. certified mail, return receipt requested; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv) one (1)
day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
|
|
If
to the Company, to:
|
|
|
000
Xxx Xxxxxxxx Xxxx
Xxxxxxx,
Jiading District, Shanghai
People's
Republic of China 201800
|
|
Attention:
Gu Xianzhong
President
and Chief Executive Officer
|
|
Telephone:
000-00-00-00000000
|
|
Facsimile:
|
|
|
With
a copy to:
|
Xxxx
Xxxxxx, Esq.
|
|
|
|
|
|
|
|
Telephone:
Facsimile:
|
|
|
|
|
If
to the Investor:
|
MAGELLAN
GLOBAL FUND , L.P.
|
|
0000
Xxxxxxx Xxx., Xxxxx 0
|
|
Xxx
Xxxxx, XX
|
|
Attention:
Xxxxx Xxxxxxx
|
|
Portfolio
Manager
|
|
Telephone:
(000) 000-0000
|
|
Facsimile:
(000) 000-0000
|
|
|
With
a Copy to:
|
Xxxxxxxx
Xxxxxxx
|
|
0000
Xxxxxx Xx.
|
|
Xxxxxxx,
XX 00000
|
|
Telephone:
(000) 000-0000
|
|
Facsimile:
(000) 000-0000
|
Each
party shall provide five (5) days’ prior written notice to the other party of
any change in address or facsimile number.
ARTICLE
XII.
Section
12.1
Counterparts.
This Agreement may be executed in two or more identical counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause four (4)
additional original executed signature pages to be physically delivered to
the
other party within five (5) days of the execution and delivery hereof, though
failure to deliver such copies shall not affect the validity of this
Agreement.
Section
12.2
Entire Agreement; Amendments.
This Agreement supersedes all other prior oral or written agreements
between the Investor, the Company, their affiliates and persons acting on their
behalf with respect to the matters discussed herein, and this Agreement and
the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Investor
makes any representation, warranty, covenant or undertaking with respect to
such
matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the party to be charged with
enforcement.
Section
12.3
Reporting Entity for the Common Stock.
The reporting entity relied upon for the determination of the trading
price or trading volume of the Common Stock on any given Trading Day for the
purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto.
The written mutual consent of the Investor and the Company shall be
required to employ any other reporting entity.
Section
12.4
Fees and Expenses.
The Company hereby agrees to pay the following fees:
(a) Commitment
Fees.
(i) Upon
the
execution of this Agreement the Company shall issue to the Investor a restricted
stock certificate of the Company’s Common Stock in an amount equal to Forty
Thousand Dollars ($40,000) divided by the Closing Bid Price on the Closing
Date.
(ii) In
addition, upon effectiveness of a registration statement pursuant to this
agreement, the Company will issue an additional Forty Thousand Dollars ($40,000)
of Common Stock to the Investor priced at the closing bid price of the day
the
registration statement is declared Effective by the SEC.
(iii) Fully
Earned.
The Investor’s Shares shall be deemed fully earned as of the date hereof.
(iv) Registration
Rights.
The Investor’s Shares shall have “piggy back” registration rights.
Section
12.5
Brokerage.
Each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will demand
payment of any fee or commission from the other party. The Company on the
one hand, and the Investor, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder’s fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section
12.6
Confidentiality.
If for any reason the transactions contemplated by this Agreement are not
consummated, each of the parties hereto shall keep confidential any information
obtained from any other party (except information publicly available or in
such
party’s domain prior to the date hereof, and except as required by court order)
and shall promptly return to the other parties all schedules, documents,
instruments, work papers or other written information without retaining copies
thereof, previously furnished by it as a result of this Agreement or in
connection herein.
IN
WITNESS WHEREOF,
the
parties hereto have caused this Equity Line Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
COMPANY:
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By: | /s/ Gu Xianzhong | |
Name:
Gu Xianzhong
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Title:
President and Chief Executive
Officer
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INVESTOR:
MAGELLAN
GLOBAL FUND , L.P.
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By: | Orinda Advisors, LLC | |
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Its:
Investment Manager
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By: | /s/ Xxxxx Xxxxxxx | |
Name:
Xxxxx Xxxxxxx
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Title:
Managing Partner
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EXHIBIT
A
ADVANCE
NOTICE
The
undersigned, _______________________ hereby certifies, with respect to the
sale
of shares of Common Stock of China Shoe Holdings, Inc.
(the
“Company”)
issuable in connection with this Advance Notice, delivered pursuant to the
Equity Line Agreement (the “Agreement”),
as
follows:
1. The
undersigned is the duly elected ______________ of the Company.
2. There
are
no fundamental changes to the information set forth in the Registration
Statement which would require the Company to file a post effective amendment
to
the Registration Statement.
3.
The
Company has performed in all material respects all covenants and agreements
to
be performed by the Company and has complied in all material respects with
all
obligations and conditions contained in the Agreement on or prior to the Advance
Notice Date, and shall continue to perform in all material respects all
covenants and agreements to be performed by the Company through the applicable
Advance Date. All conditions to the delivery of this Advance Notice are
satisfied as of the date hereof.
4. The
undersigned hereby represents, warrants and covenants that it has made all
filings (“SEC
Filings”)
required to be made by it pursuant to applicable securities laws (including,
without limitation, all filings required under the Securities Exchange Act
of
1934, which include Forms 10-Q, 10-K or 8-K, etc.). All SEC Filings and
other public disclosures made by the Company, including, without limitation,
all
press releases, analysts meetings and calls, etc. (collectively, the
“Public
Disclosures”),
have
been reviewed and approved for release by the Company’s attorneys and, if
containing financial information, the Company’s independent certified public
accountants. None of the Company’s Public Disclosures contain any untrue
statement of a material fact or omit to state any material fact required to
be
stated therein or necessary to make the statements therein, in the light of
the
circumstances under which they were made, not misleading.
5. The
Advance requested is _____________________.
The
undersigned has executed this Certificate this ____ day of
_________________.
China Shoe Holdings, Inc. | ||
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By: | ||
Name: |
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Title: |