EXHIBIT 10.17
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BETWEEN
ACIBAR INTERNATIONAL INVESTMENTS, LTD.
AND
BLUE SKY COMMUNICATIONS, INC.
PRIVATE EQUITY LINE OF CREDIT AGREEMENT (the "Agreement") dated as
of August __, 2001 (the "Execution Date"), between Acibar International
Investments, Ltd. ("Investor") and Blue Sky Communications, Inc., a
corporation organized and existing under the laws of the State of Georgia
(the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor
from time to time as provided herein, and Investor shall purchase, up to a
maximum investment of $15,000,000 in shares of Common Stock (as defined
below), pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
Section 1.1 "Bid Price" shall mean the closing bid price (as
reported by Bloomberg Financial L.P.) of the Common Stock on the Principal
Market on the date in question.
Section 1.2 "Capital Shares" shall mean the Common Stock and any
shares of any other class of voting stock whether now or hereafter authorized.
Section 1.3 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give
any right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any
such convertible or exchangeable securities.
Section 1.4 "Closing" shall mean one of the closings of a purchase
and sale of the Common Stock pursuant to Article 3.
Section 1.5 "Closing Date" shall mean, with respect to a Closing,
the first Trading Day following the later of (i) the end of each Pricing
Period related to such Closing, or (ii) the date upon which any
post-effective amendment to the Registration Statement is declared
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effective as set forth in Section 3.1(d) hereof, provided in either case that
all conditions to such Closing have been satisfied on or before such Trading
Day.
Section 1.6 "Commitment Amount" shall mean up to a maximum
investment of $15,000,000 in shares of Common Stock by the Investor, which
the Investor has agreed to purchase from the Company pursuant to the terms
and conditions of this Agreement.
Section 1.7 "Common Stock" shall mean the shares of the Company's
common stock, par value $0.001 per share.
Section 1.8 "Condition Satisfaction Date" shall have the meaning set
forth in Section 8.2.
Section 1.9 "Effective Date" shall mean the date on or after the
Registration Date on which there is a least one market maker making a market
in the Company's Common Stock.
Section 1.10 "Escrow Agent" shall mean Proskauer Rose, LLP., c/o
Citibank, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (ABA#▇▇▇▇▇▇▇▇▇, Account #
▇▇▇▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇), or such other similar entity as shall
be designated by the Investor in its reasonable discretion.
Section 1.11 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated hereunder.
Section 1.12 "Investment Amount" shall mean the number of Put Shares
to be purchased by the Investor with respect to any Put Date as notified by
the Company to the Investor, all in accordance with Section 3.1 hereof.
Section 1.13 "Investment Period" shall mean the period commencing on
the Effective Date and expiring on the earliest to occur of (x) the date on
which the Investor shall have purchased the full Commitment Amount pursuant
to this Agreement, (y) the date this Agreement is terminated pursuant to
Section 10.1, or (z) the date occurring forty-eight (48) months from the
Effective Date.
Section 1.14 [Omitted]
Section 1.15 "Market Price" shall mean the VWAP price, as defined
below, of the Common Stock over the Pricing Period.
Section 1.16 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliated entities, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement
in any material respect.
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Section 1.17 "Minimum Put Amount" shall mean $100,000.00 of Common
Stock.
Section 1.18 "Maximum Put Amount" shall mean the lesser of: (a)
$5,000,000 of Common Stock; or (b) the product of (25% x (total dollar
trading volume for the 20 Trading Days prior to the relevant Put Date),
except during the Modified Put Period, but in any event not to exceed an
amount for the purchase of that number of shares of Common Stock which, when
combined with the Put Shares previously purchased by the Investor and its
affiliates and the shares of Common Stock otherwise owned by them, equals
twenty percent (20%) of the Common Stock Outstanding after the Closing of the
Put.
Section 1.19 "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section 1.20 "Outstanding" when used with reference to shares of
Common Stock or Capital Shares (collectively the "Shares"), shall mean, at
any date as of which the number of such Shares is to be determined, all
issued and outstanding Shares, and shall include all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that "Outstanding" shall not
mean any such Shares then directly or indirectly owned or held by or for the
account of the Company.
Section 1.21 "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.22 "Principal Market" shall mean The Over The Counter
(OTC) Bulletin Board, The NASDAQ National Market, The NASDAQ Small Cap Stock
Market, 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 1.23 [Omitted]
Section 1.24 [Omitted]
Section 1.25 [Omitted]
Section 1.26 "Pricing Period" shall mean the fifteen (15) day
Trading Day period commencing on each Put Date.
Section 1.27 "Purchase Price" shall mean, with respect to Put
Shares, ninety percent (90%) of the Market Price, as may be further modified
pursuant to this Agreement pursuant to Section 10.3 of this Agreement;
provided that commencing as of the 61st day following the Effective Date and
continuing for a period of 91 days thereafter (the "Modified Put Period "),
the Purchase Price shall be $4.25 per share (the "Modified Purchase Price").
Section 1.28 "Put" shall mean each occasion the Company elects to
exercise its right to draw down a portion of the Commitment Amount by
tendering a Put Notice requiring the
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Investor to purchase shares of the Company's Common Stock, subject to the
terms of this Agreement.
Section 1.29 "Put Date" shall mean the Trading Day during the
Investment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 3.1(b) hereof.
Section 1.30 "Put Notice" shall mean a written notice to the
Investor setting forth the Investment Amount that the Company intends to sell
to the Investor in the form attached hereto as Exhibit A.
Section 1.31 "Put Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to a Put that has occurred or
may occur in accordance with the terms and conditions of this Agreement.
Section 1.32 "Registered Securities" shall mean the Put Shares until
the soonest of the following: (i) all Put Shares have been disposed of
pursuant to the Registration Statement, (ii) all Put Shares have been sold
under circumstances under which all of the applicable conditions of Rule 144
(or any similar provision then in force) under the Securities Act ("Rule
144") are met, (iii) all Put Shares have been otherwise transferred to
persons 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 or (iv) such
time as, in the opinion of counsel to the Company, all Put Shares may be sold
without any time, volume or manner limitations pursuant to Rule 144(k) (or
any similar provision then in effect) under the Securities Act.
Section 1.33 "Registration Date" shall mean the date on which the
SEC first declares effective a Registration Statement registering the sale by
the Company and resale by the Investor of the Registered Securities as set
forth in Section 8.2(f), provided that such Registration Date shall occur on
or before January 31, 2002.
Section 1.34 "Registration Statement" shall mean a registration
statement on 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, such as Form S-1, for which the Company then qualifies and which
counsel for the Company shall deem appropriate, and which form shall be
available for the resale by the Investor of the Registered Securities to be
registered thereunder in accordance with the provisions of this Agreement and
in accordance with the intended method of distribution of such securities),
for the registration of the resale by the Investor of the Registered
Securities under the Securities Act.
Section 1.35 "SEC" shall mean the Securities and Exchange Commission.
Section 1.36 "Securities Act" shall mean the Securities Act of 1933,
as amended and the rules and regulations promulgated thereunder.
Section 1.37 "SEC Documents" shall mean, as of a particular date,
all reports and other documents filed by the Company pursuant to the
Securities Act or the Exchange Act .
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Section 1.38 "Trading Cushion" shall mean the mandatory fifteen (15)
Trading Days between the Closing Date of the preceding Put and the next Put
Date.
Section 1.39 "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section 1.40 "Triggering Event" shall mean the occurrence of any of
the following events after the occurrence of the Effective Date:
(a) While the Registration Statement is required to be
maintained effective pursuant to the terms of this Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Investor for sale of the Registered Securities in accordance with the terms
of this Agreement, subject to the provisions of Section 3.1(d) hereof;
(b) Delisting or suspension from listing of the Common
Stock from the Principal Market on which the Common Stock is then listed, for
a period of five consecutive days or for an aggregate of at least ten (10)
days in any 365-day period;
(c) The Company's notice to the Investor, including by way
of public announcement, at any time of the Company's failure to deliver the
Put Shares as required by this Agreement; or
(d) Any representation or warranty by the Company was not
true and correct at the time made or the Company breaches any covenant or
other term or condition of this Agreement, or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby.
Section 1.41 "Valuation Event" shall mean an event in which the
Company at any time prior to the end of the Investment Period takes any of
the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend on its Capital Shares or makes any
other distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional
Capital Shares"), otherwise than as provided in the foregoing Subsections (a)
and (b) above or (d) and (e) below, at a price per share less, or for other
consideration lower, than the Bid Price in effect immediately prior to such
issuance, or without consideration (other than pursuant to this Agreement);
(d) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and the price per
share for which Additional Capital Shares may at any time thereafter be
issuable pursuant to such warrants, options or other rights shall be less
than the Bid Price in effect immediately prior to such issuance;
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(e) issues any securities (inclusive of debt instruments)
convertible into or exchangeable for Capital Shares and the consideration per
share for which Additional Capital Shares may at any time thereafter be
issuable pursuant to the terms of such convertible or exchangeable securities
shall be less than the Bid Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in
liquidation or by way of return of capital or other than as a dividend
payable out of earnings or surplus legally available for dividends under
applicable law or any distribution to such holders made in respect of the
sale of all or substantially all of the Company's assets (other than under
the circumstances provided for in the foregoing subsections (a) through (e);
or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing
Subsections (a) through (f) hereof, inclusive, which in the opinion of the
Company's Board of Directors, determined in good faith, would have a Material
Adverse Effect upon the rights of the Investor at the time of a Put;
provided, however, that any item listed on Schedule 1.41 hereto shall not be
deemed to be a Valuation Event.
Section 1.42 "VWAP" shall mean the daily volume weighted average
price of the Common Stock on the Principal Market as reported by Bloomberg
Financial, L.P. using the VWAP function.
ARTICLE 2
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Investments.
PUTS. Upon the terms and conditions set forth in this
Agreement or any other related documents, on any Put Date the Company may
make a Put by the delivery of a Put Notice, the Investment Amount shall be
specified in the Put Notice. The Investment Amount shall not exceed the
Maximum Put Amount.
Section 2.2 Right of First Refusal.
For a period of three years following the Registration
Date, the Company agrees that it will only offer, sell, contract, issue or
deliver any securities, including without limitation, any Common Stock,
Capital Shares Equivalents, or Capital Shares, in a private placement or
other transaction, other than in connection with an employee stock purchase
or similar plan or an acquisition of another party, if, at the time, it shall
also first offer to the Investor the right to purchase the Investor's pro
rata share of such securities pursuant to the following:
(i) The Company shall provide written notice of its intent
to enter into such a transaction together with a term sheet containing the
economic terms
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and significant provisions thereof (the "Offer") and any other information
the Investor reasonably requests.
(ii) The Investor will have ten (10) calendar days from
receipt of the Offer to deliver a written notice to the Company that the
Investor wishes to accept the Offer in whole or in part, subject to
satisfactory due diligence and reasonably acceptable definitive
documentation, for the transaction.
(iii) If the Investor rejects the offer or fails to respond
within such ten (10) calendar day period, then the Company may complete such
transaction without including the Investor on terms and conditions
substantially the same as those contained in the Offer.
(iv) Notwithstanding anything in this Section 2.2 to the
contrary, the Company shall not be required to seek shareholder approval for
the issuance of any securities pursuant to this Section 2.2 unless such
approval would have been necessary prior to offer of such purchase rights to
the Investor. If the issuance of the full amount of the Investor's pro rata
share would require the Company to seek shareholder approval, the Company
shall only offer to the Investor the right to purchase up to the maximum
number of securities that the Company could issue without the need to seek
shareholder approval.
(v) For the purposes of this Section 2.2, "pro rata share"
shall mean the ratio that the number of shares of Common Stock then held by
the Investor bears to the total number of shares of Common Stock then
Outstanding.
(vi) Nothing in this Section 2.2 shall relieve the Investor
of its obligations with respect to the Put Shares in accordance with the
terms of this Agreement.
ARTICLE 3
MAXIMUM AGGREGATE AMOUNT OF PUTS.
Section 3.1 Mechanics.
(a) INVESTMENT AMOUNT, INCREASES AND MODIFICATIONS. At any
time during the Investment Period, the Company may deliver a Put Notice to
the Investor, subject to the terms set forth in Section 8.1; provided,
however, that the Investment Amount for each Put as designated by the Company
in the applicable Put Notice shall not be less than the Minimum Put Amount
and not more than the Maximum Put Amount.
(b) PUT NOTICE/DATE OF DELIVERY OF PUT NOTICE. There shall
be a maximum of thirty-six (36) Put Notices given during the Investment
Period, which Investor shall be obligated to accept. The Put Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or
otherwise by the Investor if such notice is received prior to 12:00 noon New
York time, or (ii) the immediately succeeding Trading Day if it is received
by facsimile or otherwise after 12:00 noon New York time on a Trading Day or
at any time on a day which is not a Trading Day. No Put Notice may be deemed
delivered on a day that is not a Trading Day.
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The Put Notice shall specify (i) the amount of the Put the
Company wishes to exercise and (ii) the commencement date of the Pricing
Period. If the Company wishes the date of the Put Notice to be the first day
of the Pricing Period, such notice shall be delivered to the Investor and
such receipt confirmed, before trading commences on such day.
During the Investment Period, the Company may exercise
monthly Puts of up to the Investment Amount with an aggregate total not to
exceed the Commitment Amount or the number of shares of the Company's
registered and freely tradable Common Stock held in escrow.
(c) PRICING PERIOD.
(i) The Company shall not request a new Put within the
Trading Cushion. Only one Put shall be allowed per Pricing Period. At no time
shall the Investor be required to purchase more than the Investment Amount
set forth in the Put Notice for a given Pricing Period.
(ii) If the Market Price of the Common Stock over the
Pricing Period is more than ten (10%) less than the Market Price of the
Common Stock over the ten (10) calendar day period preceding such Pricing
Period, the Company shall have the right, in its sole discretion, to withdraw
the Put Notice for that Pricing Period. Such Put Notice, once withdrawn, will
not constitute one of the thirty-six (36) Put Notices permitted under Section
3.1(b) hereof, nor will the Company be deemed to have exercised a Put
pursuant to the terms of this Agreement with regard to such withdrawn Put
Notice. The withdrawal of the Put Notice must be made in writing or orally
and confirmed in writing and delivered to the Investor no later than the
Trading Day immediately following the Pricing Period.
(d) POST-EFFECTIVE AMENDMENTS; EXTENSION OF CLOSING DATE.
If required under the Securities Act and the terms of this Agreement, on or
before the Put Date the Company shall file with the SEC a post-effective
amendment in connection with the Put. If the post-effective amendment has not
been declared effective by the SEC by the close of business on the last
Trading Day of the Pricing Period, then the Closing Date shall be the day
immediately following the date on which such post-effective amendment is
declared effective; provided, however, that if such amendment is not declared
effective by the close of business on the fifteenth (15th) calendar day
following the expiration of the Pricing Period, the provisions of Section
10.3 hereto shall apply.
(e) Payment. On the Closing Date, the Investor shall pay
the Company an amount equal to the Investment Amount multiplied by the
Purchase Price (the "Total Purchase Price").
(f) Settlement. On each Closing Date, the Company and the
Investor shall execute and deliver a Compliance Certificate, in the form of
the Compliance Certificate attached hereto as Exhibit C. Upon delivery of the
acknowledgment by the Investor of the Compliance Certificate, the Company
shall cause the delivery of whole shares of Common Stock to the Investor or
its designees via a Letter of Authorization ("LOA"), against payment therefor
to the Company's account by LOA of immediately available funds (provided that
the
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shares of Common Stock are received by the Investor no later than 1:00 P.M.
New York time on the date of purchase) or next day available funds if the
shares are received thereafter. The Company shall deposit the registered and
freely tradable shares in its Company account with the Escrow Agent, and the
Investor shall deposit the Total Purchase Price in the Investor's account
with the Escrow Agent. Both the Company and the Investor shall have executed
LOAs to effectuate the stock transfers and money transfers between the
Company's escrow account and the Investor's escrow account.
(g) MODIFIED PURCHASE PRICE DURING MODIFIED PUT PERIOD.
Notwithstanding anything to the contrary contained in this Agreement, during
the Modified Put Period, the Investor shall purchase an aggregate of
$2,250,000 at the Modified Purchase Price (for an aggregate of 529,410
shares), which shall represent $750,000 (176,470 shares) during each month of
the Modified Put Period; provided however that in the Investor's sole
discretion, the Investor may advance all or any portion of the total amount
to be paid by the Investor during the Modified Put Period at any time
commencing as of the Effective Date and continuing for a period of 60 days
thereafter and the Company shall issue such Put Shares as soon as practicable
following any such advances and according to the terms contained in this
Agreement; but provided further, that this Agreement, when executed by the
parties, shall constitute the Put Notice(s) required to be provided to the
Investor by the Company during such Modified Put Period and no additional
notices shall be required to be presented to the Investor with respect to the
transaction contemplated by this subsection (g).
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 4.1 Intent.
The Investor is entering into this Agreement for its own
account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 4.2 Sophisticated Investor.
The Investor is a sophisticated investor (as described in
Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in
Rule 501 of Regulation D), and Investor has such experience in business and
financial matters that it has the capacity to protect its own interests in
connection with this transaction and is capable of evaluating the merits and
risks of an investment in the Common Stock. The Investor acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk.
Section 4.3 Authority.
This Agreement has been duly authorized and validly
executed and delivered by the Investor and is a valid and binding agreement
of the Investor enforceable against it in accordance with its terms, subject
to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.4 [Omitted].
Section 4.5 Organization and Standing.
Investor is a company duly organized, validly existing, and
in good standing under the laws of the British Virgin Islands.
Section 4.6 Absence of Conflicts.
The execution and delivery of this Agreement and any other
document or instrument executed in connection herewith, and the consummation
of the transactions contemplated thereby, and compliance with the
requirements thereof, does not and will not violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on
Investor, or, to the Investor's knowledge, (a) violate any provision of any
indenture, instrument or agreement to which Investor is a party or is
subject, or by which Investor or any of its assets is bound; (b) conflict
with or constitute a material default thereunder; (c) result in the
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creation or imposition of any lien pursuant to the terms of any such
indenture, instrument or agreement, or constitute a breach of any fiduciary
duty owed by Investor to any third party; or (d) require the approval of any
third-party (which has not been obtained) pursuant to any material contract,
agreement, instrument, relationship or legal obligation to which Investor is
subject or to which any of its assets, operations or management may be
subject.
Section 4.7 Disclosure; Access to Information.
Investor has received and reviewed all documents, records,
books and other publicly available information pertaining to Investor's
investment in the Company that have been requested by Investor. When and as
the Company is subject to the periodic reporting requirements of the Exchange
Act, Investor will have reviewed copies of any such filed reports that have
been requested by it.
Section 4.8 Manner of Sale.
At no time was Investor presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement or
any other form of general solicitation or advertising.
Section 4.9 Financial Capacity.
Investor currently has the financial capacity to meet its
obligations to the Company hereunder, and the Investor has no present
knowledge of any circumstances which could cause it to become unable to meet
such obligations in the future.
Section 4.10 Underwriter Liability.
Investor understands that it is the position of the SEC
that the Investor is an underwriter within the meaning of Section 2(11) of
the Securities Act and that the Investor will be identified as an underwriter
of the Put Shares in the Registration Statement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that, except as
set forth on the Disclosure Schedule prepared by the Company and attached
hereto as Exhibit D:
Section 5.1 Organization of the Company.
The Company is a corporation duly incorporated and existing
in good standing under the laws of the State of Georgia and has all requisite
corporate authority to own its properties and to carry on its business as now
being conducted. Except as set forth on the Disclosure Schedule, the Company
does not have any subsidiaries and does not own more than fifty percent (50%)
of or control any other business entity. The Company is duly qualified and is
in good standing as a foreign corporation to do business in every
jurisdiction in which the
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nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 5.2 Authority.
(a) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, pursuant to its terms, and to issue the Put Shares.
(b) The execution, issuance and delivery of this Agreement
by the Company and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
shareholders is required.
(c) This Agreement has been duly executed and delivered by
the Company and at the initial Closing shall constitute a valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally
the enforcement of, creditors' rights and remedies or by other equitable
principles of general application.
(d) The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
issuance of the Put Shares.
Section 5.3 Capitalization.
The authorized capital stock of the Company consists of (i)
40,000,000 shares of Common Stock, $0.001 par value per share, of which
5,000,000 shares are issued and outstanding as of the date hereof, and (ii)
twenty (20) million shares of preferred stock., $0.001 par value per share,
of which 2,175,000 shares of Series A Convertible Preferred Stock, have been
authorized, 1,175,000 of which are issued and outstanding as of the date
hereof. Except for (i) outstanding options and warrants as set forth in the
SEC Documents and (ii) as set forth in the Disclosure Schedule, there are no
outstanding Capital Share Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding.
Except as set forth on the Disclosure Schedule, the Company is not a party to
any agreement granting registration or anti-dilution rights to any person
with respect to any of its equity or debt securities. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized
and issued and are fully paid and non-assessable and all shares of Common
Stock issued in connection with any Put will be duly and validly authorized
and issued and, upon receipt by the Company of the Purchase Price therefore,
will be fully paid and non-assessable.
Section 5.4 Common Stock.
The Company shall use its best efforts to register its
Common Stock pursuant to Section 12(b) or (g) of the Exchange Act, and upon
such registration, shall, at all times, be in full compliance with all
reporting requirements of the Exchange Act, and the Company shall, at all
times, be in compliance with all requirements for the continued listing or
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quotation of its Common Stock, and such Common Stock is currently or will be
prior to the issuance of any Put Notice, listed or quoted on the Principal
Market.
Section 5.5 SEC Documents.
The Company will make available to the Investor true and
complete copies of all SEC Documents at the time they are filed. The Company
has not and will not provide to the Investor any information that, according
to applicable law, rule or regulation, should have been disclosed publicly
prior to the date hereof by the Company, but which has not been so disclosed.
As of their respective dates, the SEC Documents will comply in all material
respects with the requirements of the Securities Act and the Exchange Act, as
applicable, and rules and regulations of the SEC promulgated thereunder and
the SEC Documents will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
to be included in the SEC Documents will comply in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto at the
time of such inclusion. Such financial statements will be prepared in
accordance with generally accepted accounting principles applied on a
consistent basis 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 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 operations and cash flows for the periods then ended (subject,
in the case of unaudited interim statements, to normal year-end audit
adjustments). Neither the Company nor any of its subsidiaries will have any
material indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to become due)
that would have been required to be reflected in, reserved against or
otherwise described in the financial statements or in the notes thereto in
accordance with GAAP, which were not fully reflected in, reserved against or
otherwise to be described in the financial statements or the notes thereto
included in the SEC Documents or will not be incurred in the ordinary course
of business consistent with the Company's past practices since the last date
of such financial statements.
Section 5.6 Valid Issuances.
When issued and paid for in accordance with the terms
hereof, the Put Shares will be duly and validly issued, fully paid, and
non-assessable. Neither the sales of the Put Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement will (i)
result in the creation or imposition by the Company of any liens, charges,
claims or other encumbrances upon the Put Shares, or, except as contemplated
herein, any of the assets of the Company, or (ii) entitle the holders of
Outstanding Capital Shares to preemptive or other rights to subscribe for or
acquire the Capital Shares or other securities of the Company. The Put Shares
shall not subject the Investor to personal liability to the Company or its
creditors by reason of the possession thereof.
13
Section 5.7 No Conflicts.
The execution, delivery and performance of this Agreement
or any other related documents by the Company and the consummation by the
Company of the transactions contemplated hereby, including without limitation
the issuance of the Put Shares, do not and will not (i) result in a violation
of the Company's Articles of Incorporation or By-Laws or (ii) to the
Company's knowledge, conflict with, or constitute a material default (or an
event that 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 material agreement, indenture or instrument, or any
"lock-up" or similar provision of any underwriting or similar agreement to
which the Company is a party, or (iii) result in a violation of any federal,
state or local law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company
or by which any material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or
default under any of the foregoing (except in each case for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not have, individually or in the aggregate, a Material
Adverse Effect). The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental entity,
except for possible violations that either singly or in the aggregate would
not have a Material Adverse Effect. The Company is not required under any
federal, state or local law, rule or regulation 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 this Agreement or issue and sell the Put Shares in
accordance with the terms hereof (other than any SEC, Principal Market or
state securities filings that may be required to be made by the Company
subsequent to the initial Closing, any registration statement that may be
filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Principal Market);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 5.8 No Material Adverse Change.
Since June 30, 2001, no Material Adverse Effect has
occurred or exists with respect to the Company, except as disclosed in the
SEC Documents.
Section 5.9 No Undisclosed Events or Circumstances.
Since June 30, 2001, no event or circumstance has occurred
or exists with respect to the Company or its businesses, properties,
prospects, operations or financial condition, that, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the
date hereof by the Company but which has not been so publicly announced or
disclosed in the SEC Documents.
Section 5.10 Litigation and Other Proceedings.
There are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any subsidiary,
nor has the Company
14
received any written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material Adverse
Effect. No judgment, order, writ, injunction or decree or award has been
issued by or, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
Section 5.11 No Misleading or Untrue Communication.
The Company and, to the knowledge of the Company, any
person representing the Company, have not made, at any time, any written
communication in connection with the offer or sale of the Put Shares which
contains any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading. The Company and, to
the knowledge of the Company, any person representing the Company, have not
made, at any time, any written communication to any regulatory agencies,
including without limitation, any federal or state securities agencies, which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 5.12 Material Non-Public Information.
The Company has not disclosed to the Investor any material
non-public information that (i) if disclosed publicly, would reasonably be
expected to have a material effect on the price of the Common Stock or (ii)
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
Section 5.13 Insurance.
The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound
and reputable insurers that is adequate, consistent with industry standards
and the Company's historical claims experience. The Company has not received
notice from, and has no knowledge of any threat by, any insurer (that has
issued any insurance policy to the Company) that such insurer intends to deny
coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
Section 5.14 Tax Matters.
To the Company's knowledge, the Company and each subsidiary
have filed all Tax Returns which they are required to file under applicable
laws; all such Tax Returns are true and accurate in all material respects and
have been prepared in compliance with all applicable laws; to the Company's
knowledge, the Company has paid all material Taxes due and owing by it or any
subsidiary (whether or not such Taxes are required to be shown on a Tax
Return) and have withheld and paid over to the appropriate taxing authorities
all Taxes which it is required to withhold from amounts paid or owing to any
employee, shareholder, creditor or other third parties; and since January 1,
2001, the charges, accruals and reserves for Taxes with respect to the
Company (including any provisions for deferred income taxes) reflected on the
15
books of the Company are adequate to cover any Tax liabilities of the Company
if its current tax year were treated as ending on the date hereof.
No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that the Company or
any subsidiary is or may be subject to taxation by that jurisdiction. There
are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the Company
or any subsidiary; no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority; and no written
notice indicating an intent to open an audit or other review has been
received by the Company or any subsidiary from any foreign, federal, state or
local taxing authority. To the Company's knowledge, there are no material
unresolved questions or claims concerning the Company's Tax liability. The
Company (A) has not executed or entered into a closing agreement pursuant to
Section 7121 of the Internal Revenue Code or any predecessor provision
thereof or any similar provision of state, local or foreign law; or (B) has
not agreed to or is not required to make any adjustments pursuant to Section
481(a) of the Internal Revenue Code or any similar provision of state, local
or foreign law by reason of a change in accounting method initiated by the
Company or any of its subsidiaries or has no knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has no
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Internal Revenue Code.
The Company has not made an election under Section 341(f)
of the Internal Revenue Code. To the Company's knowledge, the Company is not
liable for the Taxes of another person that is not a subsidiary of the
Company (A) under Treas. Reg. Section 1.1502-6 (or comparable provisions of
state, local or foreign law), (B) as a transferee or successor, (C) by
contract or indemnity or (D) otherwise. The Company is not a party to any tax
sharing agreement. The Company has not made any payments, is not obligated to
make payments or is not a party to an agreement that could obligate it to
make any payments that would not be deductible under Section 280G of the
Internal Revenue Code.
For purposes of this Section 5.14:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local,
foreign, or other income, gross receipts, ad valorem, franchise, profits,
sales or use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license, payroll,
wage or other withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other taxes of any
kind whatsoever (including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
16
Section 5.15 Property.
Neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge any real property and buildings held under lease by the Company as
tenant are held by it under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made
and intended to be made of such property and buildings by the Company.
Section 5.16 Intellectual Property.
To the Company's knowledge, each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures) and other similar rights
and proprietary knowledge (collectively, "Intangibles") necessary for the
conduct of its business as now being conducted or contemplated to be
conducted. To the Company's knowledge, neither the Company nor any of its
subsidiaries is infringing upon or in conflict with any right of any other
person with respect to any Intangibles. No adverse claims have been asserted
by any person to the ownership or use of any Intangibles and the Company has
no knowledge of any basis for such claim.
Section 5.17 Internal Controls and Procedures.
The Company maintains books and records and internal
accounting controls which provide reasonable assurance that (i) all material
transactions to which the Company or any subsidiary is a party or by which
its properties are bound are executed with management's authorization; (ii)
the recorded accounting of the Company's consolidated assets is compared with
existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any
subsidiary is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
Section 5.18 No Misrepresentation.
The representations and warranties of the Company contained
in this Agreement, any schedule, annex or exhibit hereto and any agreement,
instrument or certificate furnished by the Company to the Investor pursuant
to this Agreement, do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
17
ARTICLE 6
COVENANTS OF THE INVESTOR
Investor covenants with the Company that:
Section 6.1 Compliance with Law.
The Investor's trading activities with respect to the
Common Stock will be in compliance with all applicable state and federal
securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Stock is listed. Without
limiting the generality of the foregoing, the Investor agrees that it will,
whenever required by federal securities laws, deliver the prospectus included
in the Registration Statement to any purchaser of Put Shares from the
Investor.
ARTICLE 7
COVENANTS OF THE COMPANY
Section 7.1 Registration Rights.
(a) The Company shall prepare and file the Registration
Statement to register the resale of the Registered Securities, and use its
best efforts to have the Registration Statement declared effective by the SEC
as soon as practicable following the filing thereof. The Company shall use
its best efforts to keep the Registration Statement continuously effective,
pursuant to the Securities Act, until the Investor no longer holds any
Registered Securities.
(b) In connection with the Registration Statement, but
subject to the limitations set forth in Section 7.1(d) hereof, the Company
shall prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary to keep the Registration Statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement until such time as all of such Registered Securities have been
disposed of in accordance with the intended methods of disposition by the
Investors or sellers thereof as set forth in the Registration Statement. The
Company shall notify the holders of the Registered Securities of the filing
and effectiveness of such Registration Statement and any amendments or
supplements. In the event the number of shares available under a Registration
Statement filed pursuant to this Agreement is insufficient to cover all of
the Registered Securities issued, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form available
therefore, if available), or both, so as to cover all of the Registered
Securities, in each case, as soon as practicable, but in any event within
twenty (20) business days after the necessity therefor arises (based on the
Market Price of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. The Investor shall furnish
to the Company such information
18
regarding the Investor and its proposed methods of distribution of the
Registered Securities as the Company may from time to time request and as
shall be required by law to effect and maintain the registration of such
Registered Securities under the Securities Act and any state securities laws.
(c) All expenses of the Company associated with the
preparation of the Registration Statement and filing thereof shall be borne
by the Company, including the payment of any applicable listing fees. Except
as set forth in Section 15.7 hereof, the Investor shall be responsible for
fees and expenses of its own counsel and any commissions or underwriting
discounts payable with respect to the resale of the Registered Securities.
The Company shall furnish, at its expense, to the Investor such number of
copies of the Registration Statement and of each amendment and supplement
thereto, the prospectus included in the Registration Statement, and such
other related documents as the Investor may reasonably request in order to
facilitate the disposition of the Registered Securities by the Investor.
(d) Notwithstanding the foregoing, the Company shall notify
the Investor at any time after the effectiveness of the Registration
Statement (when a prospectus relating thereto is required to be delivered
under the Securities Act) of the happening of any event or other circumstance
as the result of which (i) the prospectus included in such Registration
Statement, as then in effect, would include any untrue statement of material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances then existing, not misleading or (ii) continued effectiveness
of such Registration Statement or a subsequent Registration Statement, and
the use of such prospectus, would otherwise have a material and adverse
effect on any proposed or pending acquisition, merger, business combination
or other material transaction involving the Company, and, upon receipt of
such notice and until the Company makes available to the Investor a
supplemental or amended prospectus, the Investor shall not offer or sell any
Registered Securities pursuant to the Registration Statement and shall return
all copies of the Registration Statement or such prospectus to the Company if
requested by it to do so. As promptly as practicable following any such
occurrence, the Company shall prepare and furnish to the Investor a
reasonable number of copies of the supplement or amendment to such prospectus
as may be necessary so that, as thereafter delivered to subsequent purchasers
of the Common Stock, such prospectus shall meet in all material respects the
requirements of the Securities Act. The period of time in which the Investor
may not offer or sell Registered Securities pursuant to the Registration
Statement shall be referred to herein as a "blackout period." The Investor
acknowledges and agrees that in the event that it receives notice of a
blackout period from the Company, that the notice itself and any information
contained therein will be considered confidential information and the
Investor will maintain such information in confidence consistent with the
duty of trust or confidence thereby undertaken with respect to such
information within the meaning of Rule 10b5-2 under the Exchange Act.
(e) The Company shall use its best efforts to (i) register
and qualify the Registered Securities under such other securities or "blue
sky" laws of such jurisdictions in the United States as the Investor shall
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the effectiveness of the Registration Statement,
(iii) to keep such registration or
19
qualification in effect for so long as the Registration Statement remains in
effect, and (iv) to take any other action which may be reasonably necessary
or advisable to enable the Investor to consummate the disposition in such
jurisdictions of the securities to be sold by the Investor, consistent with
the plan of distribution described in the prospectus included in the
Registration Statement, provided, however, that the Company shall not be
required in connection with or as a condition to the foregoing to (A) qualify
to do business in any jurisdiction where it would not otherwise be required
to qualify but for this Section 7.1(e), (B) subject itself to general
taxation in any jurisdiction, (C) file a general consent to service of
process in any such jurisdiction, (D) provide any undertakings that cause the
Company undue expense or burden, or (E) make any change in its charter or
bylaws, which in each case the Company's Board of Directors determines to be
contrary to the best interests of the Company and its shareholders.
(f) Indemnification.
(i) To the extent permitted by law, the Company will
indemnify and hold harmless the Investor and each person (including each
officer, director, trustee or partner thereof) who controls the Investor
within the meaning of Section 15 of the Securities Act and any underwriter
for each (as defined in the Securities Act) (collectively, "Person") with
respect to which any Registration Statement under the Securities Act has been
filed and become effective pursuant to this Agreement, against all claims,
losses, expenses, damages and liabilities, or actions in respect thereto (or
any settlement of any claim), arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any definitive
prospectus contained in any registration statement, as may be amended or
supplemented, covering the Registered Securities for resale, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, any violation
or alleged violation by the Company of the Securities Act, the Exchange Act,
any federal or state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any federal or state securities
law, in each case in connection with the offering covered by such
Registration Statement, any failure by the Company to fulfill any undertaking
included in a Registration Statement and for any material misrepresentation
or breach of any representation or warranty given or made by the Company in
this Agreement, and will reimburse the Investor and each Person for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability
or action, provided that (A) such legal and other expenses shall be limited
to not more than one legal counsel for a group including the Investor and
such Persons, and (B) the Company will not be liable in any such case to the
extent that (xx) any such claim, loss, damage or liability arises out of or
is based on any untrue statement (or alleged untrue statement) or omission
(or alleged omission) based upon written information furnished to the Company
by the Investor specifically for use in such prospectus, or (yy) the Investor
or its representative fails to deliver a copy of the definitive prospectus
most recently furnished by the Company and contained in any such Registration
Statement, as may be amended or supplemented, to the buyer of any Registered
Securities.
(ii) To the extent permitted by law, the Investor will
indemnify and hold harmless the Company and each person (including each
officer and director thereof) who controls the Company within the meaning of
Section 15 the Securities Act with
20
respect to which any Registration Statement under the Securities Act has been
filed and becomes effective pursuant to this Agreement, against all claims,
losses, expenses, damages and liabilities, or actions in respect thereof (or
any settlement of any claim) arising out of or based on (A) any untrue
statement (or alleged untrue statement) of a material fact contained in any
such prospectus, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and which are made in reliance upon any and in conformity
with written information furnished by the Investor specifically for use in
connection with such Registration Statement, (B) any violation or alleged
violation by the Investor of the Securities Act, the Exchange Act, any
federal or state securities law or any rule or regulation promulgated under
the Securities Act, the Exchange Act or any federal or state securities law,
in each case in connection with the offering covered by such Registration
Statement, (C) any failure by the Investor to fulfill any undertaking
included in a Registration Statement and (D) for any material
misrepresentation or breach of any representation or warranty given or made
by the Investor in this Agreement, and will reimburse the Company and each
Person for any reasonable legal or any other expenses incurred in connection
with investigating, defending or settling any such claim, loss, damage,
liability or action, provided, however, that the liability of the Investor
under the provisions of this Section 7.1(f)(ii) shall be limited to an amount
equal to the gross proceeds received by the Investor upon the sale of the
Registered Securities purchased by the Investor pursuant to this Agreement;
and provided further that the Investor will not be liable in any such case to
the extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement (or alleged untrue statement) or omission (or
alleged omission) based upon information furnished by the Company
specifically for use in such prospectus.
(iii) Each party entitled to indemnification under this
Section 7.1(f) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations hereunder, unless
such failure prejudiced the rights of the Indemnifying Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
(iv) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
any person or entity entitled to indemnification under this Section 7.1(f)
makes a claim for indemnification pursuant to this Section 7.1(f) but it is
judicially determined (by entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this Section 7.1(f) provides for
indemnification in such case; then, and in such case, the
21
party that would otherwise be required to indemnify under this Section 7.1(f)
will contribute to the aggregate losses, claims, damages or liabilities to
which the other parties may be subject (after contribution from others) in
such proportion as is appropriate to reflect the relative fault of the
parties in connection with the losses suffered, as well as any other relevant
equitable considerations.
Section 7.2 Listing of Common Stock.
The Company hereby agrees to maintain the listing of the
Common Stock on a Principal Market, and as soon as practicable (but in any
event prior to the commencement of the Investment Period) to list the Put
Shares. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such
application the Put Shares and will take such other action as is necessary or
desirable in the opinion of the Investor to cause the Common Stock to be
listed on such other Principal Market as promptly as possible. The Company
will take all action to continue the listing and trading of its Common Stock
on the Principal Market (including, without limitation, maintaining
sufficient net tangible assets) and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of the Principal Market and shall provide Investor with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within one Trading Day of the Company's
receipt thereof.
Section 7.3 Exchange Act Registration.
The Company will use its best efforts to cause its Common
Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act and be freely tradable, will use its best efforts to comply in
all respects with its reporting and filing obligations 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 Act.
Section 7.4 Legends; Lock-Ups.
The certificates evidencing the Common Stock to be sold to
the Investor shall be free of restrictive legends. No lock-up provisions as
to the Common Stock sold to the Investor shall be imposed or in place, at any
time, without the express written approval of the Investor, which approval
shall be in Investor's sole discretion; provided, however, that in the event
the Company engages in a firmly underwritten public offering of its Common
Stock for a total offering price of at least $25.0 million, without regard to
the price per share, the Investor agrees to enter into such agreement as the
underwriter(s) reasonably request imposing lock-up provisions on the sale of
the Common Stock held by the Investor as of the date of such lock-up
agreement for a period not to exceed 120 days.
Section 7.5 Corporate Existence.
The Company will take all steps necessary to preserve and
continue the corporate existence of the Company.
22
Section 7.6 Additional SEC Documents.
During the Investment Period, the Company will deliver to
the Investor, as and when the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC, or
else notify the Investor that such documents are available on the ▇▇▇▇▇
system.
Section 7.7 Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put.
The Company will immediately notify the Investor upon the
occurrence of any of the following events in respect of a registration
statement or related prospectus in respect of an offering of Registered
Securities; (i) receipt of any request for additional information from the
SEC or any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would
require any 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 Registered
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 or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in
the Registration Statement, related prospectus or documents so that, in the
case of the Registration Statement, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that
in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and (v) the
Company's reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate; and the Company will promptly
make available to the Investor any such supplement or amendment to the
related prospectus. Except for the delivery of a Put Notice in connection
with the filing of a post-effective amendment pursuant to Section 3.1(d)
hereof, the Company shall not deliver to the Investor any Put Notice during
the continuation of any of the foregoing events.
Section 7.8 Expectations Regarding Put Notices.
Within ten (10) days after the commencement of each
calendar quarter occurring subsequent to the commencement of the Investment
Period, the Company must notify the Investor, 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 Put 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 Put Notices. The failure by the
Company to comply with this provision can be cured by the
23
Company's notifying the Investor, in writing, at any time as to its
reasonable expectations with respect to the current calendar quarter.
Section 7.9 Consolidation; Merger.
The Company shall not, at any time after the date hereof,
effect any merger, consolidation or reorganization of the Company with or
into, or a transfer of all or substantially all of the assets of the Company,
inclusive of any of the Company's subsidiaries, to, another entity (a
"Consolidation Event") unless the resulting successor or acquiring entity (if
not the Company) assumes by written instrument or by operation of law the
obligation to deliver to the Investor such shares of stock and/or securities
as the Investor is entitled to receive pursuant to this Agreement.
Section 7.10 Non-Usage Fee.
The Company shall pay the Investor a non-usage fee equal to
Twenty Thousand Dollars ($20,000) on the last day of each six-month period of
the Investment Period, commencing on the Effective Date, in which no Put
Notices are issued by the Company.
Section 7.11 Notice of Issuing Additional Common Stock.
During the term of the Agreement, the Company shall provide
the Investor with notice of any additional issuances of Capital Shares,
Common Stock, or Capital Share Equivalents or any agreements granting
registration or anti-dilution rights to any person with respect to any of the
Company's equity or debt securities prior to the issuance(s) of such
securities.
ARTICLE 8
CONDITIONS TO DELIVERY OF PUTS AND CONDITIONS TO CLOSING
Section 8.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock.
The obligation hereunder of the Company to issue and sell
the Put Shares to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below:
(a) ACCURACY OF THE INVESTOR'S REPRESENTATION AND
WARRANTIES. The representations and warranties of the Investor shall be true
and correct in all material respects as of the date of this Agreement and as
of the date of each such Closing as though made at each such time.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investor at or prior to such
Closing, and Investor shall provide a certificate to the Company,
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substantially in the form of that delivered by the Investor at the Closing of
the sale of the initial shares, to such effect.
Section 8.2 Conditions Precedent to the Right of the Company to
Deliver a Put Notice and the Obligation of the Investor to Purchase Put
Shares.
The right of the Company to deliver a Put Notice and the
obligation of Investor hereunder to acquire and pay for the Put Shares
incident to a Closing is subject to the satisfaction, on both (i) the date of
delivery of such Put Notice and (ii) the applicable Closing Date (each a
"Condition Satisfaction Date"), of each of the following conditions (except
with respect to Section 8.2(d), which need only be delivered on a Closing
Date):
(a) CLOSING CERTIFICATE. All representations and warranties
of the Company contained herein shall remain true and correct, except as
variations thereto may have been previously waived or consented to by the
Investor, as of the Closing Date as though made as of such date and the
Company shall have delivered into escrow on or prior to the Closing Date an
Officer's Certificate signed by its Chief Executive Officer certifying that
all of the Company's representations and warranties herein remain true and
correct as of the Closing Date and that the Company has performed all
covenants and satisfied all conditions to be performed or satisfied by the
Company prior to such Closing;
(b) BLUE SKY. The Company shall have obtained all permits
and qualifications required by any state for the offer and sale of the Common
Stock to the Investor and by the Investor as set forth in Section 7.1 hereof
or shall have the availability of exemptions therefrom;
(c) AVAILABILITY OF PUT SHARES. There shall be a sufficient
number of registered and freely tradable shares deposited in the Company's
account with the Escrow Agent to meet the delivery obligation of the Put
Notice.
(d) OPINION OF COUNSEL. Receipt by the Investor of certain
opinions of counsel to the Company, in the form agreed upon between the
parties; and
(e) TRANSFER AGENT. The Company shall have delivered to the
Company's transfer agent instructions to such transfer agent in form and
substance reasonably satisfactory to the Investor.
(f) REGISTRATION OF THE COMMON STOCK WITH THE SEC. Subject
to Section 3.1(d) hereof, the Registration Statement shall have previously
become effective and shall remain effective and available for making resales
of the Put Shares by the Investor on each Condition Satisfaction Date and (i)
neither the Company nor the Investor shall have received notice that the SEC
has issued or intends to issue a stop order with respect to the Registration
Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of the Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC's concerns
have been addressed and the Investor is reasonably satisfied that the SEC no
longer is considering or intends to take such action), and (ii) no other
suspension of the
25
use or withdrawal of the effectiveness of the Registration Statement or
related prospectus shall exist.
(g) AUTHORITY. The Company will satisfy all laws and
regulations pertaining to the sale and issuance of the Put Shares.
(h) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(i) 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.
(j) ADVERSE CHANGES. Since the date of filing of the
Company's most recent SEC Document, no event that had or is reasonably likely
to have a Material Adverse Effect has occurred.
(k) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON
STOCK. The trading of the Common Stock (including, without limitation, the
Put Shares) is not suspended by the SEC or the Principal Market, and the
Common Stock (including, without limitation, the Put Shares) shall have been
approved for listing or quotation on and shall not have been delisted from
the Principal Market. The issuance of shares of Common Stock with respect to
the applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market. The Company shall not have received any
notice threatening to delist the Common Stock from the Principal Market which
has not been addressed to the satisfaction of the Principal Market.
(l) NO KNOWLEDGE. Other than as set forth in Section
3.1(d), 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 (which event is reasonably likely to occur within the
thirty (30) Trading Days following the Trading Day on which such Notice is
deemed delivered).
(m) TRADING CUSHION. The Trading Cushion shall have elapsed
since the next preceding Put Date.
(n) OTHER. On each Condition Satisfaction Date, the
Investor shall have received and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested by the
Investor in order for the Investor to confirm the Company's satisfaction of
the conditions set forth in this Section 8.2.
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ARTICLE 9
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 9.1 Due Diligence Review.
The Company shall make available for inspection and review
by the Investor, advisors to and representatives of the Investor (who may or
may not be affiliated with the Investor and who are reasonably acceptable to
the Company), any underwriter participating in any disposition of the
Registered Securities on behalf of the Investor pursuant to the Registration
Statement, any such registration statement or amendment or supplement thereto
or any blue sky, NASD or other filing, all SEC Documents and other filings
with the SEC, and all other publicly available 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 publicly available information reasonably requested by the
Investor 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 Investor 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 9.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information
to the Investor, advisors to or representatives of the Investor unless prior
to disclosure of such information the Company identifies such information as
being non-public information and provides the Investor, 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 Investor's
advisors and representatives to enter into a confidentiality agreement in
form reasonably satisfactory to the Company and the Investor.
(b) The Company represents that it does not disseminate
non-public information to any investors who purchase stock in the Company in
a public offering, to money managers or to securities analysts, provided,
however, that notwithstanding anything herein to the contrary, the Company
will, as hereinabove provided, immediately notify the advisors and
representatives of the Investor and, if any, underwriters, of any event or
the existence of any circumstance (without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically
or generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration
Statement would cause such prospectus to include a material misstatement or
to omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made,
not misleading. Nothing contained in this Section 9.2 shall be construed to
mean that such persons or entities other than the Investor (without the
27
written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence
in accordance with the terms of this Agreement and nothing herein shall
prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that
the Registration Statement contains an untrue statement of a 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 10
ADJUSTMENTS TO THE PURCHASE PRICE AND NUMBER OF PUT SHARES; REMEDIES
Section 10.1 Termination of Investment Obligation.
(a) The obligation of the Investor, but not the right, to
purchase shares of Common Stock may terminate, in Investor's sole discretion,
in the event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of fifteen (15)
Trading Days during the Investment Period, for any reason other than
deferrals or suspensions in accordance with Section 7.1(d) of this Agreement
as a result of corporate developments subsequent to the Registration Date
that would require such Registration Statement to be amended to reflect such
event in order to maintain its compliance with the disclosure requirements of
the Securities Act, or (ii) the Company shall at any time fail to comply with
the requirements of Section 7.2, 7.3 or 7.5., or (iii) the Registration
Statement shall not have become effective by the Registration Date, or (iv)
the Company shall breach, in any material respect, any representation,
warranty, covenant or other agreement contained in this Agreement or any
document or agreement executed in connection therewith. In the event of the
happening of any occurrence described in the preceding subsection (iv), the
Investor shall give written notice of the breach to the Company and the
Company shall have a period of thirty (30) days during which to cure such
breach, if such breach is capable of being cured. The Investor shall be under
no obligation to honor any Put Notice during such thirty (30) day period.
(b) The obligation of the Company to sell Put Shares to the
Investor may terminate, in the Company's reasonable discretion, if the
Investor fails to honor any Put Notice within fifteen (15) Trading Days of
the Closing Date scheduled for such Put, and the Company notifies Investor of
such termination or if the Investor and its affiliates, under any
circumstances, own as much as 20% of the outstanding voting securities of the
Company.
(c) Notwithstanding anything to the contrary contained in
this Agreement, if this Agreement is terminated, for whatever reason, any
Placement Fees paid to the Investor shall be retained by the Investor, with
no penalty or repayment with respect thereto.
Section 10.2 Valuation Event.
In the event of any Valuation Event, the Company shall
issue to the Investor, at no cost to the Investor, such additional number of
shares of Common Stock such that the percentage of shares of Common Stock
held by the Investor immediately prior to any
28
Valuation Event shall be equal to the percentage of shares of Common Stock
held by the Investor immediately following any such Valuation Event.
Section 10.3 Delay in Effectiveness.
In the event that the Registration Statement or any
post-effective amendment thereto has not been declared effective by the SEC
by the 15th calendar day following any Pricing Period, the Market Price
percentage for such Closing (initially 90%) shall be reduced by 1% for each
30 day period (or any portion thereof) following such 15th calendar day
following the Pricing Period that the Registration Statement or such
post-effective amendment is not declared effective by the SEC; provided that
the Purchase Price percentage shall never be less than 15% of the Market
Price. Additionally, the Investment Period may be extended, at Investor's
sole option, by the number of days in the period following such 15th calendar
day following the Pricing Period until such time as such Registration
Statement or post-effective amendment is declared effective by the SEC.
Section 10.4 Triggering Events
In the event of any Triggering Event, at the sole
discretion of the Investor, the Company shall pay the Investor an amount
equal to three percent (3%) of the outstanding Put Shares then held by the
Investor, based on the Market Price of the Common Stock immediately prior to
such Triggering Event. Notwithstanding any remedies to which the Investor may
be entitled, the Company shall use its best efforts to cure any such
Triggering Events.
Section 10.5 Issuance of Additional Shares in the Event of any
"blackout period."
In the event that (a) within fifteen (15) Trading Days
after any Closing Date, the Company gives notice to the Investor of an
impending "blackout period" in accordance with Section 7.1(d) of this
Agreement and (b) the Bid Price on the Trading Day immediately preceding such
"blackout period" (the "Old Bid Price") is greater than the Bid Price on the
first Trading Day following such "blackout period" (the "New Bid Price") the
Company shall issue to the Investor a number of additional shares (the
"Blackout Shares") equal to the difference between (y) the product of the
number of Registered Securities purchased by the Investor on such most recent
Closing Date and still held by the Investor during such "blackout period"
that are not otherwise freely tradable during such "blackout period" and the
Old Bid Price, divided by the New Bid Price and (z) the number of Registered
Securities purchased by the Investor on such most recent Closing Date and
still held by the Investor during such "blackout period" that are not
otherwise freely tradable during such "blackout period"; provided, however,
that this Section 10.5 shall not apply if the blackout period consists solely
of the period of time in which a post-effective amendment to the Registration
Statement, filed for the purpose of including in the Registration Statement
such information as is required in connection with the periodic reporting
requirements of the Exchange Act, is not declared effective by the SEC; and
provided further, that the Company shall file such post-effective amendment
with the SEC no later that the date on which it files such reports under the
Exchange Act. If any issuance of Blackout Shares would result in the issuance
of a number of shares which, when combined with
29
the shares already owned by the Investor and any of its affiliates would
exceed twenty percent (20%) of the total shares of Common Stock then
outstanding, then in lieu of the issuance of any shares in excess of such
twenty percent (20%) of the shares of Common Stock outstanding, the Company
shall pay to the Investor in cash within five (5) Trading Days, an amount
equal to the closing ask price of the Common Stock on the first Trading Day
following the end of the blackout period multiplied by such number of excess
shares.
Section 10.6 Sales Pursuant to Rule 144.
Until such time as the Investor has purchased the total
Commitment Amount, in the event that for any reason, any Common Stock held by
the Investor pursuant to this Agreement is not registered or freely tradable
and may only be sold pursuant to Rule 144 or Rule 144(k), the Investor, in
its sole discretion, may terminate its obligations under this Agreement to
acquire the Commitment Amount as of the date such shares are no longer liquid.
Section 10.7 Liquidated Damages.
The parties hereto acknowledge and agree that the
obligation to issue Registered Securities and the Investor's benefit of the
bargain set forth in this Agreement and the remedies described in this
Agreement and specifically in this Article 10 shall constitute liquidated
damages for loss of a bargain and not as a penalty or penalties. The parties
further acknowledge that (a) the amount of loss or damages likely to be
incurred is incapable or is difficult to precisely estimate, (b) the amounts
specified in this Agreement bear a reasonable proportion and are not plainly
or grossly disproportionate to the probable loss likely to be incurred by the
Investor, and (c) the parties are sophisticated business parties and have
been represented by legal and financial counsel and negotiated this Agreement
at arm's length.
Section 10.8 No Penalties
The parties agree that it is appropriate to include in this
Agreement default payments and discounts in order to compensate the Investor
for such damages. The parties acknowledge and agree that the default payments
and discounts represent the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such default payments
and discounts are reasonable and will not constitute a penalty.
Section 10.9 Cumulative Remedies
The default payments and additional discounts provided for
in this Agreement are in addition to and not in lieu or limitation of any
other rights the Investors may have at law, in equity or under the terms of
this Agreement or any other documents, including without limitation the right
to specific performance.
ARTICLE 11
TRANSFER AGENT INSTRUCTIONS
Section 11.1 Transfer Agent Instructions.
30
Upon each Closing, the Company will issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer
agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions to deliver the Put
Shares without restrictive legends to the Escrow Agent.
Section 11.2 No Legend or Stock Transfer Restrictions.
Subject to the terms of Section 7.4 hereto, no legend shall
be placed on the share certificates representing the Put Shares and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions or any lock-up have been or shall be
given to the Company's transfer agent with respect thereto.
Section 11.3 Investor's Compliance.
Nothing in this Article shall affect in any way the
Investor's obligations under any agreement to comply with all applicable
securities laws upon resale of the Put Shares.
ARTICLE 12
CHOICE OF LAW
Section 12.1 Governing Law/Arbitration.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
made in New York by persons domiciled in New York City and without regard to
its principles of conflicts of laws. Any dispute under this Agreement or any
Exhibit attached hereto shall be submitted to arbitration under the American
Arbitration Association (the "AAA") in New York City, New York, and shall be
finally and conclusively determined by the decision of a board of arbitration
consisting of three (3) members (hereinafter referred to as the "Board of
Arbitration") selected as according to the rules governing the AAA. The Board
of Arbitration shall meet on consecutive business days in New York City, New
York, and shall reach and render a decision in writing (concurred in by a
majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party
in respect of a claim filed. In connection with rendering its decisions, the
Board of Arbitration shall adopt and follow the laws of the State of New
York. To the extent practical, decisions of the Board of Arbitration shall be
rendered no more than thirty (30) calendar days following commencement of
proceedings with respect thereto. The Board of Arbitration shall cause its
written decision to be delivered to all parties involved in the dispute. The
Board of Arbitration shall be authorized and is directed to enter a default
judgment against any party refusing to participate in the arbitration
proceeding within thirty days of any deadline for such participation. Any
decision made by the Board of Arbitration (either prior to or after the
expiration of such thirty (30) calendar day period) shall be final, binding
and conclusive on the parties to the dispute, and entitled to be enforced to
the fullest extent permitted by law and entered in any court of competent
jurisdiction. The Board of Arbitration shall issue findings of fact and the
decision of the Board of Arbitration shall be binding on all parties unless
there is a manifest error in law or as to the facts. The prevailing
31
party shall be awarded its costs, including attorneys' fees, from the
non-prevailing party as part of the arbitration award. Any party shall have
the right to seek injunctive relief from any court of competent jurisdiction
in any case where such relief is available. The prevailing party in such
injunctive action shall be awarded its costs, including attorney's fees, from
the non-prevailing party. Notwithstanding anything to the contrary contained
in this Article, each party shall have the right to seek injunctive relief in
aid of such arbitration.
ARTICLE 13
ASSIGNMENT
Section 13.1 Assignment.
Neither this Agreement nor any rights of the Investor or
the Company hereunder may be assigned by either party to any other person
except by operation of law. Notwithstanding the foregoing, upon the prior
written consent of the Company, which consent shall not unreasonably be
withheld or delayed in the case of an assignment to an affiliate of the
Investor, the Investor's interest in this Agreement may be assigned at any
time, in whole or in part, to any other person or entity (including any
affiliate of the Investor) who agrees to make the representations and
warranties contained in Article IV and perform the covenants contained in
Article VI and who agrees to be bound hereby.
ARTICLE 14
NOTICES
Section 14.1 Notices.
All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with
charges prepaid, or (iv) transmitted by hand delivery, telegram, or email or
facsimile (with confirmation copy sent by mail) addressed as set forth below
or to such other address as such party shall have specified most recently by
written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the date of
mailing by reputable courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to Company:
▇▇▇▇ ▇▇▇▇▇▇
Chief Executive Officer
32
Blue Sky Communications, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇, ext. 6324
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
with copies to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Long, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇
if to the Investor:
▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Proskauer Rose LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇.▇▇▇▇
Fax: (▇▇▇) ▇▇▇.▇▇▇▇
E-mail: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
Either party hereto may from time to time change its
address or facsimile number for notices under this Section 14.1 by giving at
least ten (10) days prior written notice of such changed address or facsimile
number to the other party hereto.
ARTICLE 15
MISCELLANEOUS
Section 15.1 Counterparts/ Facsimile/ Amendments.
This Agreement may be executed in multiple counterparts,
each of which may be executed by less than all of the parties and shall be
deemed to be an original instrument which shall be enforceable against the
parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. Except as otherwise stated herein, in
lieu of the original documents, a facsimile transmission or copy of the
original documents shall be as effective and enforceable as the original.
This Agreement may be amended only by a writing executed by all parties.
Section 15.2 Entire Agreement.
This Agreement and the Exhibits hereto set forth the entire
agreement and understanding of the parties relating to the subject matter
hereof and supersede all
33
prior and contemporaneous agreements, negotiations and understandings between
the parties, both oral and written relating to the subject matter hereof. The
terms and conditions of all Exhibits to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is
fully set forth herein.
Section 15.3 Survival; Severability.
(a) The representations, warranties, covenants and
agreements of the parties hereto shall be correct and true as of, and shall
survive, each Closing hereunder. The representations, warranties, covenants
and agreements shall survive until such time as the Registered Securities
have been disposed of in accordance with the intended methods of disposition
by the Investors or sellers thereof as set forth in the Registration
Statement.
(b) In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective
if it materially changes the economic benefit of this Agreement to any party.
Section 15.4 Title and Subtitles.
The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or
interpreting this Agreement.
Section 15.5 Reporting Entity for the Common Stock.
The reporting entity relied upon for the determination of
the trading price or trading volume of the Common Stock on any given Trading
Day for the purposes of this Agreement shall be Bloomberg, L.P. or any
successor thereto. The written mutual consent of the Investor and the Company
shall be required to employ any other reporting entity.
Section 15.6 Replacement of Certificates.
Upon (i) receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of a certificate
representing the Put Shares and (ii) in the case of any such loss, theft or
destruction of such certificate, upon delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company (which
shall not exceed that required by the Company's transfer agent in the
ordinary course) or (iii) in the case of any such mutilation, on surrender
and cancellation of such certificate, the Company at its expense will execute
and deliver, in lieu thereof, a new certificate of like tenor.
Section 15.7 Fees and Expenses.
The Company and the Investor agree to pay its own expenses
incident to the performance of its obligations hereunder, except that the
Company shall pay the fees, expenses and disbursements of Investor's counsel
in the amount of $25,000 upon execution of this Agreement. On the Execution
Date, the Company agrees to pay to the Investor or its designee a Placement
Fee of One Hundred Fifty Thousand and No/100 Dollars ($150,000.00).
34
At any point whereby the Company desires all or a portion of this equity
facility to be backed by a standby letter of credit, the Company shall pay a
1% fee on that amount. Any and all fees due to the Investor shall be paid to
the Escrow Agent, pursuant to the instructions described in the definition of
the Escrow Agent.
Section 15.8 Brokerage.
Except for the engagement of GDM Holdings, Inc. by the
Company, each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will demand
payment of any fee or commission from the other party. The Company on the one
hand, and the Investor, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any
person claiming brokerage commissions or finder's fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 15.9 Publicity.
The Company agrees that it will not issue any press release
or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investor, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from its
receipt of such proposed release; provided, however, that if the Company is
advised by its outside counsel that it is required by law or the applicable
rules of any Principal Market to issue any such press release or public
announcement, then, it may do so without the prior consent of the Investor,
although it shall be required to provide prior notice (which may be by
telephone) to the Investor that it intends to issue such press release or
public announcement. No release shall name the Investor without its express
consent.
(Signatures on following page)
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
ACIBAR INTERNATIONAL INVESTMENTS, LTD.
By:
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Title:
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BLUE SKY COMMUNICATIONS, INC.
By:
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Title:
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