EQUITY CREDIT AGREEMENT BY AND BETWEEN AGFEED INDUSTRIES, INC. AND SOUTHRIDGE PARTNERS II, LP Dated September 9, 2009 Amended and Restated November 9, 2009
Exhibit
10.20
BY
AND BETWEEN
AND
SOUTHRIDGE
PARTNERS II, LP
Dated
September
9, 2009
Amended
and Restated November 9, 2009
THIS EQUITY CREDIT AGREEMENT was
originally entered into as of the 9th day of September, 2009 and is hereby
amended and restated in its entirety as of the 9th day of November, 2009 (this
"AGREEMENT"), by and between SOUTHRIDGE PARTNERS II, LP,
Delaware limited partnership ("INVESTOR"), and AGFEED INDUSTRIES, 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 Investor, from time to time as provided herein, and Investor
shall purchase, up to Fifty Million Dollars ($50,000,000) of its Common Stock
(as defined below); and
NOW, THEREFORE, the parties hereto
agree as follows:
ARTICLE
I
CERTAIN
DEFINITIONS
Section
1.1 DEFINED TERMS as used
in this Agreement, the following terms shall have the following meanings
specified or indicated (such meanings to be equally applicable to both the
singular and plural forms of the terms defined)
"AGREEMENT" shall have the meaning
specified in the preamble hereof.
"BLACKOUT NOTICE" shall mean a written
notice from the Company to the Investor with respect to the existence of a
Potential Material Event.
“BLACKOUT PERIOD" shall have the
meaning specified in Section 2.6
“BLACKOUT SHARES" shall have the
meaning specified in Section 2.6
"BY-LAWS" shall have the meaning
specified in Section 4.8.
"CERTIFICATE" shall have the meaning
specified in Section 4.8.
"CLAIM NOTICE" shall have the meaning
specified in Section 9.3(a).
"CLOSING" shall mean one of the
closings of a purchase and sale of shares of Common Stock pursuant to Section
2.3.
“CLOSING BID PRICE” shall mean the
closing bid price as reported by the Principal Market.
"CLOSING CERTIFICATE " shall mean the
closing certificate of the Company in the form of Exhibit D
hereto.
1
"CLOSING DATE" shall mean, with respect
to a Closing, the sixth (6th) Trading Day following the Put Date related to such
Closing, or such earlier date as the Company and Investor shall agree, provided
all conditions to such Closing have been satisfied on or before such Trading
Day.
"COMMITMENT PERIOD" shall mean the
period commencing on the Effective Date, and ending on the earlier of (i) the
date on which Investor shall have purchased Put Shares pursuant to this
Agreement for an aggregate Purchase Price of the Maximum Commitment Amount, (ii)
the date this Agreement is terminated pursuant to Section 2.5, or (iii) the date
occurring twenty four (24) months from the date of commencement of the
Commitment Period.
"COMMON STOCK" shall mean the Company's
common stock, $0.001 par value per share, and any shares of any other class of
common stock whether now or hereafter authorized, having the right to
participate in the distribution of dividends (as and when declared) and assets
(upon liquidation of the Company).
"COMMON STOCK EQUIVALENTS" shall mean
any securities that are convertible into or exchangeable for Common Stock or any
options or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
"COMPANY" shall have the meaning
specified in the preamble to this Agreement.
"CONDITION SATISFACTION DATE" shall
have the meaning specified in Section 7.2.
"DAMAGES" shall mean any loss, claim,
damage, liability, cost and expense (including, without limitation, reasonable
attorneys' fees and disbursements and costs and expenses of expert witnesses and
investigation).
"DISPUTE PERIOD" shall have the meaning
specified in Section 9.3(a).
“DOLLAR VOLUME” shall mean the product
of (a) the Closing Bid Price times (b) the volume on the Principal Market on a
Trading Day.
"DTC" shall have the meaning specified
in Section 2.3.
"DWAC" shall have the meaning specified
in Section 2.3.
"EFFECTIVE DATE" shall mean the date on
which the SEC first declares effective a Registration Statement, or any
amendment thereof, registering the Registrable Securities as set forth in
Section 7.2(a) or, if later, the date on which the Company and the Investor
originally executed and delivered this Agreement.
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"EXCHANGE ACT" shall mean the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder.
"FAST" shall have the meaning specified
in Section 2.3.
"FINRA" shall mean the Financial
Industry Regulatory Authority, Inc.
"INDEMNIFIED PARTY" shall have the
meaning specified in Section 9.3(a).
"INDEMNIFYING PARTY" shall have the
meaning specified in Section 9.3(a).
"INDEMNITY NOTICE" shall have the
meaning specified in Section 9.3(b).
"INVESTMENT AMOUNT" shall mean the
dollar amount (within the range specified in Section 2.2) to be invested by
Investor to purchase Put Shares with respect to any Put as notified by the
Company to Investor in accordance with Section 2.2.
"INVESTOR" shall have the meaning
specified in the preamble to this Agreement.
"LEGEND" shall have the meaning
specified in Section 8.1.
"MARKET PRICE" shall mean the lowest
Closing Bid Price during the Valuation Period.
"MATERIAL ADVERSE EFFECT" shall mean
any effect on the business, operations, properties, or financial condition of
the Company that is material and adverse to the Company and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform its obligations under
any of (a) this Agreement and (b) the Registration Rights
Agreement.
"MAXIMUM COMMITMENT AMOUNT" shall mean
Fifty Million Dollars ($50,000,000).
“MAXIMUM PUT AMOUNT” shall mean, with
respect to any Put, the lesser of (a) Two Million Five Hundred Thousand Dollars
($2,500,000), or (b) Three Hundred (300%) percent of the average of the Dollar
Volume for the twenty (20) Trading Days immediately preceding the Put
Date.
"NEW BID PRICE" shall have the meaning
specified in Section 2.6.
"OLD BID PRICE" shall have the meaning
specified in Section 2.6.
3
"OUTSTANDING" shall mean, with respect
to the Common Stock, at any date as of which the number of shares of Common
Stock is to be determined, all issued and outstanding shares of Common Stock,
including all shares of Common Stock issuable in respect of outstanding
convertible securities, scrip or any certificates representing fractional
interests in shares of Common Stock; provided, however, that Outstanding shall
not include any shares of Common Stock then directly or indirectly owned or held
by or for the account of the Company.
"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.
"POTENTIAL MATERIAL EVENT" shall mean
any of the following: (a) the possession by the Company of material information
not ripe for disclosure in a Registration Statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the Registration Statement would be
detrimental to the business and affairs of the Company, or (b) any material
engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company, be adversely affected by
disclosure in a Registration Statement at such time, which determination shall
be accompanied by a good faith determination by the Board of Directors of the
Company that the Registration Statement would be materially misleading absent
the inclusion of such information.
"PRINCIPAL MARKET" shall mean the
Nasdaq Global Market, or other principal exchange which is at the time the
principal trading exchange or market for the Common Stock.
"PURCHASE PRICE" shall mean, with
respect to any Put, 95% of the Market Price on such date on which the Purchase
Price is calculated in accordance with the terms and conditions of this
Agreement.
"PUT" shall mean the right of the
Company to require the Investor to purchase shares of Common Stock, subject to
the terms and conditions of this Agreement.
"PUT DATE" shall mean any Trading Day
during the Commitment Period that a Put Notice is deemed delivered pursuant to
Section 2.2(b).
"PUT NOTICE" shall mean a written
notice, substantially in the form of Exhibit B hereto, to Investor setting forth
the Investment Amount with respect to which the Company intends to require
Investor to purchase shares of Common Stock pursuant to the terms of this
Agreement.
"PUT SHARES" shall mean all shares of
Common Stock issued or issuable pursuant to a Put that has been exercised or may
be exercised in accordance with the terms and conditions of this
Agreement.
4
"REGISTRABLE SECURITIES" shall mean the
(a) Put Shares, (b) the Blackout Shares, (c) the Warrant Shares and (d) any
securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a Registration
Statement has been declared effective by the SEC and such Registrable Securities
have been disposed of pursuant to a Registration Statement, (ii) such
Registrable Securities have been sold under circumstances under which all of the
applicable conditions of Rule 144 are met, (iii) such time as such Registrable
Securities have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act or (iv) in the opinion of counsel
to the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities Act
or the need for an exemption from any such registration requirements and without
any time, volume or manner limitations pursuant to Rule 144(b)(i) (or any
similar provision then in effect) under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall
mean the registration rights agreement in the form of Exhibit A
hereto.
"REGISTRATION STATEMENT" shall mean a
registration statement on such 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 Investor
of the Registrable Securities under the Securities Act.
"REGULATION D" shall mean Regulation D
promulgated under the Securities Act.
"REMAINING PUT SHARES" shall have the
meaning specified in Section 2.6.
"RULE 144" shall mean Rule 144 under
the Securities Act or any similar provision then in force under the Securities
Act.
"SEC" shall mean the Securities and
Exchange Commission.
"SECURITIES ACT" shall have the meaning
specified in the recitals of this Agreement.
"SEC DOCUMENTS" shall mean, as of a
particular date, all reports and other documents file by the Company pursuant to
Section 13(a) or 15(d) of the Exchange Act since the beginning of the Company's
then most recently completed fiscal year as of the time in question (provided
that if the date in question is within ninety days of the beginning of the
Company's fiscal year, the term shall include all documents filed since the
beginning of the second preceding fiscal year).
5
“SHORT SALES” shall mean all “short
sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but
shall not be deemed to include the location and/or reservation of borrowable
shares of Common Stock).
"SUBSCRIPTION DATE" shall mean the date
on which this Agreement is executed and delivered by the Company and
Investor.
"THIRD PARTY CLAIM" shall have the
meaning specified in Section 9.3(a).
“TRADING DAY” shall mean a day on which
the Principal Market shall be open for business.
“TRANSACTION DOCUMENTS” shall mean this
Equity Credit Agreement, the Registration Rights Agreement, Closing Certificate,
and the Transfer Agent Instructions.
"TRANSFER AGENT" shall mean the
transfer agent for the Common Stock (and to any substitute or replacement
transfer agent for the Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent).
"UNDERWRITER" shall mean any
underwriter participating in any disposition of the Registrable Securities on
behalf of Investor pursuant to a Registration Statement.
"VALUATION EVENT" shall mean an event
in which the Company at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or
combines the Common Stock;
(b) pays
a dividend in shares of Common Stock or makes any other distribution of shares
of Common Stock, except for dividends paid with respect to any series of
preferred stock authorized by the Company, whether existing now or in the
future;
(c) issues
any options or other rights to subscribe for or purchase shares of Common Stock
other than pursuant to this Agreement and the price per share for which shares
of Common Stock may at any time thereafter be issuable pursuant to such options
or other rights shall be less than the Closing Bid Price in effect immediately
prior to such issuance;
(d) issues
any securities convertible into or exchangeable for shares of Common Stock and
the consideration per share for which shares of Common Stock may at any time
thereafter be issuable pursuant to the terms of such convertible or exchangeable
securities shall be less than the Closing Bid Price in effect
immediately prior to such issuance;
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(e) issues
shares of Common Stock otherwise than as provided in the foregoing subsections
(a) through (d), at a price per share less, or for other consideration lower,
than the Closing Bid Price in effect immediately prior to such issuance, or
without consideration; or
(f) makes
a distribution of its assets or evidences of indebtedness to the holders of
Common Stock 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).
"VALUATION PERIOD" shall mean the
period of five (5) Trading Days immediately following the date on which the
applicable Put Notice is deemed to be delivered and during which the Purchase
Price of the Common Stock is valued; provided, however, that if a Valuation
Event occurs during any Valuation Period, a new Valuation Period shall begin on
the Trading Day immediately after the occurrence of such Valuation Event and end
on the fifth (5th) Trading
Day thereafter.
“WARRANT” shall mean the Common Stock
Purchase Warrant delivered to Investor upon filing, after the Subscription Date,
of the Registration Statement, or an applicable supplement or amendment, in
accordance with Section 2.1(b) hereof, which Warrant shall be exercisable
immediately and have a term of exercise equal to 5 years, in the form of Exhibit E attached
hereto.
“WARRANT SHARES” shall mean the shares
of Common Stock issuable upon exercise of the Warrant.
ARTICLE
II
PURCHASE
AND SALE OF COMMON STOCK
Section
2.1 INVESTMENTS.
(a) PUTS. Upon
the terms and conditions set forth herein (including, without limitation, the
provisions of Article VII), on any Put Date the Company may exercise a Put by
the delivery of a Put Notice. The number of Put Shares that Investor shall
purchase pursuant to such Put shall be determined by dividing the Investment
Amount specified in the Put Notice by the Purchase Price with respect to such
Put Notice.
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(b) WARRANT. As
a condition for the execution of this Agreement by the Investor, the Company
shall grant the Investor a transferable, divisible Warrant to purchase 400,000
shares of Common Stock, at an exercise price equal to $5.75, with a five year
term, and cashless exercise rights in the form annexed hereto as Exhibit
E. The Warrant and the Warrant Shares shall be included in the
Registration Statement, and any amendment or supplement thereto. The Warrant
shall be delivered to the Investor upon filing, after the Subscription Date, of
the Registration Statement, or an applicable supplement or
amendment.
Section
2.2 MECHANICS.
(a) PUT
NOTICE. At any time and from time to time during the Commitment Period, the
Company may deliver a Put Notice to Investor, subject to the conditions set
forth in Section 7.2; provided, however, that the Investment Amount identified
in the applicable Put Notice shall not be greater than the Maximum Put Amount
and, when taken together with any prior Put Notices, shall not exceed the
Maximum Commitment.
(b) DATE OF
DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered on (i) the
Trading Day it is received by facsimile or otherwise by Investor if such notice
is received on or 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 anytime on a day which is not a
Trading Day.
Section
2.3 CLOSINGS. On or prior
to each Closing Date for any Put, (a) the Company shall deliver to the Investor
one or more certificates, at Investor's option, representing the Put Shares
purchased by Investor pursuant to Section 2.1 herein, registered in the name of
Investor and (b) Investor shall deliver the Investment Amount specified in the
Put Notice by wire transfer of immediately available funds to an account
designated by the Company within twenty four (24) hours of receipt of the Put
Shares. In lieu of delivering physical certificates representing the Common
Stock issuable in accordance with clause (a) of this Section 2.3, and provided
that the Transfer Agent then is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of
Investor, but subject to the applicable provisions of Article VIII hereof, the
Company shall use its commercially reasonable efforts to cause the Transfer
Agent to electronically transmit, prior to the applicable Closing Date, the
applicable Put Shares by crediting the account of the Investor's prime broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system, and
provide proof satisfactory to the Investor of such delivery. In
addition, on or prior to such Closing Date, each of the Company and Investor
shall deliver to each other all documents, instruments and writings required to
be delivered or reasonably requested by either of them pursuant to this
Agreement in order to implement and effect the transactions contemplated
herein.
Section
2.4 [INTENTIONALLY
OMITTED]
Section
2.5 [INTENTIONALLY
OMITTED]
Section
2.6 BLACKOUT
SHARES.
8
(a) If
at any time or from time to time after the date of effectiveness of the
Registration Statement, the Company delivers a Blackout Notice to the Investor,
the Investor shall not offer or sell any Put Shares, Warrant Shares, or Blackout
Shares (as defined below), or engage in any other transaction involving or
relating the such shares, from the time of the Blackout Notice until Investor
receives written notice from the Company that such Potential Material Event
either has been disclosed to the public or no longer constitutes a Potential
Material Event (such period, a "Blackout Period").
(b) In
the event that, (i) within fifteen (15) Trading Days following any Closing Date,
the Company delivers a Blackout Notice to Investor, and (ii) the Closing Bid
Price on the Trading Day immediately preceding the applicable Blackout Period
("OLD BID PRICE") is greater than the Closing Bid Price on the first Trading Day
following such Blackout Period that Investor may sell its Registrable Securities
pursuant to an effective Registration Statement ("NEW BID PRICE"), then the
Company shall issue to Investor the number of additional shares of Registrable
Securities (the "BLACKOUT SHARES") equal to the excess of (x) the product of the
number of Put Shares held by Investor immediately prior to the Blackout Period
that were issued on the most recent Closing Date (the "REMAINING PUT SHARES")
multiplied by the Old Bid Price, divided by the New Bid Price, over (y) the
Remaining Put Shares.
Section
2.7
[INTENTIONALLY OMITTED]
Section
2.8 LIQUIDATED
DAMAGES. Each of the Company and Investor acknowledge and agree that the
requirement to issue Blackout Shares under Section 2.6 shall give rise to
liquidated damages and not penalties. Each of the Company and Investor further
acknowledge that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amount specified in
such Section bears a reasonable proportion and is not plainly or grossly
disproportionate to the probable loss likely to be incurred by Investor in
connection with a Blackout Period, and (c) each of the Company and Investor are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's
length.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF INVESTOR
Investor represents and warrants to the
Company that:
Section
3.1 INTENT. Investor is
entering into this Agreement for its own account and 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 Investor
reserves the right to dispose of the Common Stock at any time in accordance with
federal and state securities laws applicable to such
disposition.
9
Section
3.2 NO LEGAL ADVICE FROM
THE COMPANY. The Investor acknowledges that it has had
the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel and investment and tax
advisors. The 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
3.3 SOPHISTICATED INVESTOR.
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
is capable of evaluating the merits and risks of an investment in the Common
Stock. Investor acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.
Section
3.4 AUTHORITY. (a) Investor
has the requisite power and authority to enter into and perform its obligations
under this Agreement and the transactions contemplated hereby in accordance with
its terms; (b) the execution and delivery of this Agreement and the Registration
Rights Agreement, and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action and no
further consent or authorization of Investor or its partners is required; and
(c) each of this Agreement and the Registration Rights Agreement has been duly
authorized and validly executed and delivered by Investor and constitutes a
valid and binding obligation of 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
3.5 NOT AN AFFILIATE.
Investor is not an officer, director or "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of the Company.
Section
3.6 ORGANIZATION AND
STANDING. Investor is a limited partnership duly organized, validly existing and
in good standing under the laws of the Delaware and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Investor is duly qualified and in good standing in every
jurisdiction in which the 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 on Investor.
Section
3.7 ABSENCE OF CONFLICTS.
The execution and delivery of this Agreement and any other document or
instrument contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof, will not (a) violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on Investor, (b) 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, or conflict with or
constitute a material default thereunder, (c) result in the 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 (that has not
been obtained) pursuant to any material contract, instrument, agreement,
relationship or legal obligation to which Investor is subject or to which any of
its assets, operations or management may be subject.
10
Section
3.8 DISCLOSURE; ACCESS TO
INFORMATION. Investor had an opportunity to review copies of the SEC Documents
filed on behalf of the Company and has had access to all publicly available
information with respect to the Company.
Section
3.9 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 3.10 FINANCIAL
CAPABILITY. Investor presently has the financial capacity and the necessary
capital to perform its obligations hereunder.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The Company represents and warrants to
Investor that, except as disclosed in the SEC Documents:
Section
4.1 ORGANIZATION OF THE
COMPANY. The Company is a corporation duly organized and validly existing and in
good standing under the laws of the State of Nevada and has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Company 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 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
4.2 AUTHORITY. (a) The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement and the Registration Rights
Agreement and to issue the Put Shares, Warrant Shares and Blackout Shares, if
any; (b) the execution and delivery of this Agreement and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required; and (c) each of this Agreement
and the Registration Rights Agreement has been duly executed and delivered by
the Company and constitutes 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.
11
Section
4.3 CAPITALIZATION. As of
the date hereof, the authorized capital stock of the Company consists of (i)
75,000,000 shares of Common Stock, $0.001 par value per share, of which
42,200,263 shares are outstanding as of the date hereof.
Except as otherwise disclosed in the
SEC Documents, there are no outstanding securities which are convertible into
shares of Common Stock, whether such conversion is currently exercisable or
exercisable only upon some future date or the occurrence of some event in the
future.
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.
Section
4.4 COMMON STOCK. The
Company has registered the Common Stock pursuant to Section 12(b) or 12(g) of
the Exchange Act and is in full compliance with all reporting requirements of
the Exchange Act, and the Company has maintained all requirements for the
continued listing or quotation of the Common Stock, and such Common Stock is
currently listed or quoted on the Principal Market. The Company has taken no
action designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the SEC is contemplating terminating
such registration.
Section
4.5 SEC DOCUMENTS. The
Company may make available to Investor true and complete copies of the SEC
Documents (including, without limitation, proxy information and solicitation
materials). To the Company’s knowledge, the Company has not provided to 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
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and other federal, state and local laws,
rules and regulations applicable to such SEC Documents, and none of the SEC
Documents contained any untrue statement of a material fact or omitted 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 included in the SEC
Documents comply as to form and substance 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. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such financial statements or the
notes thereto or (b) in the case of unaudited interim statements, to the extent
they may not include 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 statements, to normal
year-end audit adjustments).
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Section
4.6 VALID ISSUANCES. When issued
and paid for as herein provided, the Put Shares, the Warrant Shares, and the
Blackout Shares, if any, shall be duly and validly issued, fully paid, and
non-assessable. Neither the sales of the Put Shares or the Blackout Shares, if
any, pursuant to, nor the Company's performance of its obligations under, this
Agreement or the Registration Rights Agreement shall (a) result in the creation
or imposition of any liens, charges, claims or other encumbrances upon the Put
Shares, Warrant Shares or Blackout Shares, if any, or any of the assets of the
Company, or (b) entitle the holders of outstanding shares of Common Stock to
preemptive or other rights to subscribe to or acquire the Common Stock or other
securities of the Company. The Put Shares, Warrant Shares and Blackout Shares,
if any, shall not subject Investor to personal liability, in excess of the
subscription price by reason of the ownership thereof.
Section
4.7 [INTENTIONALLY
OMITTED]
Section
4.8 [INTENTIONALLY
OMITTED]
Section
4.9 NO CONFLICTS. The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby, including
without limitation the issuance of the Put Shares and the Blackout Shares, if
any, do not and will not (a) result in a violation of the Certificate or By-Laws
or (b) conflict with, or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (c) 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 property or
asset of the Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect) nor is
the Company otherwise in violation of, conflict with or in default under any of
the foregoing. 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 do not and will not
have a Material Adverse Effect. The Company is not required under 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 Common Stock in accordance with the terms hereof
(other than any SEC, FINRA or state securities filings that may be required to
be made by the Company subsequent to any 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 Nasdaq Global
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 Investor herein.
13
Section
4.10 NO MATERIAL ADVERSE CHANGE.
Since June 30, 2009 no event has occurred that would have a Material Adverse
Effect on the Company, except as disclosed in the SEC Documents.
Section
4.11 NO UNDISCLOSED LIABILITIES.
The Company has no liabilities or obligations that are material, individually or
in the aggregate, and that are not disclosed in the SEC Documents or otherwise
publicly announced, other than those incurred in the ordinary course of the
Company's businesses since June 30, 2009 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the
Company.
Section
4.12 NO UNDISCLOSED EVENTS OR
CIRCUMSTANCES. Since June 30, 2009, no event or circumstance has occurred or
exists with respect to the Company or its businesses, properties, 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
4.13 [INTENTIONALLY
OMITTED]
Section
4.14 LITIGATION AND OTHER
PROCEEDINGS. Except as may be set forth in the SEC Documents, there are no
lawsuits or proceedings pending or to the knowledge of the Company threatened,
against the Company, nor has the Company received any written or oral notice of
any such action, suit, proceeding or investigation, which would have a Material
Adverse Effect. Except as set forth in the SEC Documents, no judgment, order,
writ, injunction or decree or award has been issued by or, so far as is known by
the Company, requested of any court, arbitrator or governmental agency which
would have a Material Adverse Effect.
Section
4.15 MATERIAL NON-PUBLIC
INFORMATION. The Company is not in possession of, nor has the Company or its
agents disclosed to Investor, any material non-public information that (a) if
disclosed, would reasonably be expected to have a materially adverse effect on
the price of the Common Stock or (b) 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.
14
Section
4.16 ▇▇▇▇▇▇▇▇-▇▇▇▇▇; INTERNAL
ACCOUNTING CONTROLS. The Company is in material compliance with all provisions
of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 which are applicable to it. The Company and
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 GAAP 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. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“EVALUATION DATE”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the Company’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Section
4.17 DIRECTOR AND OFFICERS
LIABILITY POLICY. The Company maintains a Directors' and Officers' liability
insurance policy. Such policy is in full force and effect, and has
not been modified, cancelled or terminated and the Company has not received any
notice of cancellation, modification or non renewal .
ARTICLE
V
COVENANTS
OF INVESTOR
Section
5.1 COMPLIANCE WITH LAW; TRADING
IN SECURITIES. Investor's trading activities with respect to shares of the
Common Stock will be in compliance with all applicable state and federal
securities laws, rules and regulations and the rules and regulations of FINRA
and the Principal Market on which the Common Stock is listed or
quoted.
Section
5.2 SHORT SALES AND
CONFIDENTIALITY. Neither Investor nor any affiliate of the Investor acting on
its behalf or pursuant to any understanding with it will execute any Short Sales
during the period from the date hereof to the end of the Commitment
Period. For the purposes hereof, and in accordance with Regulation
SHO, the sale after delivery of a Put Notice of such number of shares of Common
Stock reasonably expected to be purchased under a Put Notice shall not be deemed
a Short Sale.
Other than to other Persons party to
this Agreement, Investor has maintained the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction).
ARTICLE
VI
COVENANTS
OF THE COMPANY
Section
6.1 REGISTRATION RIGHTS. The
Company shall use its best efforts to cause the Registration Rights Agreement to
remain in full force and effect and the Company shall comply in all respects
with the terms thereof.
15
Section
6.2 RESERVATION OF COMMON STOCK.
As of the date hereof, the Company has available and the Company shall reserve
and keep available at all times, free of preemptive rights, 400,000 shares of
Common Stock for the purpose of enabling the Company to satisfy its obligation
to issue the Warrant Shares. The Company will, from time to time as
needed in advance of a Closing Date, reserve and keep available until the
consummation of such Closing, free of preemptive rights sufficient shares of
Common Stock for the purpose of enabling the Company to satisfy its obligation
to issue the Put Shares to be issued in connection therewith. The number of
shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder.
Section
6.3 LISTING OF COMMON
STOCK. If the Company applies to have the Common Stock traded on any
other Principal Market, it shall include in such application the Put Shares, the
Warrant Shares, and the Blackout Shares, if any, and shall take such other
action as is necessary or desirable in the reasonable opinion of Investor to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. The Company shall use its commercially reasonable efforts to
continue the listing and trading of the 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 FINRA and the Principal
Market.
Section
6.4 EXCHANGE ACT REGISTRATION.
The Company shall take all commercially reasonable steps to cause the Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will use its commercially reasonable efforts to comply in all material
respects with its reporting and filing obligations under said act, and will not
take any action or file any document (whether or not permitted by said act or
the rules thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under the Exchange Act.
Section
6.5 NOTICE OF CERTAIN EVENTS
AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall
promptly notify 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 Registrable Securities: (a) receipt of any request 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; (b) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such 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
a 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 (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
16
Section
6.6 CONSOLIDATION;
MERGER. The Company shall not at any time after the date hereof
effect any merger or consolidation of the Company unless the resulting successor
or acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to Investor such shares of Common Stock and/or securities
as Investor is entitled to receive pursuant to this Agreement.
Section
6.7 REIMBURSEMENT. If
(i) Investor, other than by reason of its gross negligence or willful
misconduct, becomes involved in any capacity in any action, proceeding or
investigation brought by any shareholder of the Company, in connection with or
as a result of the consummation of the transactions contemplated by the
Transaction Documents, or if Investor is impleaded in any such action,
proceeding or investigation by any person, or (ii) Investor, other than by
reason of its gross negligence or willful misconduct or by reason of its trading
of the Common Stock in a manner that is illegal under the federal securities
laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this section shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliates of Investor that are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, Investor and any such affiliate and
any such person.
Section
6.8 DILUTION. The
number of shares of Common Stock issuable as Put Shares may increase
substantially in certain circumstances, including, but not necessarily limited
to, the circumstance wherein the trading price of the Common Stock declines
during the period between the Effective Date and the end of the Commitment
Period. The Company’s executive officers and directors have studied
and fully understand the nature of the transactions contemplated by this
Agreement and recognize that they have a potential dilutive
effect. The board of directors of the Company has concluded, in its
good faith business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to
issue the Put Shares is binding upon the Company and enforceable regardless of
the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
17
Section
6.9 CERTAIN AGREEMENTS. The
Company covenants and agrees that it will not, without the prior written consent
of the Investor, enter into any other equity line of credit agreement with a
third party during the Commitment Period having terms and conditions
substantially comparable to this Agreement. For the avoidance of
doubt, nothing contained in the Transaction Documents shall restrict, or require
the Investor's consent for, any agreement providing for the issuance or
distribution of (or the issuance or distribution of) any equity securities
pursuant to any agreement or arrangement that is not commonly understood to be
an "equity line of credit."
ARTICLE
VII
CONDITIONS
TO DELIVERY OF
PUT
NOTICES AND CONDITIONS TO CLOSING
Section
7.1 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 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 INVESTOR'S REPRESENTATIONS AND WARRANTIES. The representations and warranties
of 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, except for changes which have not had a Material Adverse
Effect.
(b) PERFORMANCE
BY INVESTOR. Investor shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by Investor at or prior to
such Closing.
(c) Principal Market
Regulation. The Company shall not issue any Put Shares, Warrant Shares or
Blackout Shares, if any, and the Investor shall not have the right to receive
any Put Shares, Warrant Shares or Blackout Shares, if the issuance of such
shares would exceed the aggregate number of shares of Common Stock which the
Company may issue without breaching the Company’s obligations under the rules or
regulations of the Principal Market (the “EXCHANGE CAP”), except that such
limitation shall not apply in the event that the Company obtains the approval of
its stockholders as required by the applicable rules of the Principal Market for
issuances of Common Stock in excess of such amount, which such approval the
Company will use its best efforts to obtain. Until such approval is obtained,
Investor shall not be issued under the Transaction Documents, shares of Common
Stock in an amount greater than the Exchange Cap.
18
Section
7.2 CONDITIONS PRECEDENT TO THE
RIGHT OF THE COMPANY TO DELIVER A PUT NOTICE AND THE OBLIGATION OF 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 (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:
(a) EFFECTIVE
REGISTRATION STATEMENT. As set forth in the Registration Rights Agreement, a
Registration Statement, and any amendment or supplement thereto, shall have
previously become effective for the resale by Investor of the Registrable
Securities subject to such Put Notice, and such Registration Statement shall
remain effective on each Condition Satisfaction Date and (i) neither the Company
nor Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to such Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of such Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and 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
such Registration Statement or related prospectus shall exist.
(b) ACCURACY
OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company shall be true and correct in all material respects as
of each Condition Satisfaction Date as though made at each such time (except for
representations and warranties specifically made as of a particular date) with
respect to all periods, and as to all events and circumstances occurring or
existing to and including each Condition Satisfaction Date, except for any
conditions which have temporarily caused any representations or warranties
herein to be incorrect and which have been corrected with no continuing
impairment to the Company or Investor.
(c) PERFORMANCE
BY THE COMPANY. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this
Agreement and the Registration Rights Agreement to be performed, satisfied or
complied with by the Company at or prior to each Condition Satisfaction
Date.
(d) NO
INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or adopted by any court
or governmental authority of competent jurisdiction that prohibits or directly
and materially 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 materially adversely affecting any of the transactions
contemplated by this Agreement.
(e) 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.
19
(f) NO
SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The trading of the Common
Stock shall not have been suspended by the SEC, the Principal Market or the
FINRA and the Common Stock shall have been approved for listing or quotation on
and shall not have been delisted from the Principal Market.
(g) LEGAL
OPINION. The Company shall have caused to be delivered to Investor, prior to the
first Closing, an opinion of the Company's legal counsel in the form of Exhibit
C hereto, addressed to Investor.
(h) FIVE
PERCENT LIMITATION. On each Closing Date, the number of Put Shares then to be
purchased by Investor shall not exceed the number of such shares that, when
aggregated with all other shares of Registrable Securities then owned by
Investor beneficially or deemed beneficially owned by Investor, would result in
Investor owning more than 4.99% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Section 16 of
the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section, in the event that the amount of Common Stock outstanding as
determined in accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
the Put Notice associated with such Closing Date is given, the amount of Common
Stock outstanding on such Closing Date shall govern for purposes of determining
whether Investor, when aggregating all purchases of Common Stock made pursuant
to this Agreement and Blackout Shares, if any, would own more than 4.99% of the
Common Stock following such Closing Date.
(i) Principal Market
Regulation. The Company shall not issue any Put Shares, Warrant Shares or
Blackout Shares, if any, and the Investor shall not have the right to receive
any Put Shares, Warrant Shares or Blackout Shares, if the issuance of such
shares would exceed the Exchange Cap, except that such limitation shall not
apply in the event that the Company obtains the approval of its stockholders as
required by the applicable rules of the Principal Market for issuances of Common
Stock in excess of such amount, which such approval the Company will use its
best efforts to obtain. Until such approval is obtained, Investor shall not be
issued under the Transaction Documents, shares of Common Stock in an amount
greater than the Exchange Cap.
(j) NO
KNOWLEDGE. The Company shall have 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 more likely than not to occur within the
fifteen Trading Days following the Trading Day on which such Notice is deemed
delivered).
(k) SHAREHOLDER
VOTE. 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.
20
(l) NO
VALUATION EVENT. No Valuation Event shall have occurred since the Put
Date.
(m) OTHER.
On each Condition Satisfaction Date, Investor shall have received a certificate
in substantially the form and substance of Exhibit D hereto, executed by an
executive officer of the Company and to the effect that all the conditions to
such Closing shall have been satisfied as at the date of each such
certificate.
ARTICLE
VIII
LEGENDS
Section
8.1 LEGENDS. Prior to the
execution hereof, the Company shall execute the Transfer Agent Instructions in
the form annexed hereto as Exhibit E. Until such time as the Registrable
Securities have been registered under the Securities Act, as contemplated
by the Registration Rights Agreement, and sold in accordance with an effective
Registration Statement or otherwise in accordance with another effective
registration statement, or until such Registrable
Securities can otherwise be sold without restriction, whichever is
earlier, each certificate representing Registrable Securities will bear the
following legend (the "LEGEND"):
THESE
SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
The Company warrants that it will give
the Transfer Agent no instructions inconsistent with the provisions hereof. It
is the intent and purpose of such instructions, as provided therein, to require
the Transfer Agent to issue to Investor certificates evidencing shares of Common
Stock incident to a Closing, free of the Legend; provided that (a) a
Registration Statement shall then be effective, (b) Investor confirms to the
Transfer Agent and the Company that it has sold or intends to sell such Common
Stock to a third party which is not an affiliate of Investor or the Company and
Investor agrees to redeliver the certificate representing such shares of Common
Stock to the Transfer Agent to add the Legend in the event the Common Stock is
not sold, and (c) Investor confirms to the transfer agent and the Company that
Investor has complied, or will comply with the prospectus delivery
requirement under the Securities Act.
Section
8.2 NO OTHER LEGEND OR STOCK
TRANSFER RESTRICTIONS. No legend other than the one specified in Section 8.1 has
been or shall be placed on the share certificates representing the Common
Stock.
21
Section
8.3 COVER. If the
Company fails for any reason to take or cause to be taken all steps necessary on
the part of the Company to deliver the Put Shares on such Closing Date and the
holder of the Put Shares (a "Investor") purchases, in an open market transaction
or otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by such Investor (the "Sold
Shares"), which delivery such Investor anticipated to make using the Put Shares
(a "Buy-In"), then the Company shall pay to such Investor, in addition to all
other amounts contemplated in other provisions of the Transaction Documents, and
not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The
"Buy-In Adjustment Amount" is the amount equal to the excess, if any, of (x)
such Investor’s total purchase price (including brokerage commissions, if any)
for the Covering Shares over (y) the net proceeds (after brokerage commissions,
if any) received by such Investor from the sale of the Sold Shares. The Company
shall pay the Buy-In Adjustment Amount to such Investor in immediately available
funds immediately upon demand by such Investor. By way of illustration and not
in limitation of the foregoing, if such Investor purchases Covering Shares
having a total purchase price (including brokerage commissions) of $11,000 to
cover a Buy-In with respect to shares of Common Stock that it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount that the Company will be
required to pay to such Investor will be $1,000.
Section
8.4 INVESTOR'S COMPLIANCE.
Nothing in this Article VIII shall affect in any way Investor's obligations
under any agreement to comply with all applicable securities laws upon resale of
the Common Stock.
ARTICLE
IX
NOTICES;
INDEMNIFICATION
Section
9.1 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 (a) personally served, (b) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (c) delivered by reputable
air courier service with charges prepaid, or (d) transmitted by hand delivery,
telegram, or facsimile, addressed as set forth below or to such other address as
such party shall have specified most recently by written notice given in
accordance herewith. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (i) 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 (ii) on the second business day following the date of mailing by express
courier service or on the fifth business day after deposited in the mail, in
each case, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur.
22
The
addresses for such communications shall be:
If to the
Company:
▇▇/▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ Int’l
▇▇▇▇▇▇
▇▇▇ ▇.▇▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
Tel: ▇▇▇-▇▇-▇▇▇▇-▇▇▇▇▇▇▇
Fax: ▇▇▇-▇▇-▇▇▇▇-▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
PC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
Esq.
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
If to Investor:
Southridge Partners II, LP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Either
party hereto may from time to time change its address or facsimile number for
notices under this Section 9.1 by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party
hereto.
Section
9.2 INDEMNIFICATION. The
Company agrees to indemnify and hold harmless Investor and its officers,
directors, employees, and agents, and each Person or entity, if any, who
controls Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from Investor's failure to perform any
covenant or agreement contained in this Agreement or Investor's or its
officer’s, director’s, employee’s, agent’s or Controlling Person’s negligence,
recklessness or bad faith in performing its obligations under this
Agreement.
23
Section
9.3 METHOD OF ASSERTING
INDEMNIFICATION CLAIMS. All claims for indemnification by any Indemnified Party
(as defined below) under Section 9.2 shall be asserted and resolved as
follows:
(a) In
the event any claim or demand in respect of which any person claiming
indemnification under any provision of Section 9.2 (an "INDEMNIFIED PARTY")
might seek indemnity under Section 9.2 is asserted against or sought to be
collected from such Indemnified Party by a person other than a party hereto or
an affiliate thereof (a "THIRD PARTY CLAIM"), the Indemnified Party shall
deliver a written notification, enclosing a copy of all papers served, if any,
and specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim for indemnification that is being asserted under any
provision of Section 9.2 against any person (the "INDEMNIFYING PARTY"), together
with the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such Third Party Claim (a "CLAIM NOTICE") with
reasonable promptness to the Indemnifying Party. If the Indemnified Party fails
to provide the Claim Notice with reasonable promptness after the Indemnified
Party receives notice of such Third Party Claim, the Indemnifying Party shall
not be obligated to indemnify the Indemnified Party with respect to such Third
Party Claim to the extent that the Indemnifying Party's ability to defend has
been prejudiced by such failure of the Indemnified Party. The Indemnifying Party
shall notify the Indemnified Party as soon as practicable within the period
ending thirty (30) calendar days following receipt by the Indemnifying Party of
either a Claim Notice or an Indemnity Notice (as defined below) (the "DISPUTE
PERIOD") whether the Indemnifying Party disputes its liability or the amount of
its liability to the Indemnified Party under Section 9.2 and whether the
Indemnifying Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim.
(i) If
the Indemnifying Party notifies the Indemnified Party within the Dispute Period
that the Indemnifying Party desires to defend the Indemnified Party with respect
to the Third Party Claim pursuant to this Section 9.3(a), then the Indemnifying
Party shall have the right to defend, with counsel reasonably satisfactory to
the Indemnified Party, at the sole cost and expense of the Indemnifying Party,
such Third Party Claim by all appropriate proceedings, which proceedings shall
be vigorously and diligently prosecuted by the Indemnifying Party to a final
conclusion or will be settled at the discretion of the Indemnifying Party (but
only with the consent of the Indemnified Party in the case of any settlement
that provides for any relief other than the payment of monetary damages or that
provides for the payment of monetary damages as to which the Indemnified Party
shall not be indemnified in full pursuant to Section 9.2). The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the Indemnified Party
may, at the sole cost and expense of the Indemnified Party, at any time prior to
the Indemnifying Party's delivery of the notice referred to in the first
sentence of this clause (i), file any motion, answer or other pleadings or take
any other action that the Indemnified Party reasonably believes to be necessary
or appropriate to protect its interests; and provided further, that if requested
by the Indemnifying Party, the Indemnified Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to the
Indemnifying Party in contesting any Third Party Claim that the Indemnifying
Party elects to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause (i), and except as provided in the
preceding sentence, the Indemnified Party shall bear its own costs and expenses
with respect to such participation. Notwithstanding the foregoing, the
Indemnified Party may takeover the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right to indemnity
under Section 9.2 with respect to such Third Party Claim.
24
(ii) If
the Indemnifying Party fails to notify the Indemnified Party within the Dispute
Period that the Indemnifying Party desires to defend the Third Party Claim
pursuant to Section 9.3(a), or if the Indemnifying Party gives such notice but
fails to prosecute vigorously and diligently or settle the Third Party Claim, or
if the Indemnifying Party fails to give any notice whatsoever within the Dispute
Period, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or will be settled at
the discretion of the Indemnified Party(with the consent of the Indemnifying
Party, which consent will not be unreasonably withheld). The Indemnified Party
will have full control of such defense and proceedings, including any compromise
or settlement thereof; provided, however, that if requested by the Indemnified
Party, the Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified Party and
its counsel in contesting any Third Party Claim which the Indemnified Party is
contesting. Notwithstanding the foregoing provisions of this clause (ii), if the
Indemnifying Party has notified the Indemnified Party within the Dispute Period
that the Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third Party
Claim and if such dispute is resolved in favor of the Indemnifying Party in the
manner provided in clause (iii) below, the Indemnifying Party will not be
required to bear the costs and expenses of the Indemnified Party's defense
pursuant to this clause (ii) or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection with such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this clause (ii), and
the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.
25
(iii) If
the Indemnifying Party notifies the Indemnified Party that it does not dispute
its liability or the amount of its liability to the Indemnified Party with
respect to the Third Party Claim under Section 9.2 or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes its liability or the amount of its liability to the Indemnified Party
with respect to such Third Party Claim, the amount of Damages specified in the
Claim Notice shall be conclusively deemed a liability of the Indemnifying Party
under Section 9.2 and the Indemnifying Party shall pay the amount of such
Damages to the Indemnified Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall proceed in good
faith to negotiate a resolution of such dispute; provided, however, that if the
dispute is not resolved within thirty (30) days after the Claim Notice, the
Indemnifying Party shall be entitled to institute such legal action as it deems
appropriate.
(b) In
the event any Indemnified Party should have a claim under Section 9.2 against
the Indemnifying Party that does not involve a Third Party Claim, the
Indemnified Party shall deliver a written notification of a claim for indemnity
under Section 9.2 specifying the nature of and basis for such claim, together
with the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim (an "INDEMNITY NOTICE") with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the amount of
Damages specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
(c) The
indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar rights of the Indemnified Party against the Indemnifying Party
or others, and (ii) any liabilities the Indemnifying Party may be subject
to.
ARTICLE
X
MISCELLANEOUS
Section
10.1 GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by and interpreted in accordance with the laws
of the State of New York without regard to the principles of conflicts of law.
Each of the Company and Investor hereby submit to the exclusive jurisdiction of
the United States Federal and state courts located in New York County, New York
with respect to any dispute arising under this Agreement, the agreements entered
into in connection herewith or the transactions contemplated hereby or
thereby.
26
Section
10.2 JURY TRIAL
WAIVER. The Company and the Investor hereby waive a trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
against the other in respect of any matter arising out of or in connection with
the Transaction Documents.
Section
10.3 ASSIGNMENT. This Agreement
shall be binding upon and inure to the benefit of the Company and Investor and
their respective successors and permitted assigns. Neither this Agreement nor
any rights of Investor or the Company hereunder may be assigned by either party
to any other person without the prior written consent of the other
party.
Section
10.4 THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the Company and Investor and their
respective successors and permitted assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.
Section
10.5 TERMINATION. The Company may
terminate this Agreement at any time by written notice to the Investor.
Additionally, this Agreement shall terminate at the end of Commitment Period or
as otherwise provided herein (unless extended by the agreement of the Company
and Investor); provided, however, that the provisions of Articles V, VI, VIII,
and Sections 9.2, 9.3 10.1, 10.2 and 10.4 shall survive the termination of this
Agreement.
Section
10.6 ENTIRE AGREEMENT, AMENDMENT;
NO WAIVER. This Agreement and the instruments referenced herein contain the
entire understanding of the Company and Investor with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor 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
10.7 FEES AND EXPENSES. Each of
the Company and Investor agrees to pay its own expenses in connection with the
preparation of this Agreement and performance of its obligations hereunder,
except that the Company shall pay Investor upon execution hereof, a single fee
of $7,500 to cover its expenses related to the consummation of this
Agreement. In addition, the Company shall pay all reasonable fees and
expenses incurred by the Investor in connection with any amendments,
modifications or waivers of this Agreement or the Registration Rights Agreement
or incurred in connection with the enforcement of this Agreement and the
Registration Rights Agreement, including, without limitation, all reasonable
attorneys fees and expenses. The Company shall pay all stamp or other similar
taxes and duties levied in connection with issuance of the Shares pursuant
hereto.
Section
10.8 [INTENTIONALLY
OMITTED]
27
Section
10.9 COUNTERPARTS. This Agreement
may be executed in multiple counterparts, each of which may be executed by less
than all of the Company 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. This
Agreement may be delivered to the other parties hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the parties so delivering
this Agreement.
Section
10.10 SURVIVAL; SEVERABILITY. The
representations, warranties, covenants and agreements of the Company hereto
shall survive each Closing hereunder for a period of one (1) year thereafter. 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
10.11 FURTHER ASSURANCES. Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
Section
10.12 NO STRICT CONSTRUCTION. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.
Section
10.13 EQUITABLE RELIEF. The
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under this Agreement, any remedy at law
may prove to be inadequate relief to Investor. The Company therefore agrees that
Investor shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
Section
10.14 TITLE AND SUBTITLES. The
titles and subtitles used in this Agreement are used for the convenience of
reference and are not to be considered in construing or interpreting this
Agreement.
Section
10.15 REPORTING ENTITY FOR THE
COMMON STOCK. The reporting entity relied upon for the determination of the
Closing Bid Price of the Common Stock on any given Trading Day for the purposes
of this Agreement shall be the Principal Market or any successor thereto. The
written mutual consent of Investor and the Company shall be required to employ
any other reporting entity.
28
Section
10.16 PUBLICITY. The
Company and Investor shall consult with each other in issuing any press releases
or otherwise making public statements with respect to the transactions
contemplated hereby and no party shall issue any such press release or otherwise
make any such public statement without the prior written consent of the other
parties, which consent shall not be unreasonably withheld or delayed, except
that no prior consent shall be required if such disclosure is required by law,
in which such case the disclosing party shall provide the other parties with
prior notice of such public statement. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of Investor without the prior
written consent of such Investor, except to the extent required by law. Investor
acknowledges that this Agreement and all or part of the Transaction Documents
may be deemed to be "material contracts" as that term is defined by Item
601(b)(10) of Regulation S-K, and that the Company may therefore be required to
file such documents as exhibits to reports or registration statements filed
under the Securities Act or the Exchange Act. Investor further agrees that the
status of such documents and materials as material contracts shall be determined
solely by the Company, in consultation with its counsel.
[SIGNATURES
ON FOLLOWING PAGE]
29
[SIGNATURE
PAGE]
IN WITNESS WHEREOF, the
parties hereto have caused this Equity Credit Agreement, as amended and
restated, to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
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SOUTHRIDGE
PARTNERS II, LP
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BY Southridge
Advisors LLC
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By:
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/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇
▇▇▇▇▇
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Title:
Manager
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By:
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/s/ Songyan Li
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Name:
Songyan Li
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Title:
Chairman
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