STANDBY EQUITY DISTRIBUTION AGREEMENT
THIS AGREEMENT dated as of the 13th day of April 2005 (the "Agreement")
between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"), and KRONOS ADVANCED TECHNOLOGIES, INC., a corporation organized and
existing under the laws of the State of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase from the
Company up to Twenty Million U.S. Dollars ($20,000,000) of the Company's common
stock, par value $0.001 per share (the "Common Stock"); and
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
WHEREAS, the Company has engaged Newbridge Securities Corporation (the
"Placement Agent"), to act as the Company's exclusive placement agent in
connection with the sale of the Company's Common Stock to the Investor hereunder
pursuant to the Placement Agent Agreement dated the date hereof by and among the
Company, the Placement Agent and the Investor (the "Placement Agent Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Certain Definitions
Section 1.1. "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.2. "Advance Date" shall mean the date the ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Attorney
Trust Account is in receipt of the funds from the Investor and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
Esq., is in possession of free trading shares from the Company and therefore an
Advance by the Investor to the Company can be made and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq. can
release the free trading shares to the Investor. The Advance Date shall be the
first (1st) Trading Day after expiration of the applicable Pricing Period for
each Advance.
Section 1.3. "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date.
Section 1.4. "Advance Notice Date" shall mean each date the Company
delivers to the Investor an Advance Notice requiring the Investor to advance
funds to the Company, subject to the terms of this Agreement. No Advance Notice
Date shall be less than five (5) Trading Days after the prior Advance Notice
Date.
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Section 1.5. "Bid Price" shall mean, on any date, the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if
the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.6. "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate amount of up to
Twenty Million U.S. Dollars ($20,000,000) which the Investor has agreed to
provide to the Company in order to purchase the Company's Common Stock pursuant
to the terms and conditions of this Agreement.
Section 1.8. "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of Twenty Million
U.S. Dollars ($20,000,000), (y) the date this Agreement is terminated pursuant
to Section 2.4, or (z) the date occurring twenty-four (24) months after the
Effective Date.
Section 1.9. "Common Stock" shall mean the Company's common stock, par
value $0.001 per share.
Section 1.10. "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.11. "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13. "Escrow Agreement" shall mean the escrow agreement among the
Company, the Investor, and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq., dated the date hereof.
Section 1.14. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.15. "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement in any material
respect.
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Section 1.16. "Market Price" shall mean the lowest VWAP of the Common Stock
during the Pricing Period.
Section 1.17. "Maximum Advance Amount" shall be One Million Five Hundred
Thousand U.S. Dollars (US$1,500,000) per Advance Notice.
Section 1.18. "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19. "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.20. "Placement Agent" shall mean Newbridge Securities
Corporation, a registered broker-dealer.
Section 1.21. "Pricing Period" shall mean the five (5) consecutive Trading
Days after the Advance Notice Date.
Section 1.22. "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.23. "Purchase Price" shall be set at ninety eight percent (98%)
of the Market Price during the Pricing Period.
Section 1.24. "Registrable Securities" shall mean the shares of Common
Stock to be issued hereunder (i) in respect of which the Registration Statement
has not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") or (iii)
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
Section 1.25. "Registration Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.
Section 1.26. "Registration Statement" shall mean a registration statement
on Form S-1 or SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
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Section 1.27. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.28. "SEC" shall mean the Securities and Exchange Commission.
Section 1.29. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.30. "SEC Documents" shall mean Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.31. "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.32. "VWAP" shall mean the volume weighted average price of the
Company's Common Stock as quoted by Bloomberg, LP.
ARTICLE II.
Advances
Section 2.1. Investments.
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(a) Advances. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Advance Notice
Date the Company may request an Advance by the Investor by the delivery of an
Advance Notice. The number of shares of Common Stock that the Investor shall
receive for each Advance shall be determined by dividing the amount of the
Advance by the Purchase Price. No fractional shares shall be issued. Fractional
shares shall be rounded to the next higher whole number of shares. The aggregate
maximum amount of all Advances that the Investor shall be obligated to make
under this Agreement shall not exceed the Commitment Amount.
Section 2.2. Mechanics.
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(a) Advance Notice. At any time during the Commitment Period, the
Company may deliver an Advance Notice to the Investor, subject to the conditions
set forth in Section 7.2; provided, however, the amount for each Advance as
designated by the Company in the applicable Advance Notice, shall not be more
than the Maximum Advance Amount. The aggregate amount of the Advances pursuant
to this Agreement shall not exceed the Commitment Amount. There shall be a
minimum of five (5) Trading Days between each Advance Notice Date.
(b) Date of Delivery of Advance Notice. An Advance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any
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time on a day which is not a Trading Day. No Advance Notice may be deemed
delivered on a day that is not a Trading Day.
Section 2.3. Closings.
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On each Advance Date, which shall be the first (1st) Trading Day after
expiration of the applicable Pricing Period for each Advance, (i) the Company
shall deliver to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq. (the "Escrow Agent") shares of the
Company's Common Stock, representing the amount of the Advance by the Investor
pursuant to Section 2.1 herein, registered in the name of the Investor which
shall be delivered to the Investor, or otherwise in accordance with the Escrow
Agreement and (ii) the Investor shall deliver to Escrow Agent the amount of the
Advance specified in the Advance Notice by wire transfer of immediately
available funds which shall be delivered to the Company, or otherwise in
accordance with the Escrow Agreement. In addition, on or prior to the Advance
Date, each of the Company and the Investor shall deliver to the other through
the Investor's counsel, all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein. Payment of funds to the Company and
delivery of the Company's Common Stock to the Investor shall occur in accordance
with the conditions set forth above and those contained in the Escrow Agreement;
provided, however, that to the extent the Company has not paid the fees,
expenses, and disbursements of the Investor, the Investor's counsel, or the
company's counsel in accordance with Section 12.4, the amount of such fees,
expenses, and disbursements may be deducted by the Investor (and shall be paid
to the relevant party) from the amount of the Advance with no reduction in the
amount of shares of the Company's Common Stock to be delivered on such Advance
Date.
Section 2.4. Termination of Investment.
-------------------------
The obligation of the Investor to make an Advance to the Company pursuant
to this Agreement shall terminate permanently (including with respect to an
Advance Date that has not yet occurred) in the event that (i) there shall occur
any stop order or suspension of the effectiveness of the Registration Statement
for an aggregate of fifty (50) Trading Days, other than due to the acts of the
Investor, during the Commitment Period, and (ii) the Company shall at any time
fail materially to comply with the requirements of Article VI and such failure
is not cured within thirty (30) days after receipt of written notice from the
Investor, provided, however, that this termination provision shall not apply to
any period commencing upon the filing of a post-effective amendment to such
Registration Statement and ending upon the date on which such post effective
amendment is declared effective by the SEC.
Section 2.5. Agreement to Advance Funds.
--------------------------
The Investor agrees to advance the amount specified in the Advance Notice
to the Company after the completion of each of the following conditions and the
other conditions set forth in this Agreement:
(a) the execution and delivery by the Company, and the Investor, of this
Agreement and the Exhibits hereto;
(b) the Escrow Agent shall have received the shares of Common Stock
applicable to the Advance in accordance with Section 2.3. Such shares shall be
free of restrictive legends.
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(c) the Company's Registration Statement with respect to the resale of
the Registrable Securities in accordance with the terms of the Registration
Rights Agreement shall have been declared effective by the SEC;
(d) the Company shall have obtained all material permits and quali-
fications required by any applicable state for the offer and sale of the
Registrable Securities, or shall have the availability of exemptions therefrom.
The sale and issuance of the Registrable Securities shall be legally permitted
by all laws and regulations to which the Company is subject;
(e) the Company shall have filed with the Commission in a timely manner
all reports, notices and other documents required of a "reporting company" under
the Exchange Act and applicable Commission regulations;
(f) the fees as set forth in Section 12.4 below shall have been paid or
can be withheld as provided in Section 2.3; and
(g) the conditions set forth in Section 7.2 shall have been satisfied.
(h) the Company shall have provided to the Investor an acknowledgement,
from Sherb & Co. as to its ability to provide all consents required in order to
file a registration statement in connection with this transaction;
(i) The Company's transfer agent shall be DWAC eligible.
Section 2.6. Lock Up Period.
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(i) During the Commitment Period, and except as disclosed in the SEC
Documents and as set forth in the loan transaction documents by and among the
Company, Kronos Air Technologies, Inc. and FKA Distributing Co. d/b/a HoMedics,
Inc., a Michigan corporation ("HoMedics"), including that certain Master Loan
and Investment Agreement, dated May 9, 2003, that certain Secured Promissory
Note in the principal amount of $2,400,000, that certain Secured Promissory Note
in the principal amount of $1,000,000, that certain Security Agreement, dated
May 9, 2003, that certain Registration Rights Agreement, dated May 9, 2003, that
certain Warrant No. 1, dated May 9, 2003 and that certain Warrant No. 2, dated
May 9, 2003 (collectively referred to as the "HoMedics Transaction Documents"),
the Company shall not issue or sell (i) any Common Stock or Preferred Stock
without consideration or for a consideration per share less than the Bid Price
on the date of issuance or (ii) issue or sell any warrant, option, right,
contract, call, or other security or instrument granting the holder thereof the
right to acquire Common Stock without consideration or for a consideration per
share less than the Bid Price on the date of issuance.
(ii) On the date hereof, the Company shall obtain from each officer and
director a lock-up agreement, as defined below, in the form annexed hereto as
Schedule 2.6 agreeing to only sell in compliance with the volume limitation of
Rule 144.
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ARTICLE III.
Representations and Warranties of Investor
Investor hereby represents and warrants to, and agrees with, the Company
that the following are true and as of the date hereof and as of each Advance
Date:
Section 3.1. Organization and Authorization.
--------------------------------
The Investor is duly incorporated or organized and validly existing in the
jurisdiction of its incorporation or organization and has all requisite power
and authority to purchase and hold the securities issuable hereunder. The
decision to invest and the execution and delivery of this Agreement by such
Investor, the performance by such Investor of its obligations hereunder and the
consummation by such Investor of the transactions contemplated hereby have been
duly authorized and requires no other proceedings on the part of the Investor.
The undersigned has the right, power and authority to execute and deliver this
Agreement and all other instruments (including, without limitations, the
Registration Rights Agreement), on behalf of the Investor. This Agreement has
been duly executed and delivered by the Investor and, assuming the execution and
delivery hereof and acceptance thereof by the Company, will constitute the
legal, valid and binding obligations of the Investor, enforceable against the
Investor in accordance with its terms.
Section 3.2. Evaluation of Risks.
--------------------
The Investor has such knowledge and experience in financial tax and
business matters as to be capable of evaluating the merits and risks of, and
bearing the economic risks entailed by, an investment in the Company and of
protecting its interests in connection with this transaction. It recognizes that
its investment in the Company involves a high degree of risk.
Section 3.3. No Legal Advice From the Company.
--------------------------------
The Investor acknowledges that it had the opportunity to review this
Agreement and the transactions contemplated by this Agreement with his or its
own legal counsel and investment and tax advisors. The Investor is relying
solely on such counsel and advisors and not on any statements or representations
of the Company or any of its representatives or agents for legal, tax or
investment advice with respect to this investment, the transactions contemplated
by this Agreement or the securities laws of any jurisdiction.
Section 3.4. Investment Purpose.
------------------
The securities are being purchased by the Investor for its own account, for
investment and without any view to the distribution, assignment or resale to
others or fractionalization in whole or in part. The Investor agrees not to
assign or in any way transfer the Investor's rights to the securities or any
interest therein and acknowledges that the Company will not recognize any
purported assignment or transfer except in accordance with applicable Federal
and state securities laws. No other person has or will have a direct or indirect
beneficial interest in the securities. The Investor agrees not to sell,
hypothecate or otherwise transfer the Investor's securities unless the
securities are registered under Federal and applicable state securities laws or
unless, in the opinion of counsel satisfactory to the Company, an exemption from
such laws is available.
Section 3.5. Accredited Investor.
-------------------
The Investor is an "Accredited Investor" as that term is defined in Rule
501(a)(3) of Regulation D of the Securities Act.
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Section 3.6. Information.
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The Investor and its advisors (and its counsel), if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and information it deemed material to making an informed
investment decision. The Investor and its advisors, if any, have been afforded
the opportunity to ask questions of the Company and its management. Neither such
inquiries nor any other due diligence investigations conducted by such Investor
or its advisors, if any, or its representatives shall modify, amend or affect
the Investor's right to rely on the Company's representations and warranties
contained in this Agreement. The Investor understands that its investment
involves a high degree of risk. The Investor is in a position regarding the
Company, which, based upon employment, family relationship or economic
bargaining power, enabled and enables such Investor to obtain information from
the Company in order to evaluate the merits and risks of this investment. The
Investor has sought such accounting, legal and tax advice, as it has considered
necessary to make an informed investment decision with respect to this
transaction.
Section 3.7. Receipt of Documents.
---------------------
The Investor and its counsel have received and read in their entirety: (i)
this Agreement and the Exhibits annexed hereto; (ii) all due diligence and other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company's Form 10-KSB for
the year ended June 30, 2003 and Form 10-QSB for the period ended March 31,
2004; and (iv) answers to all questions the Investor submitted to the Company
regarding an investment in the Company; and the Investor has relied on the
information contained therein and has not been furnished any other documents,
literature, memorandum or prospectus.
Section 3.8. Registration Rights Agreement and Escrow Agreement.
------------------------------------------------------
The parties have entered into the Registration Rights Agreement and the
Escrow Agreement, each dated the date hereof.
Section 3.9. Not an Affiliate.
----------------
The Investor is not an officer, director or a person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with the Company or any "Affiliate" of the Company (as
that term is defined in Rule 405 of the Securities Act).
Section 3.10. Trading Activities.
------------------
The Investor's trading activities with respect to the Company's Common
Stock shall be in compliance with all applicable federal and state securities
laws, rules and regulations and the rules and regulations of the Principal
Market on which the Company's Common Stock is listed or traded. Neither the
Investor nor its affiliates has an open short position in the Common Stock of
the Company, the Investor agrees that it shall not, and that it will cause its
affiliates not to, engage in any short sales of or hedging transactions with
respect to the Common Stock.
ARTICLE IV.
Representations and Warranties of the Company
Except as stated below, on the disclosure schedules attached hereto or in
the SEC Documents (as defined herein), the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
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Section 4.1. Organization and Qualification.
------------------------------
The Company is duly incorporated or organized and validly existing in the
jurisdiction of its incorporation or organization and has all requisite power
and authority corporate power to own its properties and to carry on its business
as now being conducted. Each of the Company and its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole.
Section 4.2. Authorization, Enforcement, Compliance with Other Instruments.
-------------------------------------------------------------
(i) The Company has the requisite corporate power and authority to enter
into and perform this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Placement Agent Agreement and any related agreements, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements have
been duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Placement Agent
Agreement and assuming the execution and delivery thereof and acceptance by the
Investor and any related agreements constitute the valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
Section 4.3. Capitalization.
--------------
As of the date hereof, the authorized capital stock of the Company consists
of 500,000,000 shares of Common Stock, par value $0.001 per share and 50,000,000
shares of Preferred Stock of which 63,951,360 shares of Common Stock and 0
shares of Preferred Stock were issued and outstanding. All of such outstanding
shares have been validly issued and are fully paid and nonassessable. Except as
disclosed in the SEC Documents and preemptive rights granted in the HoMedics
Transaction Documents, no shares of Common Stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company. Except as disclosed in the SEC Documents, the HoMedics
Transaction Documents, and pursuant to any restructuring of the HoMedics
Transaction Documents, as of the date hereof, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
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securities (iii) there are no outstanding registration statements other than on
Form S-8 and (iv) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement). Except for the preemptive rights granted in the HoMedics
Transaction Documents, there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by this Agreement or
any related agreement or the consummation of the transactions described herein
or therein. As of the date hereof, the Company has granted HoMedics warrants to
purchase shares of Common Stock and following a potential restructuring of the
HoMedics transaction Documents, HoMedics could be granted additional warrants to
purchase shares of Common Stock. The Company has furnished to the Investor true
and correct copies of the Company's Certificate of Incorporation, as amended and
as in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as in effect on the date hereof (the "By-laws"), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
Section 4.4. No Conflict.
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The execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby will
not (i) result in a violation of the Certificate of Incorporation, any
certificate of designations of any outstanding series of preferred stock of the
Company or By-laws or (ii) conflict with or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market on
which the Common Stock is quoted) applicable to the Company or any of its
subsidiaries or by which any material property or asset of the Company or any of
its subsidiaries is bound or affected and which would cause a Material Adverse
Effect. Except as disclosed in the SEC Documents, neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted in violation of any material
law, ordinance, regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the Securities Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
fact or circumstance which might give rise to any of the foregoing.
Section 4.5. SEC Documents; Financial Statements.
-----------------------------------
Since January 1, 2002, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC under of
the Exchange Act. The Company has delivered to the Investor or its
representatives, or made available through the SEC's website at
▇▇▇▇://▇▇▇.▇▇▇.▇▇▇, true and complete copies of the SEC Documents, a well as the
HoMedics Transaction Documents. As of their respective dates, the financial
statements of the Company disclosed in the SEC Documents (the "Financial
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Statements") complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and, fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
Section 4.6. 10b-5.
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The SEC Documents do not include any untrue statements of material fact,
nor do they omit to state any material fact required to be stated therein
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading.
Section 4.7. No Default.
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Except as disclosed in the SEC Documents, the Company is not in default in
the performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement or any of the
exhibits or attachments hereto will conflict with or result in the breach or
violation of any of the terms or provisions of, or constitute a default or
result in the creation or imposition of any lien or charge on any assets or
properties of the Company under its Certificate of Incorporation, By-Laws, any
material indenture, mortgage, deed of trust or other material agreement
applicable to the Company or instrument to which the Company is a party or by
which it is bound, or any statute, or any decree, judgment, order, rules or
regulation of any court or governmental agency or body having jurisdiction over
the Company or its properties, in each case which default, lien or charge is
likely to cause a Material Adverse Effect on the Company's business or financial
condition.
Section 4.8. Absence of Events of Default.
----------------------------
Except for matters described in the SEC Documents and/or this Agreement, no
Event of Default, as defined in the respective agreement to which the Company is
a party, and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default (as so defined), has occurred and is
continuing, which would have a Material Adverse Effect on the Company's
business, properties, prospects, financial condition or results of operations.
Section 4.9. Intellectual Property Rights.
----------------------------
The Company and its subsidiaries own or possess adequate rights or licenses
to use all material trademarks, trade names, service marks, service ▇▇▇▇
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and rights
necessary to conduct their respective businesses as now conducted. The Company
and its subsidiaries do not have any knowledge of any infringement by the
11
Company or its subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks, service
▇▇▇▇ registrations, trade secret or other similar rights of others, and, to the
knowledge of the Company, there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
▇▇▇▇ registrations, trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company has informed the Investor of a license granted
to HoMedics and of HoMedics' rights thereunder, a set forth in the SEC
Documents.
Section 4.10. Employee Relations.
------------------
Neither the Company nor any of its subsidiaries is involved in any labor
dispute nor, to the knowledge of the Company or any of its subsidiaries, is any
such dispute threatened. None of the Company's or its subsidiaries' employees is
a member of a union and the Company and its subsidiaries believe that their
relations with their employees are good.
Section 4.11. Environmental Laws.
------------------
The Company and its subsidiaries are (i) in compliance with any and all
applicable material foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval.
Section 4.12. Title.
-----
Except as set forth in the SEC Documents and the HoMedics Transaction
Documents, the Company has good and marketable title to its properties and
material assets owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company. Any real property and facilities held
under lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
Section 4.13. Insurance.
---------
The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its subsidiaries are engaged. Neither the
Company nor any such subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a whole.
Section 4.14. Regulatory Permits.
------------------
The Company and its subsidiaries possess all material certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
12
Section 4.15. Internal Accounting Controls.
----------------------------
The Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
Section 4.16. No Material Adverse Breaches, etc.
---------------------------------
Except as set forth in the SEC Documents, neither the Company nor any of
its subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
subsidiaries. Except as set forth in the SEC Documents, neither the Company nor
any of its subsidiaries is in breach of any contract or agreement which breach,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect on the business, properties, operations, financial condition,
results of operations or prospects of the Company or its subsidiaries.
Section 4.17. Absence of Litigation.
---------------------
Except as set forth in the SEC Documents, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending against or
affecting the Company, the Common Stock or any of the Company's subsidiaries,
wherein an unfavorable decision, ruling or finding would (i) have a Material
Adverse Effect on the transactions contemplated hereby (ii) adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of the documents
contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
Section 4.18. Subsidiaries.
------------
Except as disclosed in the SEC Documents, the Company does not presently
own or control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.
Section 4.19. Tax Status.
-----------
Except as disclosed in the SEC Documents, the Company and each of its
subsidiaries has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject and (unless and only to the extent that the Company and each of its
subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
13
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
Section 4.20. Certain Transactions.
--------------------
Except as set forth in the SEC Documents none of the officers, directors,
or employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
Section 4.21. Fees and Rights of First Refusal.
--------------------------------
Except as set forth in the SEC Documents, the HoMedics Transaction
Documents and pursuant to a potential restructuring of the HoMedics Transaction
Documents, the Company is not obligated to offer the securities offered
hereunder on a right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers, agents or other third parties.
Section 4.22. Use of Proceeds.
---------------
The Company shall use the net proceeds from this offering for general
corporate purposes, including, without limitation, the payment of loan incurred
by the Company. However, in no event shall the Company use the net proceeds from
this offering, for the payment (or loaned to any such person for the payment) of
any judgment, or other liability, incurred by any executive officer, officer,
director or employee of the Company, except for any liability owed to such
person for services rendered, or if any judgment or other liability is incurred
by such person originating from services rendered to the Company, or the Company
has indemnified such person from liability.
Section 4.23. Further Representation and Warranties of the Company.
----------------------------------------------------
For so long as any securities issuable hereunder held by the Investor
remain outstanding, the Company acknowledges, represents, warrants and agrees
that it will maintain the listing of its Common Stock on the Principal Market.
Section 4.24. Opinion of Counsel.
------------------
Investor shall receive an opinion letter from counsel to the Company on the
date hereof.
Section 4.25. Opinion of Counsel.
------------------
The Company will obtain for the Investor, at the Company's expense, any and
all opinions of counsel which may be reasonably required in order to sell the
securities issuable hereunder without restriction.
Section 4.26. Dilution.
--------
The Company is aware and acknowledges that issuance of shares of the
Company's Common Stock could cause dilution to existing shareholders and could
significantly increase the outstanding number of shares of Common Stock. The
Company has informed the Investor of the potential dilution from warrants issued
to HoMedics in connection with the HoMedics Transaction Documents and pursuant
to additional warrants issued prior to a potential restructuring of the HoMedics
Transaction Documents.
14
ARTICLE V.
Indemnification
The Investor and the Company represent to the other the following with
respect to itself:
Section 5.1. Indemnification.
---------------
(a) In consideration of the Investor's execution and delivery of this
Agreement, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Investor, and all of its officers, directors, partners, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Investor
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Investor Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by the Investor Indemnitees or any of them as a result
of, or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Investor Indemnitee not arising out of any action or inaction of an
Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Investor's other obligations under this
Agreement, the Investor shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, shareholders, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Company
Indemnitees") from and against any and all Indemnified Liabilities incurred by
the Company Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Investor in this Agreement, the Registration Rights
Agreement, or any instrument or document contemplated hereby or thereby
15
executed by the Investor, (b) any breach of any covenant, agreement or
obligation of the Investor(s) contained in this Agreement, the Registration
Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby executed by the Investor, or (c) any cause of action, suit or
claim brought or made against such Company Indemnitee based on
misrepresentations or due to a breach by the Investor and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnitees. To the extent that the foregoing
undertaking by the Investor may be unenforceable for any reason, the Investor
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.
(c) The obligations of the parties to indemnify or make contribution
under this Section 5.1 shall survive termination.
ARTICLE VI.
Covenants of the Company
Section 6.1. Registration Rights.
-------------------
The Company shall cause the Registration Rights Agreement to remain in full
force and effect and the Company shall comply in all material respects with the
terms thereof.
Section 6.2. Listing of Common Stock.
-----------------------
The Company shall maintain the Common Stock's authorization for quotation
on the National Association of Securities Dealers Inc.'s Over the Counter
Bulletin Board.
Section 6.3. Exchange Act Registration.
--------------------------
The Company will cause its Common Stock to continue to be registered under
Section 12(g) of the Exchange Act, will file in a timely manner all reports and
other documents required of it as a reporting company under the Exchange Act and
will not take any action or file any document (whether or not permitted by
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said
Exchange Act.
Section 6.4. Transfer Agent Instructions.
---------------------------
Upon effectiveness of the Registration Statement the Company shall deliver
instructions to its transfer agent to issue shares of Common Stock to the
Investor free of restrictive legends on or before each Advance Date
Section 6.5. Corporate Existence.
-------------------
The Company will take all steps necessary to preserve and continue the
corporate existence of the Company.
Section 6.6. Notice of Certain Events Affecting Registration;
-----------------------------------------------
Suspension of Right to Make an Advance.
-------------- -----------------------
The Company will immediately notify the Investor upon its becoming aware of
the occurrence of any of the following events in respect of a registration
statement or related prospectus relating to an offering of Registrable
Securities: (i) receipt of any request for additional information by the SEC or
any other Federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to the
registration statement or related prospectus; (ii) the issuance by the SEC or
any other Federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
16
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus of any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Advance Notice during the
continuation of any of the foregoing events.
Section 6.7. Restriction on Sale of Capital Stock.
------------------------------------
During the Commitment Period and except as set forth in the SEC Documents,
the HoMedics Transaction Documents and pursuant to a potential restructuring of
the HoMedics Transaction Documents, the Company shall not issue or sell (i) any
Common Stock or Preferred Stock without consideration or for a consideration per
share less than the bid price of the Common Stock determined immediately prior
to its issuance, (ii) issue or sell any Preferred Stock warrant, option, right,
contract, call, or other security or instrument granting the holder thereof the
right to acquire Common Stock without consideration or for a consideration per
share less than such Common Stock's Bid Price determined immediately prior to
its issuance, or (iii) file any registration statement on Form S-8.
Section 6.8. Consolidation; Merger.
---------------------
The Company shall not, at any time after the date hereof, effect any merger
or consolidation of the Company with or into, or a transfer of all or
substantially all the assets of the Company to another entity (a "Consolidation
Event") unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligation to deliver to the Investor such
shares of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement.
Section 6.9. Issuance of the Company's Common Stock.
--------------------------------------
The sale of the shares of Common Stock shall be made in accordance with the
provisions and requirements of Regulation D and any applicable state securities
law.
ARTICLE VII.
Conditions for Advance and Conditions to Closing
Section 7.1. Conditions Precedent to the Obligations of the Company.
------------------------------------------------------
The obligation hereunder of the Company to issue and sell the shares of
Common Stock to the Investor incident to each Closing is subject to the
satisfaction, or waiver by the Company, at or before each such Closing, of each
of the conditions set forth below.
17
(a) Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement and the Registration Rights Agreement to
be performed, satisfied or complied with by the Investor at or prior to such
Closing.
Section 7.2. Conditions Precedent to the Right of the Company to Deliver an
--------------------------------------------------------------
Advance Notice and the Obligation of the Investor to Purchase
--------------------------------------------------------------
Shares of Common Stock.
----------------------
The right of the Company to deliver an Advance Notice and the obligation of
the Investor hereunder to acquire and pay for shares of the Company's Common
Stock incident to a Closing is subject to the fulfillment by the Company, on (i)
the date of delivery of such Advance Notice and (ii) the applicable Advance Date
(each a "Condition Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. The Company shall
have filed with the SEC a Registration Statement with respect to the resale of
the Registrable Securities in accordance with the terms of the Registration
Rights Agreement. As set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
the Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and the Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of
the Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first
Advance Notice Date.
(b) Authority. The Company shall have obtained all permits and
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(c) Fundamental Changes. There shall not exist any fundamental changes
to the information set forth in the Registration Statement which would require
the Company to file post-effective amendment to the Registration Statement.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement (including, without limitation, the
conditions specified in Section 2.5 hereof) and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
18
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(f) No Suspension of Trading in or Delisting of Common Stock. The
trading of the Common Stock is not suspended by the SEC or the Principal Market
(if the Common Stock is traded on a Principal Market). The issuance of shares of
Common Stock with respect to the applicable Closing, if any, shall not violate
the shareholder approval requirements of the Principal Market (if the Common
Stock is traded on a Principal Market). The Company shall not have received any
notice threatening the continued listing of the Common Stock on the Principal
Market (if the Common Stock is traded on a Principal Market).
(g) Maximum Advance Amount. The amount of an Advance requested by the
Company shall not exceed the Maximum Advance Amount. In addition, in no event
shall the number of shares issuable to the Investor pursuant to an Advance cause
the aggregate number of shares of Common Stock beneficially owned by the
Investor and its affiliates to exceed nine and 9/10 percent (9.9%) of the then
outstanding Common Stock of the Company. For purposes of this section,
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act.
(h) No Knowledge. The Company has no knowledge of any event which would
be more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective.
(i) Other. On each Condition Satisfaction Date, the Investor shall have
received the certificate executed by an officer of the Company in the form of
Exhibit A attached hereto.
ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1. Due Diligence Review.
--------------------
Prior to the filing of the Registration Statement the Company shall make
available for inspection and review by the Investor, its advisors and
representatives, and any underwriter participating in any disposition of the
Registrable 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 financial and other records, all SEC
Documents and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such information reasonably requested by the 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
19
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
----------------------------------------
(a) The Company shall not disclose non-public information to the Investor,
its advisors, or its representatives, 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) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE IX.
Choice of Law/Jurisdiction
Section 9.1. Governing Law.
-------------
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Nevada without regard to the principles of conflict of
laws. The parties further agree that any action between them shall be heard in
▇▇▇▇▇▇ County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in ▇▇▇▇▇▇ County, New Jersey and
the United States District Court of New Jersey, sitting in Newark, New Jersey,
for the adjudication of any civil action asserted pursuant to this paragraph.
20
ARTICLE X.
Assignment; Termination
Section 10.1. Assignment.
----------
Neither this Agreement nor any rights of the Company hereunder may be
assigned to any other Person.
Section 10.2. Termination.
-----------
The obligations of the Investor to make Advances under Article II hereof
shall terminate twenty-four (24) months after the Effective Date.
ARTICLE XI.
Notices
Section 11.1. Notices.
-------
Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed
by U.S. certified mail, return receipt requested; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company, to: Kronos Advanced Technologies, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor(s): Cornell Capital Partners, LP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ -▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Portfolio Manager
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
22
With a Copy to: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
ARTICLE XII.
Miscellaneous
Section 12.1. Counterparts.
------------
This Agreement may be executed in two or more identical counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause four (4)
additional original executed signature pages to be physically delivered to the
other party within five (5) days of the execution and delivery hereof, though
failure to deliver such copies shall not affect the validity of this Agreement.
Section 12.2. Entire Agreement; Amendments.
----------------------------
This Agreement supersedes all other prior oral or written agreements
between the Investor, the Company, their affiliates and persons acting on their
behalf with respect to the matters discussed herein, and this Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Investor
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
Section 12.3. Reporting Entity for the Common Stock.
-------------------------------------
The reporting entity relied upon for the determination of the trading price
or trading volume of the Common Stock on any given Trading Day for the purposes
of this Agreement shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.
Section 12.4. Fees and Expenses.
-----------------
The Company hereby agrees to pay the following fees:
(a) Structuring Fees.
Each of the parties shall pay its own fees and expenses (including
the fees of any attorneys, accountants, appraisers or others engaged by such
party) in connection with this Agreement and the transactions contemplated
hereby, except that the Company and the Investor hereby acknowledge that the
Company previously paid a structuring fee of Fifteen Thousand Dollars ($15,000)
to Yorkville Advisors Management, LLC. Subsequently on each advance date, the
Company will pay Yorkville Advisors Management, LLC a structuring fee of Five
Hundred Dollars ($500) and any outstanding fees of ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
directly out the proceeds of any Advances hereunder.
22
(b) Due Diligence Fee.
The Company and the Investor hereby acknowledge that the Company
previously paid the Investor a non-refundable due diligence fee of Two Thousand
Five Hundred Dollars ($2,500) upon submission of the due diligence documents to
the Investor.
(c) Commitment Fees.
(i) On each Advance Date the Company shall pay to the Investor,
directly from the gross proceeds held in escrow, an amount equal to five percent
(5%) of the amount of each Advance. The Company hereby agrees that if such
payment, as is described above, is not made by the Company on the Advance Date,
such payment will be made at the direction of the Investor as outlined and
mandated by Section 2.3 of this Agreement.
(ii) Six (6) months from the date hereof the Company shall issue to
the Investor One Million Four Hundred Seventy Thousand Five Hundred Eighty Seven
(1,470,587) shares of the Company's Common Stock and on the twelve (12) month
anniversary of the execution of this Agreement the Company shall issue to the
Investor One Million Four Hundred Seventy Thousand Five Hundred Eighty Eight
(1,470,588)shares of the Company's Common Stock (the "Investor's Shares"). In
the event this Agreement is terminated in accordance with the terms of this
Agreement, or the Company does not forward any Advance Notices during the term
of this Agreement (as defined herein), the Investor shallreturn Two Million Five
Hundred (2,500,000) shares of the Investor's Shares to the Company.
(ii) Fully Earned. The Investor's Shares shall be deemed fully
earned as of the date hereof.
(iv) Registration Rights. The Investor's Shares will have
"piggy-back" registration rights.
(v) Due Diligence Fee. In addition, the Company shall pay to the
Investor a non-refundable due diligence fee of Two Thousand Five Hundred Dollars
($2,500).
Section 12.5. Brokerage.
---------
Each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will demand
payment of any fee or commission from the other party. The Company on the one
hand, and the Investor, on the other hand, agree to indemnify the other against
and hold the other harmless from any and all liabilities to any person claiming
brokerage commissions or finder's fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby.
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Section 12.6. Confidentiality.
---------------
If for any reason the transactions contemplated by this Agreement are not
consummated, each of the parties hereto shall keep confidential any information
obtained from any other party (except information publicly available or in such
party's domain prior to the date hereof, and except as required by court order)
and shall promptly return to the other parties all schedules, documents,
instruments, work papers or other written information without retaining copies
thereof, previously furnished by it as a result of this Agreement or in
connection herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
COMPANY:
KRONOS ADVANCED TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Portfolio Manager
25
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
KRONOS ADVANCED TECHNOLOGIES, INC.
The undersigned, _______________________ hereby certifies, with respect to
the sale of shares of Common Stock of KRONOS ADVANCED TECHNOLOGIES, INC. (the
"Company"), issuable in connection with this Advance Notice and Compliance
Certificate dated ___________________ (the "Notice"), delivered pursuant to the
Standby Equity Distribution Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected ______________ of the Company.
2. There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The undersigned hereby represents, warrants and covenants that it has
made all filings ("SEC Filings") required to be made by it pursuant to
applicable securities laws (including, without limitation, all filings required
under the Securities Exchange Act of 1934, which include Forms 10-Q, 10-K, 8-K,
etc. All SEC Filings and other public disclosures made by the Company,
including, without limitation, all press releases, analysts meetings and calls,
etc. (collectively, the "Public Disclosures"), have been reviewed and approved
for release by the Company's attorneys and, if containing financial information,
the Company's independent certified public accountants. None of the Company's
Public Disclosures contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
5. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of _______________.
KRONOS ADVANCED TECHNOLOGIES, INC.
By:
--------------------------------
Name:
Title:
26
SCHEDULE 2.6
KRONOS ADVANCED TECHNOLOGIES, INC.
The undersigned hereby agrees that for a period commencing on the date
hereof and expiring on the termination of the Agreement dated _________ __, 2005
between Kronos Advanced Technologies, Inc., (the "Company"), and Cornell Capital
Partners, LP, (the "Investor") (the "Lock-up Period"), he, she or it will not,
directly or indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of except pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act of 1933, any securities of the Company, including
common stock or options, rights, warrants or other securities underlying,
convertible into, exchangeable or exercisable for or evidencing any right to
purchase or subscribe for any common stock (whether or not beneficially owned by
the undersigned), or any beneficial interest therein (collectively, the
"Securities").
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Company's securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned's investment in
the Company.
Dated: _______________, 2005
Signature
Name:
-------------------------------------------
Address:
-----------------------------------------
City, State, Zip Code:
---------------------------
-------------------------------------------------
Print Social Security Number
or Taxpayer I.D. Number
27
