EXHIBIT 10.1
EQUITY LINE OF CREDIT AGREEMENT
AGREEMENT dated as of the 14th day of August 2001, (the "Agreement") between DRH
Investment Company, LLC, Dutchess Private Equities Fund, L.P. (collectively, the
"Investors"), whose addresses are listed on Schedule I attached hereto, and
FLEXXTECH CORPORATION, a corporation organized and existing under the laws of
the State of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company may issue and sell to the Investors, from time to
time as provided herein, and the Investors shall purchase shares of the
Company's common stock, par value $0.001 (the "Common Stock"), for a total
purchase price of up to Ten Million ($10,000,000.00) Dollars; and
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") promulgated under the Securities Act, and the
regulations promulgated thereunder, and or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments to be made hereunder; and
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
Section 1.1 "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.2 "Advance Closing" shall mean one of the closings of a purchase
and sale of Common Stock pursuant to Section 2.1.
Section 1.3 "Advance Closing Date" shall mean the date of an Advance Closing
Section 1.4 "Advance Notice Date" shall mean each date on which the Company
delivers to the Investors an Advance Notice requiring the Investors to advance
funds to the Company subject to the terms of this Agreement. An Advance Notice
shall be deemed delivered on (i) the Trading Day if it is received by facsimile
or otherwise by the Investors prior to 12:00 noon Eastern Time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 12:00 noon Eastern Time on a Trading Day or at any time on a day which is
not a Trading Day. No Advance Notice may be deemed delivered on any day that is
not a Trading Day. No Advance Notice Date shall be less than thirteen (13)
Trading Days after the prior Advance Notice Date.
Section 1.5 "Advance Date" shall mean the date the Escrow Agent is in
receipt of the funds from the Investors and is in possession of free trading
shares from the Company and therefore funds can be released to the Company and
free trading shares can be released to the Investors. No Advance Date shall be
less than thirteen (13) Trading Days after an Advance Notice Date or less than
thirteen (13) Trading Days after a previous Advance Date.
Section 1.6 "Advance Notice" shall mean a notice to the Investors from the
Company setting forth the Advance that the Company requests from the Investors
and the proposed Advance Date, for such Advance, substantially in the form of
Exhibit D annexed hereto.
Section 1.7 "Average Daily Volume" shall be computed using the forty (40)
Trading Days prior to the respective Advance Date.
Section 1.8 "Bid Price" shall mean, on any date, the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if
the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.9 "Commitment Amount" shall mean the aggregate amount of up to
$10,000,000.00, which the Investors have agreed to provide to the Company in
order to purchase the Company's Common Stock pursuant to the terms and
conditions of this Agreement.
Section 1.10 "Commitment Period" shall mean the period commencing the
Effective Date and expiring on the earlier to occur of (x) the date on which the
Investors shall have made Advances pursuant to this Agreement in the
aggregate amount of $10,000,000.00, (y) the date this Agreement is terminated
pursuant to Section 2.5, or (z) the date occurring thirty-six (36) months from
the Effective Date.
Section 1.11 "Common Stock" shall mean the Company's common stock, par value
$0.001.
Section 1.12 "Condition Satisfaction Date" shall have the meaning set forth
in Section 7.2.
Section 1.13 "Damages" shall mean any loss, claim, damage, liability, costs
and expenses (including, without limitation, reasonable attorney's fees and
disbursements and costs and expenses of expert witnesses and investigation).
Section 1.14 "Effective Date" shall mean the date on which the SEC first
declares the Registration Statement, thereby effective, registering the resale
of the Registrable Securities as set forth in Section 7.2(a).
Section 1.15 "Escrow Agent" shall mean First Union National Bank.
Section 1.16 "Escrow Agreement" shall mean the Escrow Agreement, dated the
date hereof, among the Company, the Investors and the Escrow Agent named
therein, substantially in the form of Exhibit B annexed hereto.
Section 1.17 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
Section 1.18 "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement in any material
respect.
Section 1.19 "Market Price" shall mean the lowest closing Bid Price of the
Common Stock reported during the Pricing Period.
Section 1.20 "Maximum Advance Amount" shall be equal to two hundred percent
(200%) of the Average Daily Volume of the Common Stock multiplied by the
lowest closing bid price for the Common Stock during the forty (40) Trading Days
prior to the respective Advance Notice Date, but in no event more than
$1,000,000.
Section 1.21 "NASD"shall mean the National Association of Securities
Dealers, Inc.
Section 1.22 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.23 "Placement Agent" shall mean May ▇▇▇▇▇ Group, Inc.
Section 1.24 "Pricing Period" shall mean the ten (10) consecutive Trading
Day period beginning on the first trading day after the Advance Notice Date.
Section 1.25 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market, the Over-The-Counter Bulletin Board, the American Stock
Exchange or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
Section 1.26 "Purchase Price", as to any Pricing Period, shall be set at 91%
of the Market Price for the same Pricing Period.
Section 1.27 "Registrable Securities" shall mean the shares of Common Stock
(i) in respect of which the Registration Statement has not been declared
effective, or if declared effective has thereafter been suspended, by the SEC,
(ii) which have not been sold under circumstances meeting all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") or (iii) which have not been otherwise been resold
to a holder who may trade such shares without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend.
Section 1.28 "Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated the date hereof, between the Investors and the Company
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors,
substantially in the form of Exhibit A annexed hereto.
Section 1.29 "Registration Statement" shall mean a registration statement on
Form SB-1, Form SB-2 or Form S-3 (if use of such form is then available to
the Company pursuant to the rules of the SEC and, if not, on such other form
promulgated by the SEC for which the Company then qualifies and which counsel
for the Company shall deem appropriate, and which form shall be available for
the resale of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement and the Registration Rights
Agreement, and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investors of the
Registrable Securities under the Securities Act.
Section 1.30 "Regulation D" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.31 "SEC" shall mean the U.S. Securities and Exchange Commission.
Section 1.32 "Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.33 "Securities Purchase Agreement" shall mean the Securities
Purchase Agreement, dated the date hereof, between the Company and the
Purchasers named therein.
Section 1.34 "SEC Documents" shall mean Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of the
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.35 "Trading Day" shall mean any day during which the Principal
Market for the Company's Common Stock shall be open for trading.
ARTICLE II.
ADVANCES
Section 2.1 Advances.
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Upon the terms and conditions set forth herein (including without
limitation, the provisions of Article VII), on any Advance Notice Date the
Company may request an Advance by the Investors by the delivery of an Advance
Notice. The number of shares of Common Stock that the Company shall issue to
the Investors in exchange for the respective Advance shall be determined by
dividing the amount of the Advance requested by the Advance Notice by the
Purchase Price for the respective Pricing Period. No fractional shares shall be
issued in response to any Advance Notice, and fractional shares resulting
therefrom shall be rounded to the next higher whole number of shares.
Section 2.2 Advance Notice.
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At any time during the Commitment Period, the Company may deliver an
Advance Notice to the Investors, subject to the conditions set forth in Section
2.7 and Section 7.2; provided, that, the amount for each Advance as designated
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by the Company in the applicable Advance Notice shall not be more than the
Maximum Advance Amount applicable to the respective Advance Notice Date. The
aggregate amount of the Advances pursuant to this Agreement shall not exceed the
Commitment Amount. There will be a minimum of thirteen (13) Trading Days
between any two Advance Notice Dates. Subject to the conditions set forth in
this Agreement, following the Investors' receipt of a validly delivered Advance
Notice, the Investors shall be required to purchase from the Company during the
related Pricing Period that number of shares having an aggregate Purchase Price
equal to the lesser of (i) the dollar amount set forth in the Advance Notice,
and (ii) 150% of the total Average Daily Volume during the Pricing Period
multiplied by the Purchase Price, but only if said shares bear no restrictive
legend, are not subject to stop transfer instructions and are being held in
escrow on the respective Advance Closing Date.
Section 2.2 Mechanics
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(a) Advance Closings. At the Advance Closing held on each Advance Date,
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which shall be thirteen (13) Trading Days after an Advance Notice Date, (i) the
Company shall deliver to the Escrow Agent under the Escrow Agreement shares of
the Company's Common Stock representing the amount of the Advance by the
Investors pursuant to Section 2.1, registered in the name of the Investors which
shall be delivered to the Investors or otherwise in accordance with the
Escrow Agreement, and (ii) the Investors shall deliver to the Escrow Agent the
amount of the Advance specified in the Advance Notice by wire transfer of
immediately available funds which shall be delivered to the Company, or
otherwise, in accordance with the Escrow Agreement. In lieu of delivering
physical certificates representing the Common Stock and provided that the
Transfer Agent then is participating in The Depository Trust Company ("DTC")
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Fast Automated Securities Transfer ("FAST") program, upon request of the
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Investors, the Company shall use its commercially reasonable efforts to cause
the Transfer Agent to electronically transmit the shares of Common Stock by
crediting the account of each of the Investors' prime broker (which shall be
specified by that Investor a reasonably sufficient time in advance) with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system, and provide
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proof satisfactory to the Escrow Agent of such delivery. In addition, on or
prior to the Advance Closing Date, each of the Company and the Investors shall
deliver to the other through the Escrow Agent all documents, instruments and
writings required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. Payment of funds to the Company and delivery of the
Company's Common Stock to the Investors shall occur in accordance with the
conditions set forth above and those contained in the Escrow Agreement;
provided, that to the extent the Company has not paid the fees, expenses, and
disbursements of the Investors' counsel and the Placement Agent in accordance
with Sections 12.4 and 12.5, the amount of such fees, expenses, and
disbursements may be deducted by the Investors (and shall be paid to the
relevant party) from the amount of the Advance with no reduction in the amount
of shares of the Company's Common Stock to be delivered on such Advance Date.
(b) Partial Release of Shares. After Investors' receipt of an
Advance Notice, but prior to the related Advance Closing Date, the Investors may
authorize the Escrow Agent to release, every five (5) Trading Days, a portion of
the dollar amount stated in the Advance Notice from escrow to the Company in
exchange for a fixed number of shares, subject to the following conditions:
(i) The Investors shall fill out and sign a form for the partial release of
the Advance Notice amount and shares (the "Partial Release Form" attached hereto
as Exhibit E). The Partial Release Form shall set forth the number of shares to
be released to Investors and the dollar amount the Escrow Agent shall wire to
the Company.
(ii) The Partial Release Form shall be filled out and signed by the
appropriate Investor and faxed to the Company and its attorney prior to 12:00
p.m. New York City time.
The number of Shares stated in the Partial Release Form shall be equal to
the dollar amount to be released divided by 91% of the lowest closing bid price
during that number of Trading Days in the Pricing Period that have expired.
The Company and Investor agree that on the related Closing Date, an
adjustment shall be made so that the terms set forth in the Private Equity
Subscription Agreement shall be honored with the balance of the Investment
Amount being released to the Company and the balance of Shares owed to Investor
being released to Investor.
Section 2.3 Suspension of Registration Statement. If subsequent to any
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Advance Closing, the Registration Statement is suspended or becomes subject to a
stop order, other than due to the acts of the Investors or the Placement
Agent, for any period exceeding twenty Trading Days (20) days, the Company shall
pay an amount equal to two percent (2%) of the Purchase Price of all Common
Stock held by the Investors purchased pursuant to this Agreement for each twenty
Trading Day (20) day period or portion thereof; provided, that the Company shall
not be required to pay such amount to the Investors in connection with any
period commencing upon the filing of a post-effective amendment to such
Registration Statement and ending upon the date on which such post-effective
amendment is declared effective by the SEC.
Section 2.4 Termination of Investment.
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(a) The obligation of the Investors to make an Advance to the Company
pursuant to this Agreement shall terminate permanently (including with respect
to an Advance Date that has not yet occurred) if (i) there shall occur any stop
order or suspension of the effectiveness of the Registration Statement for an
aggregate of thirty (30) Trading Days, other than due to the acts of the
Investors or the Placement Agent, during the Commitment Period or (ii) the
Company shall at any time fail materially to comply with the requirements of
Section 6.3, 6.4 or 6.7; provided, that this termination provision shall not
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apply to any period commencing upon the filing of a post-effective amendment to
such Registration Statement and ending upon the date on which such post
effective amendment is declared effective by the SEC.
(b) Notwithstanding the provisions of this Agreement, if the Company does
not receive an Advance from the Investors pursuant to an Advance Notice
calculated as determined herein, within the time prescribed herein, this
Agreement can be terminated at the discretion of the Company, or if during any
ninety (90) calendar day period after the Effective Date the Company cannot
supply the Investors with an Advance Notice pursuant to this Agreement.
Section 2.5 Agreement to Advance Funds.
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(a) The Investors will advance the amount specified in the Advance Notice to
the Company after the completion of each of the following conditions and
the other conditions set forth in this Agreement:
(i) the execution and delivery by the Company, and the Investors, of this
Agreement, and the Exhibits hereto;
(ii) the Escrow Agent shall have received the shares of Common Stock
applicable to the Advance;
(iii) the Company's Registration Statement with respect to the resale of the
Registrable Securities in accordance with the terms of the Registration
Rights Agreement shall have been declared effective by the SEC and no stop order
relating thereto shall be in effect;
(iv) the Company shall have obtained all permits and qualifications required
by any applicable state for the offer and sale of the Registrable
Securities, or shall have the availability of exemptions therefrom. The sale
and issuance of the Registrable Securities shall be legally permitted by all
laws and regulations to which the Company is subject;
(v) the Company shall have filed with the SEC within the time periods
required by the SEC's regulations all reports, notices and other documents
required under the Exchange Act and applicable SEC regulations; and
(vi) the conditions set forth in Section 7.2 shall have been satisfied.
(b) Notwithstanding any other provision of this Agreement to the contrary,
(i) unless otherwise permitted by the Principal Market, at no time will the
Company request an Advance that would result in the issuance to the Investors of
an aggregate number of shares of the Common Stock which exceeds 19.9% of
the number of shares of the Common Stock issued and outstanding on the initial
Advance Closing Date without obtaining stockholder approval of such excess
issuance, and (ii) the Company may not deliver an Advance Notice to the extent
that, after such purchase by either Investor, the sum of the number of shares of
the Common Stock beneficially owned by either Investor and its affiliates would
result in beneficial ownership by either Investor and its affiliates of more
than 4.99% of the then outstanding shares of the Common Stock. For purposes of
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act.
Section 2.6 Registration Sales of Shares; Lock-Up Period. (a) During
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the Commitment Period, the Company shall not, without the prior consent of
the Investors, issue or sell (i) any Common Stock, or (ii) issue or sell any
warrant, option, right, contract, call, or other security or instrument granting
the holder thereof the right to acquire Common Stock, other than those warrants,
options, rights, contracts, calls and other securities outstanding on the date
hereof and disclosed on Schedule 4.3. Exceptions to this are (a) private
transactions that would not, in the written opinion of counsel to the Company,
be integrated with the sales made by the Investors and (b) shares issued under
stock option plans authorized by the Company and its stockholders.
(b) On the date of this Agreement the Company shall obtain from each
officer, director and Affiliate, as defined below, a lock-up agreement, as
defined below, in the form annexed hereto as Schedule 2.7(a) agreeing to only
sell in compliance with the volume limitation of Rule 144. As used herein,
"Affiliate" shall have the meaning given it under Rule 405 promulgated under the
Securities Act.
Section 2.7 Shareholder Approval. To the extent that the Company's
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obligations under this Agreement are subject to approval of the shareholders of
the Company pursuant to the Nevada General Corporation Law, such approval will
be duly obtained prior to the first Advance Date.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Investors hereby represent and warrant to, and agree with, the Company that
the following are true and as of the date hereof and as of each Advance Closing
Date:
Section 3.1 Organization and Authorization. Investors are duly incorporated
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or organized and validly existing in the jurisdiction of its incorporation
or organization and has all requisite power and authority to purchase and hold
the securities issuable hereunder. The decision to invest and the execution and
delivery of this Agreement by the Investors, the performance by each Investor of
its obligations hereunder and the consummation by the Investors of the
transactions contemplated hereby have been duly authorized and requires no other
proceedings on the part of the Investors. The Investors have the right, power
and authority to execute and deliver this Agreement and the Registration Rights
Agreement. This Agreement has been duly executed and delivered by the Investors
and, assuming the execution and delivery hereof and acceptance thereof by the
Company, will constitute the legal, valid and binding obligations of the
Investors, enforceable against the Investors in accordance with its terms,
except as such enforceability may be limited by general principles of equity or
by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
Section 3.2 Evaluation of Risks. The Investors have such knowledge and
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experience in financial tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
Section 3.3 No Legal Advice from the Company. The Investors acknowledge
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that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel and investment and
tax advisors. The Investors are relying solely on such counsel and advisors and
not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
Section 3.4 Investment Purpose. The securities are being purchased by the
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Investors for their own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part. No other person has or will have a direct or indirect beneficial interest
in the securities. The Investors agree not to sell, hypothecate or otherwise
transfer the Investors' securities unless the securities are registered under
Federal and applicable state securities laws or unless, in the opinion of
counsel satisfactory to the Company, an exemption from such laws is available.
Section 3.5 Accredited Investor. Investors are "accredited investors" as
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that term is defined in Regulation D.
Section 3.6 Information. The Investors and their advisors (and his or its
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counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information it deemed
material to making an informed investment decision. The Investors and their
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence
investigations conducted by such Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investors' right to rely on
the Company's representations and warranties contained in this Agreement. Each
Investor understands that its investment involves a high degree of risk.
Section 3.7 Receipt of Documents. Each Investor and its counsel has received
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and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-KSB for the year ended December 31, 2000 and Form
10-QSB for the period ended March 31, 2001; and (iv) answers to all questions
the Investors submitted to the Company regarding an investment in the Company.
The Investors have relied on the information contained therein and has not been
furnished any other documents, literature, memorandum or prospectus.
Section 3.8 Registration Rights Agreement. The Investors and the Company
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have duly executed and delivered the Registration Rights Agreement.
Section 3.9 No General Solicitation. Neither the Company, nor any of its
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affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the shares of Common Stock
offered hereby.
Section 3.10 Not an Affiliate. The Investors are not an Affiliate of the
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company.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below or on the disclosure schedules attached hereto, the
Company hereby represents and warrants to, and covenants with, the Investors
that the following are true and correct as of the date hereof and as of each
Advance Closing Date:
Section 4.1 Organization and Qualification. The Company is duly
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incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole.
Section 4.2 Authorization, Enforcement, Compliance with Other Instruments.
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(i) The Company has the requisite corporate power and authority to enter
into and perform this Agreement, the Registration Rights Agreement and any
related agreements, in accordance with the terms hereof and thereof; (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Escrow Agreement and any related agreements by the Company and the consummation
by it of the transactions contemplated hereby and thereby, have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders; (iii) except as disclosed in Section 4.3, this Agreement, the
Registration Rights Agreement, the Escrow Agreement and any related agreements
have been duly executed and delivered by the Company; and (iv) this Agreement,
the Registration Rights Agreement, Escrow Agreement and any related agreements
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
Section 4.3 Capitalization. As of the date hereof, the authorized capital
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stock of the Company consists of 100,000,000 shares of Common Stock, par value
$.001, of which 15,194,862 shares are issued and outstanding. All of such
outstanding shares of the Common Stock have been validly issued and are fully
paid and nonassessable. Except as disclosed on Schedule 4.3, no shares of
Common Stock are subject to preemptive rights or any other similar rights or any
liens or encumbrances suffered or permitted by the Company. Except as disclosed
on Schedule 4.3, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement). There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered in this Agreement or
any related agreement or the consummation of the transactions described herein
or therein. The Company has furnished to the Investors true and correct copies
of the Company's Articles of Incorporation, as amended and as in effect on the
date hereof (the "Articles of Incorporation"), and the Company's Bylaws, as in
effect on the date hereof (the "Bylaws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
Section 4.4 No Conflict. Subject to Sections 2.8 and 7.2, the execution,
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delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby will not (i) result in a
violation of the Articles of Incorporation, any certificate of designations of
any outstanding series of preferred stock of the Company or Bylaws or (ii)
conflict with or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the Principal Market) applicable to the Company or any
of its subsidiaries or by which any property or asset of the Company or any of
its subsidiaries is bound or affected, which would have a Material Adverse
Effect on the Company. Except as set forth in Schedule 4.4, neither the Company
nor its subsidiaries is in violation of any term of or in default under its
Articles of Incorporation or Bylaws or their organizational charter or bylaws,
respectively, or any contract, agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree or order or any statute, rule or regulation
applicable to the Company or its subsidiaries. The business of the Company and
its subsidiaries is not being conducted, and shall not be conducted in violation
of any material law, ordinance, regulation of any governmental entity. Except
as specifically contemplated by this Agreement and as required under the
Securities Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any facts or circumstance which
might give rise to any of the foregoing.
Section 4.5 SEC Documents; Financial Statements. The Company has filed all
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reports, schedules, forms, statements and other documents required to be filed
by it with the SEC under the Exchange Act (all of the foregoing filed prior to
the date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to as the "SEC Documents"). The Company has delivered to
the Investors or its representatives, or made available through the SEC's
website at ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇, true and complete copies of the SEC Documents.
As of their respective dates, all of the financial statements of the Company
disclosed in the SEC Documents (the "Financial Statements") complied as to form
in all material respects with applicable accounting requirements and the rules
and regulations of the SEC applicable thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Investors which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 4.6 Disclosure. None of the SEC Documents contains any untrue
----------
statements of material fact or omits to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 4.7 No Default. Except as disclosed in Schedule 4.7, to the
-----------
Company's actual knowledge, neither the Company nor any of its subsidiaries is
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it is or its property is bound. Except as set forth in Schedule 4.7,
neither the execution, the delivery by the Company, nor the performance by the
Company of its obligations under this Agreement or any of the exhibits or
attachments hereto will conflict with or result in the breach or violation of
any of the terms or provisions of, or constitute a default or result in the
creation or imposition of any lien or charge on any assets or properties of the
Company under its Articles of Incorporation, Bylaws, any material indenture,
mortgage, deed of trust or other material agreement applicable to the Company or
any of its subsidiaries or instrument to which the Company or any of its
subsidiaries is a party or by which it is bound, or any statute, or any decree,
judgment, order, rules or regulation of any court or governmental agency or body
having jurisdiction over the Company or its properties, in each case which
default, lien or charge is likely to cause a Material Adverse Effect on the
Company's business or financial condition of the Company and its subsidiaries,
taken as a whole.
Section 4.8 Absence of Events of Default. Except as set forth in Schedule
-----------------------------
4.7, no event of default, as defined in the respective agreement to which the
Company is a party, and no event which, with the giving of notice or the passage
of time or both, would become an event of default (as so defined), has occurred
and is continuing, which could or would have a Material Adverse Effect.
Section 4.9 Intellectual Property Rights. The Company and its subsidiaries
----------------------------
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
actual knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service ▇▇▇▇ 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 ▇▇▇▇ registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
Section 4.10 Employee Relations. Neither the Company nor any of its
-------------------
subsidiaries is involved in any labor dispute nor, to the actual knowledge of
the Company or any of its subsidiaries, is any such dispute threatened. None of
the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their employees
are good.
Section 4.11 Environmental Laws. The Company and its subsidiaries are (i)
------------------
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
Section 4.12 Title. Except as set forth in Schedule 4.12, each of the
-----
Company and its subsidiaries has good and marketable title to its properties and
material assets owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company. Any real property and facilities held
under lease by the Company or its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
Section 4.13 Insurance. The Company and each of its subsidiaries are
---------
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
Section 4.14 Regulatory Permits. The Company and its subsidiaries possess
-------------------
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
Section 4.15 Internal Accounting Controls. The Company and each of its
------------------------------
subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 4.16 No Material Adverse Breaches, etc. Except as set forth in the
---------------------------------
SEC Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected in the future to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Neither the Company nor any of its
subsidiaries is in breach of any contract or agreement which breach, in the
judgment of the Company's officers, has or is expected to have a material
adverse effect on the business, properties, operations, financial condition,
results of operations or prospects of the Company or its subsidiaries.
Section 4.17 Absence of Litigation. Except as set forth in the SEC
-----------------------
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory
organization or body pending against or affecting the Company, the Common Stock
or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or
finding would (i) have a material adverse effect on the transactions
contemplated hereby (ii) adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, this
Agreement or any of the documents contemplated herein, or (iii) except as
expressly disclosed in the SEC Documents, have a material adverse effect on the
business, operations, properties, financial condition or results of operation of
the Company and its subsidiaries taken as a whole.
Section 4.18 Subsidiaries. Except as disclosed in the SEC Documents, the
------------
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
Section 4.19 Other Outstanding Securities/Financing Restrictions. Other
------------------------------------------------------
than warrants and options to acquire shares of Common Stock as disclosed in
Schedule 4.3, there are no other warrants and options registered with the SEC,
which are available for sale as unrestricted ("free trading") stock.
Section 4.20 Tax Status. Except as disclosed in Schedule 4.20, the Company
----------
and each of its subsidiaries have made or filed all federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject and (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
Section 4.21 Absence of Certain Developments. Except as provided in the SEC
-------------------------------
Documents or on Schedule 4.21, since the date of the financial statement
contained in the most recently filed Form 10-KSB or 10-QSB, whichever is most
current, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the current nature and
volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than current liabilities paid in
the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other property
to stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Investors or their representatives;
(vii) suffered any material losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;
(viii) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(vii) made capital expenditures or commitments therefor that aggregate in
excess of $50,000.00;
(viii) entered into any other material transaction, whether or not in the
ordinary course of business;
(ix) suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;
(x) experienced any material problems with labor or management in connection
with the terms and conditions of their employment; or
(xi) effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or its subsidiaries.
Section 4.22 Certain Transactions. Except as set forth in the SEC Documents
--------------------
or Schedule 4.22, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
Section 4.23 Fees and Rights of First Refusal. Except as set forth in the
---------------------------------
SEC Documents, the Company is not obligated to offer the securities offered
hereunder or under the Securities Purchase Agreement on a right of first refusal
basis or otherwise to any third parties including, but not limited to,
current or former shareholders of the Company, underwriters, brokers, agents or
other third parties.
Section 4.24 Use of Proceeds. The Company represents that the net proceeds
---------------
from this offering will be used as provided on Schedule 4.24. In no event shall
the net proceeds from this offering be used by the Company for the payment (or
loaned to any such person for the payment) of any judgment, or other liability,
incurred by any executive officer, officer, director, or employee of the
Company.
Section 4.25 Further Representation and Warranties of the Company. (a) For
----------------------------------------------------
so long as any securities issuable hereunder held by the Investors remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will use commercially reasonable efforts to maintain the listing of its Common
Stock on NASD Bulletin Board and/or the NASDAQ Small Cap Stock Market and/or the
Over-The-Counter Bulletin Board and/or the American Stock Exchange.
(b) The Company acknowledges and agrees that the Investors are acting solely
in the capacity of arm's length investor with respect to this Agreement and
the transactions contemplated hereunder. The Company further acknowledges that
the Investors are not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by each Investor or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Investors' purchase of the
shares of the Common Stock to be purchased under this Agreement. The Company
further represents to the Investors that the Company's decision to enter into
this Agreement has been based solely on the independent evaluation by the
Company and its own representatives and counsel.
Section 4.26 Opinion of Counsel. The Investors shall receive an opinion
--------------------
letter from counsel to the Company (updated where applicable) on the date of
this Agreement and on each Advance Closing Date substantially in the form of
Exhibit C.
Section 4.27 Dilution. The Company is aware and acknowledges that issuance
--------
of shares of the Company's Common Stock could cause substantial dilution to
existing shareholders and could significantly increase its issued and
outstanding shares of Common Stock, thereby exerting a negative effect on the
trading price of the Common Stock.
ARTICLE V.
INDEMNIFICATION
Section 5.1 Indemnification. (a) In consideration of the Investors'
---------------
execution and delivery of this Agreement, and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Investors, and all of their officers,
directors, employees and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Investor Indemnitees") from and against any and all actions,
causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Investor Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by the Investor
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement or the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in this
Agreement or the Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim brought or made against such Investor Indemnitee not
arising out of any action or inaction of an Investor Indemnitee, and arising out
of or resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Indemnitees. To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.
(a) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Investors' other obligations under this
Agreement, the Investors shall defend, protect, indemnify and hold harmless
the Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Investors in this Agreement or any instrument or document contemplated hereby or
thereby executed by the Investors, (b) any breach of any covenant, agreement or
obligation of the Investors contained in this Agreement, the Registration
Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby executed by the Investors, or (c) any cause of action, suit or
claim brought or made against such Company Indemnitee based on material
misrepresentations or due to a material breach by the Investors and arising out
of or resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnitees. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.
ARTICLE VI.
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the Registration
--------------------
Rights Agreement to remain in full force and effect, and the Company shall
comply in all material respects with the terms thereof.
Section 6.2 Listing of Common Stock. The Company shall maintain the Common
-----------------------
Stock's authorization for quotation on the Over-The-Counter Bulletin Board.
Section 6.3 Exchange Act Registration. The Company will cause its Common
---------------------------
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
file in a timely manner all reports and other documents required of it as a
reporting company under the Exchange Act and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules thereunder,
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Exchange Act.
Section 6.4 Transfer Agent Instructions. Upon each Advance Closing and
----------------------------
the effectiveness of the Registration Statement the Company will deliver
instructions to its transfer agent to issue to the Investors and deliver to the
Escrow Agent shares of Common Stock free of legends.
Section 6.5 Corporate Existence. The Company will take all steps necessary
-------------------
to preserve and continue the corporate existence of the Company.
Section 6.6 Notice of Certain Events Affecting Registration; Suspension of
---------------------------------------------------------------
Right to Make an Advance. The Company will immediately notify the Investors
---------------------------
upon its becoming aware of the occurrence of any of the following events in
respect of a registration statement or related prospectus relating to an
offering of Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other Federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other Federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investors any such supplement or amendment
to the related prospectus. The Company shall not deliver to the Investors any
Advance Notice during the continuation of any of the foregoing events.
Section 6.7 Expectations Regarding Advance Notices. Within ten (10) days
----------------------------------------
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investors, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Advance
Notices. Such notification shall constitute only the Company's good faith
estimate and shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Advance Notices. The failure
by the Company to comply with this provision can be cured by the Company's
notifying the Investors, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
Section 6.8 Consolidation; Merger. The Company shall not, at any time after
---------------------
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially all the assets of the Company to another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes all of the obligations of the Company under
this Agreement by written instrument satisfactory in form and substance to the
Investors, including the obligation to deliver to the Investors such shares of
stock and/or securities as the Investors are entitled to receive pursuant to
this Agreement.
Section 6.9 Issuance of the Company's Common Stock. The sale of the shares
---------------------------------------
of Common Stock shall be made in accordance with the provisions and requirements
of Regulation D and any applicable state securities law.
Section 6.10 Qualification as a Foreign Corporation. Prior to the initial
---------------------------------------
Advance Closing, the Company shall have qualified to do business as a foreign
corporation in California and Texas.
Section 6.11 Certain Indebtedness. Prior to the initial Advance Closing,
----------------------
the Company shall have used its best efforts to convert the existing demand note
payable to Comerica Bank into a note with a scheduled maturity of not
sooner than July 31, 2002.
ARTICLE VII.
CONDITIONS FOR ADVANCE AND CONDITIONS TO ADVANCE CLOSING
Section 7.1 Conditions Precedent to the Obligations of the Company.The
------------------------------------------------------------
obligation hereunder of the Company to issue and sell the shares of Common
Stock to the Investors incident to each Advance Closing is subject to the
satisfaction, or waiver by the Company, at or before each such Advance Closing,
of each of the conditions set forth below.
(a) Accuracy of the Investors' Representation and Warranties. The
--------------------------------------------------------------
representations and warranties of the Investors shall be true and correct in all
-
material respects as of the date of this Agreement and as of the date of
each such Advance Closing as though made at each such time.
(b) Performance by the Investors. The Investors shall have performed,
-------------------------------
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Investors at or prior to such Advance Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver an
---------------------------------------------------------------
Advance Notice and the Obligation of the Investors to Purchase Shares of Common
-------------------------------------------------------------------------------
Stock. The right of the Company to deliver an Advance Notice and the obligation
-----
of the Investors hereunder to acquire and pay for shares of the Company's
Common Stock incident to an Advance Closing is subject on (i) the date of
delivery of such Advance Notice and (ii) the applicable Advance Closing Date
(each a "Condition Satisfaction Date"), to each of the following conditions:
(a) Registration of the Common Stock with the SEC. The Company shall have
-----------------------------------------------
filed the Registration Statement with the SEC and, subject to the requirements
of the Registration Rights Agreement, the Registration Statement shall have
previously become effective and shall remain effective on each Condition
Satisfaction Date and (i) neither the Company nor the Investors shall have
received notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investors are reasonably satisfied
that the SEC no longer is considering or intends to take such action), and (ii)
no other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist. The Registration
Statement shall have been declared effective by the SEC prior to the first
Advance Notice Date.
(b) Authority. The Company shall have obtained all permits and
---------
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions there from. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(c) Accuracy of the Company's Representations and Warranties. The
--------------------------------------------------------------
representations and warranties of the Company shall be true and correct as of
each Condition Satisfaction Date as though made at each such time (except for
representations and warranties specifically made as of a particular date) with
respect to all periods, and as to all events and circumstances occurring or
existing to and including each Condition Satisfaction Date.
(d) Performance by the Company. The Company shall have performed, satisfied
--------------------------
and complied with all covenants, agreements and conditions required by this
Agreement and the Registration Rights Agreement to be performed, satisfied or
complied with by the Company at or prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order, decree,
--------------
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
or directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
(f) Adverse Changes. Since the date of filing of the Company's most recent
----------------
SEC Document, there has occurred no event that had or is reasonably likely to
have a Material Adverse Effect.
(g) No Suspension of Trading in or Delisting of Common Stock. The trading
----------------------------------------------------------
of the Common Stock is not suspended by the SEC or the Principal Market (if the
Common Stock is traded on a Principal Market). The issuance of shares of Common
Stock with respect to the applicable Advance Closing, if any, shall not violate
the shareholder approval requirements of the Principal Market (if the Common
Stock is traded on a Principal market). The Company shall not have received any
notice threatening the continued listing of the Common Stock on the Principal
Market (if the Common Stock is traded on a Principal Market).
(h) Maximum Advance Amount. The amount of the advance requested by the
------------------------
Company does not exceed the Maximum Advance Amount.
(i) No Knowledge. The Company has no knowledge of any event more likely
-------------
than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective.
(j) Other. On each Condition Satisfaction Date, the Investors shall have
-----
received a certificate executed by an executive officer of the Company contained
in the Advance Notice/Compliance Certificate in the form attached hereto as
Exhibit D.
ARTICLE VIII.
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. Prior to the filing of the Registration
---------------------
Statement the Company shall make available for inspection and review by the
Investors, their advisors and representatives, any underwriter participating in
any disposition of the Registrable Securities on behalf of the Investors
pursuant to the Registration Statement, any such registration statement or
amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investors or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation,
in response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investors and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
-------------------------------------------
(a) The Company shall not disclose non-public information to the Investors,
advisors to or representatives of the Investors unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investors, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public
information hereunder, require the Investors' advisors and representatives to
enter into a confidentiality agreement in form reasonably satisfactory to the
Company and the Investors.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investors or their advisors or representatives, and the
Company represents that it does not disseminate non-public information to any
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investors and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in
the Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investors
(without the written consent of the Investors prior to disclosure of such
information) may not obtain non-public information in the course of conducting
due diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of material fact or omits a
material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX.
CHOICE OF LAW/JURISDICTION
Section 9.1 Governing Law. This Agreement shall be governed by and
--------------
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in New York City, New York, and expressly
consent to the jurisdiction and venue of the Supreme Court of New York and the
United States District Court for the Southern District of New York for the
adjudication of any civil action asserted pursuant to this paragraph.
ARTICLE X.
ASSIGNMENT
Section 10.1 No Assignment. This Agreement shall not be assignable.
--------------
ARTICLE XI.
NOTICES
Section 11.1 Notices. Any notices, consents, waivers, or other
-------
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day
after deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company, to:
FLEXXTECH CORPORATION,
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investors, to its address and facsimile number on Schedule I, with
copies to the Investors' counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
ARTICLE XII.
MISCELLANEOUS
Section 12.1 Counterparts. This Agreement may be executed in two or more
------------
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
Section 12.2 Entire Agreement; Amendments. This Agreement supersedes all
------------------------------
other prior oral or written agreements between the Investors, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the party to be charged with enforcement.
Section 12.3 Reporting Entity for the Common Stock. The reporting entity
---------------------------------------
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto.
Section 12.4 Fees and Expenses.
-------------------
(a) The Company and May ▇▇▇▇▇ Group, Inc. have entered into that certain
Placement Agent Agreement (the "Placement Agent Agreement"), dated the date
hereof, pursuant to which the Company as agreed to pay certain fees all as set
forth therein.
(b) The Company acknowledges that Dutchess Advisors, Ltd. ("DAL") has
acted and is acting in an advisory capacity to Dutchess Private Equities Fund,
L.P. in connection with this Agreement and the transactions contemplated hereby
and accordingly the Company has agreed to pay the advisory fees of DAL as set
forth in this Section. Upon execution of this Agreement, the Company shall
issue to DAL that number of shares of Common Stock as shall be equal to
$96,000.00 divided by the closing bid price of the Company's Common Stock on the
date this Agreement is executed by the Investors and the Company. DAL shall
also receive 2.8% of the gross proceeds of each dollar amount to be paid to the
Company on a respective Advance Closing Date, which amount shall be paid
directly out of escrow. Upon execution of this Agreement, the Company shall
issue to Duthcess Private Equities Fund, L.P., as a commitment fee, that number
of shares of Common Stock as shall be equal to $24,000.00 divided by the closing
bid price of the Company's Common Stock on the date this Agreement is executed
by the Investors and the Company.
Section 12.5 Legal Fees. Each of the parties shall pay its own fees and
----------
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company will pay the sum of
Fifteen Thousand and No/100 Dollars ($15,000), to McGuireWoods LLP for legal
fees and will further pay the disbursements of such law firm incurred in the
preparation and negotiation of this Agreement. The Company hereby directs such
amount to be paid directly from the proceeds of the Initial Advance.
Section 12.6 Brokerage. Each of the parties hereto represents that it has
---------
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party, other
than as set forth in the Placement Agency Agreement. The Company on the one
hand, and the Investors, on the other hand, agree to indemnify the other against
and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 12.7 Confidentiality. If for any reason the transactions
---------------
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
IN WITNESS WHEREOF, the parties hereto have caused this Equity Line of Credit
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
COMPANY:
FLEXXTECH CORPORATION
By: ________________________________
Name:
Title:
INVESTOR:
DRH INVESTMENT COMPANY, LLC
By: ________________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Managing Member
INVESTOR:
By: ________________________________
Name:
Title:
SCHEDULE I
SCHEDULE OF INVESTORS
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS INVESTOR'S COUNSEL ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER AND FACSIMILE NUMBER
------------- -------------------- -------------------- ------------------------
DRH Investment ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, May ▇▇▇▇▇ Group, Inc. ▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP
Company LLC ▇▇▇▇▇▇▇▇,▇▇ ▇▇▇▇▇ c/o National Securities, ▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇ 28th Floor Suite 1620
120 Broadway New York, NY 10019
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
May ▇▇▇▇▇ Group, Inc. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Dutchess Private ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇. c/o National Securities, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Equities Fund, LP ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (203) 966-0363
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
-----------------------------
EXHIBIT B
ESCROW AGREEMENT
----------------
EXHIBIT C
LEGAL OPINION OF ▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
--------------------------------------------
EXHIBIT D
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
-------------------------------------
FLEXXTECH CORPORATION
The undersigned, ________________________________ hereby certifies, with
respect to the sale of shares of the Common Stock of Flexxtech Corporation, (
the "Company") issuable in connection with this Advance Notice and Compliance
Certificate dated ___________________ (the "Notice"), delivered pursuant to the
Equity Line Of Credit Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected Chief Executive Officer of the
Company.
2. The representations and warranties of the Company set forth in the
Agreement dated as of ___________________ are true and correct in all material
respects as though made on and as of the date hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of
_________________.
FLEXXTECH CORPORATION
By: ________________________________
Name:
Title:
EXHIBIT E
PARTIAL RELEASE FORM
To: FLEXXTECH CORPORATION,
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
First Union National Bank
Corporate Trust Department
▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Pursuant to the terms of the Equity Line of Credit Agreement the Investor
requests the release from the Company of __________ shares of the Company's
Common Stock by overnight delivery or DWAC, if available, and the Investor, upon
confirmation of receipt of the shares by the Escrow Agent shall wire
$____________ to the Company within two (2) Trading Days of said confirmation at
which time Escrow Agent shall wire the funds to the Company and deliver the
shares to the Investor pursuant to the joint instructions given to the Escrow
Agent by May ▇▇▇▇▇ Group, Inc. and the Company.
INVESTOR
By:
Note: The number of Shares stated in this PARTIAL RELEASE FORM shall be equal to
----
the dollar amount to be released divided by 91% of the lowest closing bid price
during that number of Trading Days in the Pricing Period that have expired.
SCHEDULE 2.7(A)
FLEXXTECH CORPORATION
The undersigned hereby agrees that for a period commencing on the date
hereof and expiring on the termination of the Agreement dated August 14, 2001
between Flexxtech Corporation (the "Company") and DRH Investment Company, LLC
and Dutchess Private Equities Fund, L.P. (the "Investors") (the "Lock-Up
Period"), he, she or it will not, directly or indirectly, without the prior
written consent of the Investors, issue, offer, agree or offer to sell, sell,
grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute or otherwise encumber or dispose of except pursuant to
Rule 144 of the General Rules and Regulations under the Securities Act of 1933,
any securities of the Company, including common stock or options, rights,
warrants or other securities underlying, convertible into, exchangeable or
exercisable for or evidencing any right to purchase or subscribe for any common
stock (whether or not beneficially owned by the undersigned), or any beneficial
interest therein (collectively, the "Securities").
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Company's securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned's investment in
the Company.
Dated: _______________, 2001
Signature:
Address:
City, State, Zip Code:
Print Social Security Number
or Taxpayer I.D. Number
--------------------------
SCHEDULE 4.1
FLEXXTECH CORPORATION SUBSIDIARIES
----------------------------------
a.
Name Percent Owned
---- --------------
1. Flexxtech Holdings, Inc. 100%
-- -------------------------- ----
2. Primavera Corporation (owned by Flexxtech Holdings, Inc.) 100%
-- --------------------------------------------------------------- ----
3. North Texas Circuit Board Co., Inc. 100%
-- ---------------------------------------- ----
b. The Company is not qualified as a foreign corporation to do business in
California. North Texas Circuit Board Co., Inc. is currently not in good
standing for failure to pay $84.98 in franchise taxes.
SCHEDULE 4.3
CAPITALIZATION
--------------
FLEXXTECH CORPORATION CAPITALIZATION SCHEDULE
Authorized - Common 100,000,000
------------------- -----------
Free Trading 4,818,482
Restricted 10,376,380
Issued and outstanding 15,194,862
Outstanding options 100,000
Preferred stock convertible into common 0
Total 15,294,862
----------
Available 84,705,138
==========
Outstanding Stock Convertible
Held by Directors Common Stock Preferred Stock Options
--------------- -------
▇▇▇▇ ▇▇▇▇▇▇▇ 783,333 ---- ----
----------------- ------- ---- ----
▇▇▇▇▇▇▇.▇▇▇, Inc.* 650,000 ---- ----
------------------ ------- ---- ----
VLK Capital Corp.* 4,025,000 ---- ----
------------------ --------- ---- ----
*▇▇▇▇ ▇▇▇▇▇▇▇ is the principal owner of ▇▇▇▇▇▇▇.▇▇▇, Inc. and VLK Capital Corp.
SCHEDULE 4.4
NO CONFLICT
-----------
There is no material violation or default of any term of the Company's
organizational documents, any material contract to which it is a party, or any
judgment, decree or order, any statute, rule or regulation to which the Company
is subject.
SCHEDULE 4.6
DISCLOSURE
----------
The Balance Sheets contained in the 10-KSB and 10-QSB for the periods
ending December 31, 2000 and March 31, 2001 respectively, state that the
Company's authorized common stock is 25,000,000 shares, however on December 29,
2000 the Company amended its Articles of Incorporation to reflect the amount of
authorized common stock as 100,000,000. Additionally, the 10-KSB appears to
erroneously refer to ▇▇▇▇▇▇ ▇▇▇▇▇▇ as a Director.
SCHEDULE 4.7
NO DEFAULT
----------
The Company is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any agreement
to which it is a party or by which it is or its property is bound.
SCHEDULE 4.8
ABSENCE OF EVENTS OF DEFAULT
----------------------------
The Company and each of its subsidiaries, with the exception of North Texas
Circuit Board Co., Inc., have not filed Federal or state (where required) tax
returns since the formation of the Company.
SCHEDULE 4.12
TITLE
-----
a) The Company's assets and accounts receivable are subject to a security
interest of Comerica Bank pursuant to that certain Variable Rate Demand Note
dated June 23, 2000 in the principal amount of $823,130.09 and that certain
Master Note dated December 18, 1998 in the principal amount of $1,750,000.00.
b) Primavera Corporation - UCC Debtor
Texas - Secretary of State
File No. - 0000527079
File Date - 6/22/00
Secured Party: Legacy Bank of Texas
Collateral: All of Debtor's accounts receivable, whether owned now or
acquired later, together with all accessions, additions, replacements and
substitutions, all records of any kind relating thereto, and all proceeds
thereof (including cash or other payment or consideration and insurance
proceeds).
c) North Texas Circuit Board Co., Inc. - UCC Debtor
Texas - Dallas County Clerk
File No. - 200000400723
File Date - 9/12/00
Secured Party: TACONIC
Security: Equipment
d) Please see Attachment 1 to Schedule 4.12 for a list of liens filed with
the Texas Secretary of State with North Texas Circuit Board Co., Inc. as Debtor.
SCHEDULE 4.17
ABSENCE OF LITIGATION
---------------------
Default Judgment entered by Triad Ad Valorem Group against North Texas
Circuit Board Co., Inc. on July 18, 2001, in the County Court at Law No. 3,
Dallas County, Texas, in the amount of $5,665.01 in actual damages, $736.45 in
pre-judgment interest, attorneys' fees, post-judgment interest and costs of
court.
▇▇▇▇▇▇▇▇▇▇▇ Circuits is claiming that it has obtained a judgment against
North Texas Circuit Board Co., Inc. by and through its attorneys. As of yet,
the opposing counsel has failed to provide North Texas Circuit Board Co., Inc.
with a copy of the petition, evidence of service of process or evidence of any
judgment.
Neltec of Arizona threatened to bring suit against North Texas Circuit
Board Co., Inc. for alleged nonpayment of contractual debt. The matter has
settled and, as of the Closing Date, North Texas Circuit Board Co., Inc. only
has one (1) payment of $4,683.28 remaining to be paid to Neltec of Arizona.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ a/k/a ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ Dorizetti and Luminary Ventures
brought suit against Flexxtech Corporation on April 26, 2001 for alleged breach
of contract. Such matter is currently in settlement negotiations.
Multilayer Technology International, Inc. v. North Texas Circuit Board Co.,
Inc.; Cause No. CC-01-02724-B; ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇. ▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇.
Affiliated Distributors, Inc. v. North Texas Circuit Board Co., Inc.; Cause
No. CC-01-02259-E; County Court at Law No. 5, Dallas County, Texas. Settlement
terms call for payment, in the aggregate, of $11,700.00 with interest.
SCHEDULE 4.20
TAX STATUS
----------
The Company and each of its subsidiaries, with the exception of North Texas
Circuit Board Co., Inc., have not filed Federal or state (where required) tax
returns since the formation of the Company.
SCHEDULE 4.21
CERTAIN DEVELOPMENTS
--------------------
a) New Stock Issuances: Please see attached active shareholder list,
attached hereto as Exhibit 1 to Schedule 4.21. Also, an additional 2,000,000
shares of Common Stock were issued to VLK Capital Corp. on August 13, 2001. The
Company continues to raise equity capital at $1.00 per share on an open Reg D.
506.
b) On July 1, 2001, Flexxtech Holdings sold one hundred percent (100%) of
the stock of ▇▇▇▇▇▇▇, Inc. and ▇▇▇▇▇.▇▇▇, Inc. to ▇▇▇▇▇▇▇.▇▇▇, Inc. in exchange
for, in the aggregate, 250,000 shares of Common Stock of the Company.
c) New Obligations: Commitments to purchase a Giga 8800 Automatic Drilling
Machine at a cost of $325,000.00 to be delivered in the second quarter of 2002
(Purchase Order generated 7/31/01) and a Flying Probe System with the ▇▇▇▇▇ ▇▇▇
Fully Automatic Drilling Machine for $160,000.00 (no purchase order has been
generated).
SCHEDULE 4.24
USE OF PROCEEDS
---------------
The Company will use the proceeds from the line of credit for internal
working capital purposes.