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EXHIBIT 2.1
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as
of May 14, 2001 by and between National Scientific Corporation, a Texas
corporation (the "Company") and Coriander Enterprises Limited (the "Purchaser"),
a British Virgin Islands corporation.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Purchaser from
time to time as provided herein, and Purchaser shall purchase, up to $24,000,000
of Common Stock and the Warrant; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company, up to an
aggregate of $24,000,000 of Common Stock (the "Commitment Amount") and the
Warrant, subject to the terms herein.
Section 1.2. Purchase Price and Initial Closing. The Company agrees
to issue and sell to the Purchaser and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Purchaser agrees to purchase that number of the Shares to
be issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article I of the Escrow Agreement, attached as Exhibit
B hereto (the "Initial Closing"), shall take place at the offices of ▇▇▇▇▇▇▇
▇▇▇▇▇▇ & Green, P.C., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (i) within
fifteen (15) days from the date hereof, or (ii) such other time and place or on
such date as the Purchaser and the Company may agree upon (the "Initial Closing
Date"). Each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Initial Closing.
Section 1.3. Liquidated Damages. The parties hereto acknowledge and
agree that the sums payable pursuant to this Agreement for late delivery of the
Draw Down Shares shall constitute liquidated damages and not penalties. The
parties further acknowledge that (a) the amount of loss or damages likely to be
incurred is incapable or is difficult to precisely
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estimate, (b) the amounts specified in such provisions bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Purchaser in connection with the failure of the
Company to deliver the Draw Down Shares in a timely manner or the suspension of
the Purchaser's right to resell the Draw Down Shares under the Registration
Statement, and (c) the parties are sophisticated businesses and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. Except as
set forth in the SEC Documents or on the Disclosure Schedule prepared by the
Company and attached hereto, or as contemplated by this Agreement, the Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated validly existing and in good standing under
the laws of the State of Texas and has all requisite corporate authority
to own, lease and operate its properties and assets and to carry on its
business as now being conducted. The Company does not have any
subsidiaries and does not own more than fifty percent (50%) of or control
any other business entity except as set forth in the SEC Documents. The
Company is duly qualified to do business and is in good standing as a
foreign corporation 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.
(b) Authorization, Enforcement. (i) The Company has the
requisite corporate power and corporate authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Draw Down Shares pursuant to their respective terms, (ii) the execution
and delivery of the Transaction Documents 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 (iii) the Transaction Documents have been
duly executed and delivered by the Company and at the Initial Closing
shall constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized capital stock of the
Company consists of 80,000,000 shares of Common Stock of which 48,607,498
shares are issued and outstanding and 4,000,000 shares of preferred stock
of which no shares are
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outstanding. To the knowledge of the Company, all of the outstanding
shares of the Company's Common Stock have been duly and validly authorized
and are fully paid and non-assessable except as set forth in the SEC
Documents. No shares of Common Stock are entitled to preemptive rights or
registration rights and 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. There are no contracts, commitments,
understandings, or arrangements by which the Company is or may become
bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of
the Company. The Company is not a party to any agreement granting
registration rights to any person with respect to any of its equity or
debt securities. The Company is not a party to, and it has no knowledge
of, any agreement restricting the voting or transfer of any shares of the
capital stock of the Company. The Company has made available to the
Purchaser true and correct copies of the Company's articles or certificate
of incorporation as in effect on the date hereof (the "Charter"), and the
Company's bylaws as in effect on the date hereof (the "Bylaws"). The
Company has not received any notice from the Principal Market questioning
or threatening the continued inclusion of the Common Stock on such market.
(d) Issuance of Shares. The Warrant Shares to be issued
under this Agreement have been duly authorized by all necessary corporate
action and, when paid for and issued in accordance with the terms hereof
and the Warrant, the Warrant Shares shall be validly issued and
outstanding, fully paid and non-assessable, and the Purchaser shall be
entitled to all rights accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not and will not (i) violate any
provision of the Company's Charter or Bylaws, (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 Material
Agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company is a party, (iii)
create or impose a lien, charge or encumbrance on any property of the
Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its properties
or assets are bound, or (iv) result in a violation of any federal, state,
local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal or state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company
are bound or affected, except, in all cases, for such conflicts, defaults,
termination, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse
Effect. The business of the Company is not being conducted in violation of
any laws, ordinances or regulations of any governmental entity, except for
violations which singularly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under any federal,
state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for
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it to execute, deliver or perform any of its obligations under this
Agreement, or issue and sell the Shares in accordance with the terms
hereof (other than any filings which may be required to be made by the
Company with the SEC or state securities administrators and any
registration statement which may be filed pursuant hereto); provided,
however, that for purpose of the representations made in this sentence,
the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of
the Company is registered pursuant to Section 12(g) of the Exchange Act,
and, the Company is current with all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to
the reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(d) of the Exchange Act. The Company has
delivered or made available to the Purchaser, through the ▇▇▇▇▇ system or
otherwise, true and complete copies of the SEC Documents filed with the
SEC since December 31, 1998. The Company has not provided to the Purchaser
any information which, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company but which has not been
so disclosed, other than with respect to the transactions contemplated by
this Agreement. As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Exchange
Act or the Securities Act, as applicable, and the rules and regulations of
the SEC promulgated thereunder applicable to such documents, and, as of
their respective filing dates, 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 in all material respects with applicable
accounting requirements under GAAP 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 GAAP
applied on a consistent basis during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes
thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements),
and fairly present in all material respects the financial position of the
Company and its subsidiaries 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).
(g) No Material Adverse Effect. Since the date of the
financial statement contained in the most recently filed Form 10-Q (or
10-QSB) or Form 10-K (or 10-KSB), whichever is most current, no Material
Adverse Effect has occurred or exists with respect to the Company, except
as disclosed in any press release, the SEC Documents or on the Disclosure
Schedule attached hereto.
(h) No Undisclosed Liabilities. Except as disclosed in the
SEC Documents or on the Disclosure Schedule attached hereto, neither the
Company nor any of its subsidiaries has any liabilities, obligations,
claims or losses (whether liquidated or
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unliquidated, secured or unsecured, absolute, accrued, contingent or
otherwise) that would be required to be disclosed on a balance sheet of
the Company (including the notes thereto) in conformity with GAAP which
are not disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's business since such date and which,
individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.
(i) No Undisclosed Events or Circumstances. Since the date
of the financial statement contained in the most recently filed Form 10- Q
(or 10-QSB) or Form 10-K (or 10-KSB), whichever is most current, 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 or any press
release.
(j) Indebtedness. The SEC Documents or the Disclosure
Schedule attached hereto sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company, or for which the
Company has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (A) any liabilities for borrowed money or
amounts owed in excess of $500,000 (other than trade accounts payable
incurred in the ordinary course of business), (B) all guaranties,
endorsements and contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the
Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (C) the present value
of any lease payments in excess of $500,000 due under leases required to
be capitalized in accordance with GAAP. The Company is not in default with
respect to any Indebtedness.
(k) Title to Assets. The Company has good and marketable
title to all of its real and personal property reflected in the SEC
Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated in the SEC
Documents or such that do not cause a Material Adverse Effect. All said
real property leases of the Company is valid and subsisting and in full
force and effect.
(l) Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company which questions the validity of this
Agreement or the transactions contemplated hereby or any action taken or
to be taken pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, its properties or assets,
which action, suit, claim, investigation or proceeding would have a
Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company except those orders, judgments,
injunctions, awards or decrees which would not have a Material Adverse
Effect.
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(m) Compliance with Law. The Company has all franchises,
permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its businesses
as now being conducted by it unless the failure to possess such
franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(n) Taxes. The Company has filed all Tax Returns which it is
required to file under applicable laws; all such Tax Returns are true and
accurate in all material respects, and have been prepared in compliance in
all material respects with all applicable laws; except as set forth in the
SEC Documents the Company has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has
withheld and paid over to the appropriate taxing authorities all Taxes
which it is required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third parties; and since December
31, 1999, the charges, accruals and reserves for Taxes with respect to the
Company (including any provisions for deferred income taxes) reflected on
the books of the Company are to its knowledge adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending
on the date hereof.
No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company is or may be
subject to taxation by that jurisdiction. Except as set forth in the SEC
Documents, there are no foreign, federal, state or local tax audits or
administrative or judicial proceedings pending or being conducted with
respect to the Company; no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority; and,
except as disclosed above, no written notice indicating an intent to open
an audit or other review has been received by the Company from any
foreign, federal, state or local taxing authority. Except as set forth in
the SEC Documents, there are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed
or entered into a closing agreement pursuant to Section 7121 of the
Internal Revenue Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; and (B) has not agreed to or is
required to make any adjustments pursuant to Section 481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign
law by reason of a change in accounting method initiated by the Company or
has any knowledge that the IRS has proposed any such adjustment or change
in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of the Company. The Company has not
been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Internal Revenue Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Internal Revenue Code.
The Company has not made an election under Section 341 (f) of
the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company under (A) Treas.
Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign
law), (B) as a transferee or successor, (C) by contract or indemnity or
(D) otherwise. The Company is not a party to any tax sharing agreement.
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The Company has not made any payments, is not obligated to make payments
nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under Section 280G of the Internal
Revenue Code.
For purposes of this Section 2.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
(o) Certain Fees. Except for the fees paid to Ladenburg
▇▇▇▇▇▇▇▇ & Co. Inc pursuant to the Escrow Agreement, no brokers, finders
or financial advisory fees or commissions will be payable by the Company
or any subsidiary with respect to the transactions contemplated by this
Agreement.
(p) Operation of Business. The Company owns or possesses all
patents, trademarks, service marks, trade names, copyrights, licenses and
authorizations as set forth in the SEC Documents or the Disclosure
Schedule attached hereto, and all rights with respect to the foregoing,
which to its knowledge would be reasonably necessary for the conduct of
its business as now conducted without any conflict with the rights of
others.
(q) Books and Records. The records and documents of the
Company accurately reflect in all material respects the information
relating to the business of the Company, the location and collection of
its assets, and the nature of all transactions giving rise to the
obligations or accounts receivable of the Company.
(r) Material Agreements. The Company has in all material
respects performed all the obligations required to be performed by them to
date under the foregoing agreements, have received no notice of default
and, to the Company's knowledge are not in default under any Material
Agreement now in effect, the result of which would cause a Material
Adverse Effect. Except as set forth in the SEC Documents or the Charter
Documents, no written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company limits or shall limit the
payment of dividends on the Company's Common Stock.
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(s) Transactions with Affiliates. There are no loans,
leases, agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $100,000 between
(A) the Company, or any of its respective customers or suppliers on the
one hand, and (B) on the other hand, any officer, employee, consultant or
director of the Company, or any person owning 5% or more of the capital
stock of the Company or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director
or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(t) Securities Laws. The Company has complied in all
material respects and will comply with all applicable federal and state
securities laws in connection with the offer, issuance and sale of the
Shares hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit offers
to buy the Shares or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any person (other than the Purchaser), so as to
bring the issuance and sale of the Shares under the registration
provisions of the Securities Act and applicable state securities laws.
Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the
Securities Act) in connection with the offer or sale of the Shares.
(u) Employees. The Company has no collective bargaining
arrangements or agreements covering any of its employees. The Company is
not in breach of any employment contract, agreement regarding proprietary
information, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, to be employed or engaged
by the Company. Since the date of the September 30, 2000 Form 10-K (or
10-KSB), no officer, consultant or key employee of the Company whose
termination, either individually or in the aggregate, could have a
Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company.
(v) Absence of Certain Developments. Since the date of the
financial statement contained in the most recently filed Form 10-Q (or
10-QSB) or Form 10-K (or 10KSB), whichever is most current, the Company
has not:
(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject
to any liabilities (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are
comparable in nature and amount to the current liabilities incurred
in the ordinary course of business during the
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comparable portion of its prior fiscal year, as adjusted to reflect
the current nature and volume of the Company's business;
(iii) discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other
than current liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its stock, or
purchased or redeemed, or made any agreements so to purchase or
redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary
course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other
intangible assets or intellectual property rights, or disclosed any
proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchaser or
its representatives;
(vii) suffered any material losses (except for
anticipated losses consistent with prior quarters) or waived any
rights of material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of prospective
business;
(viii) made any changes in employee compensation except
in the ordinary course of business and consistent with past
practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $500,000;
(x) entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xii) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment; or
(xiii) effected any two or more events of the foregoing
kind which in the aggregate would be material to the Company.
(w) Governmental Approvals. Except for the filing of any
notice prior or subsequent to any Settlement Date that may be required
under applicable federal or state securities laws (which if required,
shall be filed on a timely basis), including the filing of a registration
statement or post-effective amendment pursuant to this Agreement, no
authorization, consent, approval, license, exemption of, filing or
registration with any
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court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the delivery of the Shares, or for the performance by the
Company of its obligations under this Agreement.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares.
The Company acknowledges and agrees that Purchaser is acting solely in the
capacity of arm's length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that
the Purchaser is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereunder. The Company further represents to
the Purchaser that the Company's decision to enter into this Agreement has
been based solely on (a) the Purchaser's representations and warranties in
Section 2.2, and (b) the independent evaluation by the Company and its own
representatives and counsel.
(bb) Disclaimer of Certain Warranties; Due Diligence Review.
The Company shall not be deemed to have made to Purchaser any
representations or warranties other than as expressly made by the Company
in this Agreement and/or in any of the agreements executed in connection
with this Agreement. Except as expressly set forth herein or in any SEC
Documents, the Company makes no representations or warranties to the
Purchaser with respect to any projections, estimates or budgets heretofore
delivered to or made available to the Purchaser of future revenues, future
expenses, future results of operations, or any other information or
documents financial or otherwise made available to Purchaser with respect
to the Company. Without limiting any of the representations or warranties
contained in this Agreement, the Purchaser acknowledges that it has had
the opportunity to conduct a due diligence review of the Company and its
operations and has had the opportunity to ask questions with respect to
the Company and its operations.
(cc) Expiration of Warranties. The representations and
warranties contained in this Section 2.1 shall expire on the third year
anniversary of the date of termination of this Agreement as contemplated
in Article VI hereof.
Section 2.2. Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) Organization and Standing of the Purchaser. The
Purchaser is a corporation duly incorporated, validly existing and in good
standing under the laws of the British Virgin Islands.
(b) Authorization and Power. The Purchaser has the requisite
power and authority to enter into and perform the Transaction Documents
and to purchase the Shares being sold to it hereunder. The execution,
delivery and performance of the Transaction Documents by Purchaser and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and at the Initial Closing
shall constitute valid and binding obligations of the Purchaser
enforceable against the Purchaser in accordance with their terms, except
as such
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enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application
(c) No Conflicts. The execution, delivery and performance of
this Agreement by the Purchaser and the consummation by the Purchaser of
the transactions contemplated herein do not and will not (i) violate any
provision of the Purchaser's Charter or Bylaws, (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 Material
Agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Purchaser is a party,
(iii) create or impose a lien, charge or encumbrance on any property of
the Purchaser under any agreement or any commitment to which the Purchaser
is a party or by which the Purchaser is bound or by which any of its
properties or assets are bound, or (iv) result in a violation of any
federal, state, local or other foreign statute, rule, regulation, order,
judgment or decree (including any federal or state securities laws and
regulations) applicable to the Purchaser or by which any property or asset
of the Purchaser are bound or affected, except, in all cases, for such
conflicts, defaults, termination, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a
Material Adverse Effect. The Purchaser 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 this Agreement or to purchase the
Shares in accordance with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is
able to bear the financial risks associated with an investment in the
Shares and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation. The Purchaser is capable of evaluating the risks
and merits of an investment in the Shares by virtue of its experience as
an investor and its knowledge, experience, and sophistication in financial
and business matters and the Purchaser is capable of bearing the entire
loss of its investment in the Shares.
(e) Accredited Investor. The Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) General. The Purchaser understands that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth
herein in order to determine the suitability of the Purchaser to acquire
the Shares.
(g) Brokers. No brokers, finders or financial advisory fees
or commissions will be payable by the Purchaser with respect to the
transactions contemplated by this Agreement.
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ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each applicable Draw
Down, the Company will have authorized and reserved, free of preemptive rights,
a sufficient number of authorized but unissued shares of its Common Stock to
cover the Draw Down Shares to be issued in connection with such Draw Down
requested under this Agreement. The Draw Down Shares to be issued under this
Agreement, when paid for and issued in accordance with the terms hereof, shall
be duly and validly issued and outstanding, fully paid and non-assessable, and
the Purchaser shall be entitled to all rights accorded to a holder of Common
Stock. Anything in this Agreement to the contrary notwithstanding, the Company
may not make a Draw Down to the extent that, after such purchase by the
Purchaser, the sum of the number of shares of Common Stock beneficially owned by
the Purchaser and its affiliates would result in beneficial ownership by the
Purchaser and its affiliates of more than 9.9% of the then outstanding shares of
Common Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act.
Section 3.2. Securities Compliance. If applicable, the Company shall
notify the Principal Market, in accordance with its rules and regulations, of
the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Shares and the
Warrant to the Purchaser or subsequent holders.
Section 3.3. Registration and Listing. Until the later of such time
(i) as the Purchaser has disposed of all of the Shares or (ii) the Warrant is no
longer outstanding, the Company will cause its Common Stock to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all
material respects with its reporting and filing obligations under the Exchange
Act, will comply with all requirements related to any registration statement
filed pursuant to this Agreement, and will not take any action or file any
document (whether or not permitted by the Securities Act or the Exchange Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide the Purchaser with copies of any correspondence to or from
such Principal Market which questions or threatens delisting of the Common
Stock, within three (3) Trading Days of the Company's receipt thereof, until the
Purchaser has disposed of all of the Shares.
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Section 3.4. Escrow Arrangement. The Company and the Purchaser shall
enter into an escrow arrangement with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Green, P.C. (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery of
the Shares.
Section 3.5. Registration Rights Agreement. The Company and the
Purchaser shall enter into the Registration Rights Agreement in the Form of
Exhibit A hereto. Before the Purchaser shall be obligated to accept a Draw Down
request from the Company, the Company shall have caused a sufficient number of
shares of Common Stock to be registered to cover the Shares to be issued in
connection with such Draw Down.
Section 3.6. Accuracy of Registration Statement. On each Settlement
Date, the Registration Statement and the prospectus therein shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading in light of the circumstances under which they were made;
and on such Settlement Date or date of filing the Registration Statement and the
prospectus therein will not include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement and the
prospectus therein in reliance upon and in conformity with the information
furnished in writing to the Company by the Purchaser specifically for inclusion
in the Registration Statement and the prospectus therein.
Section 3.7. Compliance with Laws. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company
shall keep and cause each subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.9. Other Agreements. The Company shall not enter into any
agreement the terms of which would restrict or impair the ability of the Company
to perform its obligations under this Agreement.
Section 3.10. Notice of Certain Events Affecting Registration;
Suspension of Right to Request a Draw Down. THE COMPANY WILL PROMPTLY NOTIFY THE
PURCHASER IN WRITING UPON THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS IN
RESPECT OF THE REGISTRATION STATEMENT OR RELATED PROSPECTUS IN RESPECT OF THE
SHARES: (i) receipt of any request for additional information from the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would require
any amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the
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effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in the Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that the filing of a post-effective amendment to or the withdrawal
of the Registration Statement would be appropriate. The Company shall not
deliver to the Purchaser any Draw Down Notice during the continuation of any of
the foregoing events. The Company shall promptly make available to the Purchaser
any such supplements or amendments to the related prospectus, at which time,
provided that the registration statement and any supplements and amendments
thereto are then effective, the Company may recommence the delivery of Draw Down
Notices.
Section 3.11. 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 of 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
or by operation of law the obligation to deliver to the Purchaser such shares of
stock and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 3.12. Limitation on Future Financing. The Company agrees
that, except as set forth below, it will not enter into any sale of its
securities for cash at a discount to the then current market price (including
securities convertible, exchangeable, adjustable or which may be reset at a
discount to the then current market price) until the earlier of (i) 24 months
from the Effective Date, (ii) thirty (30) days after the entire Commitment
Amount has been purchased by the Purchaser, or (iii) the date this Agreement is
terminated pursuant to the terms herein. The foregoing shall not prevent or
limit the Company from engaging in any sale of securities (i) in a registered
public offering by the Company which is underwritten by one or more established
investment banks (not including an "equity line" type of financing), (ii)
pursuant to a private placement where the investors do not have registration
rights, (iii) pursuant to any compensatory plan for a full-time employee or key
consultant, (iv) in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to raise money, or (v)
to which Purchaser gives its prior written consent.
Section 3.13. Use of Proceeds. The proceeds from the sale of the
Shares will be used by the Company and its subsidiaries for general corporate
purposes.
The Purchaser covenants with the Company as follows:
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Section 3.14. Compliance with Law. The Purchaser agrees that its
trading activities with respect to shares of the Company's Common Stock will be
in compliance with all applicable state and federal securities laws, rules and
regulations and rules and regulations of the Principal Market on which the
Company's Common Stock is listed. Without limiting the generality of the
foregoing, the Purchaser agrees that it will, whenever required by federal
securities laws, deliver the prospectus included in the Registration Statement
to any purchaser of Shares from the Purchaser.
Section 3.15. Provision of Information with Respect to the
Registration Statement. The Purchaser by its acceptance of the Shares agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of any Registration Statement hereunder, unless
the Purchaser has notified the Company in writing of the Purchaser's election to
exclude all of the Shares. Purchaser shall furnish to the Company such
information regarding Purchaser, the Shares held by the Purchaser and the
intended method of disposition of the Shares as shall be reasonably required to
effect the registration of the Shares and the Purchaser shall execute such
documents as are customary in connection with such registration as the Company
may reasonably request.
Section 3.16. Expiration of Covenants. Unless otherwise contemplated
herein, the covenants contained in this Agreement shall terminate after 45
Trading Days from the termination of this Agreement as contemplated in Section
6.1 hereof.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company
to Sell the Shares. The obligation hereunder of the Company to proceed to close
this Agreement and to issue and sell the Shares to the Purchaser is subject to
the satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser shall be
true and correct in all material respects as of the date when made and as
of the Initial Closing and as of each Settlement Date as though made at
that time, except for representations and warranties that speak as of a
particular date.
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Purchaser at or prior
to the Initial Closing and as of each Settlement Date.
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(c) 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 which prohibits the consummation of any of the
transactions contemplated by this Agreement.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser
to Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and
Warranties. Each of the representations and warranties of the Company
shall be true and correct in all material respects as of the date when
made and as of the Initial Closing as though made at that time (except for
representations and warranties that speak as of a particular date).
(b) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Initial
Closing.
(c) 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 which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have
been commenced, and no investigation by any governmental authority shall
have been threatened, against the Purchaser or the Company or any
subsidiary, or any of the officers, directors or affiliates of the Company
or any subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the
Purchaser shall have received an opinion of counsel to the Company, dated
as of the Initial Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall
issue to the Purchaser a warrant to purchase up to a number of shares of
Common Stock equal to $600,000 divided by the average of the VWAPs during
the 15 Trading Days immediately prior to the Initial Closing Date (the
"Warrant Base Price"). The Warrant shall have a term from its initial date
of issuance of 3 years. The exercise price of the Warrant shall be 115% of
the Warrant Base Price. The Common Stock underlying the Warrant will be
registered in the Registration Statement referred to in Section 4.3
hereof. The Warrant shall be in the form of Exhibit E hereto.
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Section 4.3. Conditions Precedent to the Obligation of the Purchaser
to Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The
Company shall have satisfied, or the Purchaser shall have waived at the
Initial Closing, the conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration
Statement registering the Shares shall have been declared effective by the
SEC and shall remain effective on each Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock
shall not have been suspended by the SEC or the Principal Market (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the delivery of
each Draw Down Notice), and, at any time prior to such Draw Down Notice,
trading in securities generally as reported on the Principal Market shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported on the Principal
Market unless the general suspension or limitation shall have been
terminated prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and
no Consolidation Event where the successor entity has not agreed to
perform the Company's obligations shall have occurred, such occurrences to
be determined in accordance with Section 8.9 herein.
(e) Opinion of Counsel. The Purchaser shall have received
(i) a "down-to-date" letter from the Company's counsel, confirming that
there is no change from the counsel's previously delivered opinion, or
else specifying with particularity the reason for any change and an
opinion as to the additional items specified in Exhibit C hereto, and (ii)
any other items set forth in the Escrow Agreement.
ARTICLE 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue and
exercise draw downs (each a "Draw Down") during the Commitment Period,
which Draw Downs the Purchaser shall be obligated to accept, subject to
the terms and conditions herein.
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(b) Only one Draw Down shall be allowed in each Draw Down
Pricing Period. The number of shares of Common Stock purchased by the
Purchaser with respect to each Draw Down shall be determined as set forth
in Section 5.1(e) herein and settled on:
(i) as to the 1st through the 11th Trading Day during
the Draw Down Pricing Period, on or before the 13th Trading Day
after such Draw Down Pricing Period commences; and
(ii) as to the 11th through the 22nd Trading Day during
the Draw Down Pricing Period commences, on or before the 24th
Trading Day after such Draw Down Pricing Period (such settlement
periods and such settlement dates in subsection (i) and this
subsection (ii) each referred to as a "Settlement Period" and a
"Settlement Date", respectively).
(c) In connection with each Draw Down Pricing Period, the
Company may set the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be
$100,000 and the maximum Investment Amount as to each Draw Down shall be
the lesser of (i) $1,000,000, and (ii) 6% of the EQY weighted average
price field (as reported on Bloomberg Financial L.P. using the BLPH
function) for the Common Stock for the 60 calendar days immediately prior
to the applicable Commencement Date (defined below) multiplied by the
total trading volume in respect of the Common Stock for such period.
Notwithstanding anything herein to the contrary, in the event the minimum
Investment Amount is greater than the maximum Investment Amount, as to
such Draw Down only, the minimum Investment Amount shall equal the maximum
Investment Amount, but in no event shall the minimum Investment Amount be
less than $50,000, such that if the maximum Investment Amount is less than
$50,000, then the Company shall be precluded from exercising a Draw Down
at such time.
(e) The number of Shares of Common Stock to be issued on
each Settlement Date shall be a number of shares equal to the sum of the
quotients (for each trading day within the Settlement Period) of (x)
1/22nd of the Investment Amount, and (y)the Purchase Price on each Trading
Day within the Settlement Period, subject to the following adjustments:
(i) if the VWAP on a given Trading Day is less than
the Threshold Price, then that portion of the Investment Amount to
be paid on the immediately pending Settlement Date shall be reduced
by 1/22nd of the Investment Amount and such Trading Day shall be
withdrawn from the Settlement Period;
(ii) if during any Trading Day during the Settlement
Period trading of the Common Stock on the Principal Market is
suspended for more than three (3) hours, in the aggregate, or if any
Trading Day during the Settlement Period is shortened because of a
public holiday, then that portion of the
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Investment Amount to be paid on the immediately pending Settlement
Date shall be reduced by 1/22nd of the Investment Amount and such
Trading Day shall be withdrawn from the Settlement Period; and
(iii) if during any Trading Day during the Settlement
Period sales of Draw Down Shares pursuant to the Registration
Statement are suspended by the Company in accordance with Sections
3(j) or 5(e) of the Registration Rights Agreement for more than
three (3) hours, in the aggregate, during the Settlement Period,
then that portion of the Investment Amount to be paid on the
immediately pending Settlement Date shall be reduced by 1/22nd of
the Investment Amount and such Trading Day shall be withdrawn from
the Settlement Period.
(f) The Company must inform the Purchaser by delivering a
draw down notice, in the form of Exhibit D hereto (the "Draw Down
Notice"), via facsimile transmission in accordance with Section 8.4 as to
the amount of the Draw Down (the "Investment Amount") the Company wishes
to exercise, before the first day of the Draw Down Pricing Period (the
"Commencement Date"). If the Commencement Date is to be the date of the
Draw Down Notice, the Draw Down Notice must be delivered to and receipt
confirmed by the Purchaser at least one (1) hour before trading commences
on such date. At no time shall the Purchaser be required to purchase more
than the maximum Investment Amount for a given Draw Down Pricing Period so
that if the Company chooses not to exercise the maximum Investment Amount
in a given Draw Down Pricing Period the Purchaser is not obligated to and
shall not purchase more than the scheduled maximum Investment Amount in a
subsequent Draw Down Pricing Period.
(g) On each Settlement Date, the Shares purchased by the
Purchaser shall be delivered to The Depository Trust Company ("DTC") on
the Purchaser's behalf. Upon the Company electronically delivering whole
shares of Common Stock to the Purchaser or its designees via DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system by 1:00 p.m. EST,
the Purchaser shall wire transfer immediately available funds to the
Company's designated account on such day, less any fees as set forth in
the Escrow Agreement, which fees shall be wired as directed in the Escrow
Agreement. Upon the Company electronically delivering whole shares of
Common Stock to the Purchaser or its designees DTC account via DWAC after
1:00 p.m. EST, the Purchaser shall wire transfer next day available funds
to the Company's designated account on such day, less any fees as set
forth in the Escrow Agreement, which fees shall be wired as directed in
the Escrow Agreement. In the event that either party elects to use the
Escrow Agent, the Shares shall be credited by the Company to the DTC
account designated by the Purchaser via DWAC upon receipt by the Escrow
Agent of payment for the Draw Down Shares into the Escrow Agent's master
escrow account, as further set forth in the Escrow Agreement. The Escrow
Agent shall be directed to pay the purchase price to the Company, net of
$1,000 per Settlement as escrow expenses to the Escrow Agent and any
additional fees as set forth in the Escrow Agreement. The Company
understands that a delay in the delivery of the Draw Down Shares into the
Purchaser's DTC account beyond 3 Trading Days after the dates set forth
herein or in the Escrow Agreement, as the case may be, could result in
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economic loss to the Purchaser. Notwithstanding anything herein to the
contrary, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late delivery after 3
Trading Days from such dates in accordance with the following schedule
(where "No. Trading Days Late" is defined as the number of Trading Days
beyond three 3 Trading Days from the dates set forth herein or in the
Escrow Agreement, as the case may be, on which such Draw Down Shares are
to be delivered into the Purchaser's DTC account via the DWAC system):
No. Trading Days ▇▇▇▇ ▇▇▇▇ Payment for Each
$5,000 of Draw Down Shares
Being Purchased
--------------------------------------------------------------------------------
1 $100
--------------------------------------------------------------------------------
2 $200
--------------------------------------------------------------------------------
3 $300
--------------------------------------------------------------------------------
4 $400
--------------------------------------------------------------------------------
5 $500
--------------------------------------------------------------------------------
6 $600
--------------------------------------------------------------------------------
7 $700
--------------------------------------------------------------------------------
8 $800
--------------------------------------------------------------------------------
9 $900
--------------------------------------------------------------------------------
10 $1,000
--------------------------------------------------------------------------------
More than 10 $1,000 +$200 for each
Trading Day Late beyond 10
Trading Days
--------------------------------------------------------------------------------
The Company shall pay any payments incurred under this Section
5.1(g) in immediately available funds upon demand. Nothing herein shall
limit the Purchaser's right to pursue injunctive relief and/or actual
damages for the Company's failure to issue and deliver the Draw Down
Shares to the Company, including, without limitation, the Purchaser's
actual losses occasioned by any "buy-in" of Common Stock necessitated by
such late delivery.
ARTICLE 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the
date hereof and shall end on the earlier of 24 months from the Effective Date or
as otherwise set forth in Section 6.2.
Section 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading
Day's notice if (i) an event resulting in a Material Adverse Effect has
occurred and has not been cured
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for a period of thirty (30) days after giving written notice thereof, (ii)
the Common Stock is de-listed from the Principal Market unless such
de-listing is in connection with the Company's subsequent listing of the
Common Stock on the Nasdaq National Market, Nasdaq SmallCap Market, the
American Stock Exchange or the New York Stock Exchange, or (iii) the
Company files for protection from creditors under any applicable law.
(b) The Company may terminate this Agreement upon one (1)
Trading Day's notice if the Purchaser shall fail to fund more than one
properly noticed Draw Down within five (5) Trading Days of the end of the
applicable Settlement Period.
Section 6.3. Effect of Termination. In the event of termination of
this Agreement pursuant to Section 6.2 herein, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement shall be terminated without further action by either party. If this
Agreement is terminated as provided in Section 6.1 or 6.2 herein, this Agreement
shall become void and of no further force and effect, except for Sections 8.1,
8.2 and 8.9, and Article 7 herein. Nothing in this Section 6.3 shall be deemed
to release the Company or the Purchaser from any liability for any breach under
this Agreement, or to impair the rights of the Company or the Purchaser to
compel specific performance by the other party of its obligations under this
Agreement.
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the
Purchaser (and its directors, officers, affiliates, agents, successors and
assigns) from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable
attorneys' fees, charges and disbursements) incurred by the Purchaser as a
result of any material inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein.
(b) The Purchaser agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and
assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable
attorneys' fees, charges and disbursements) incurred by the Company as
result of any material inaccuracy in or breach of the representations,
warranties or covenants made by the Purchaser herein. Notwithstanding
anything to the contrary herein, the Purchaser shall be liable under this
Section 7.1(b) for only that amount as does not exceed the net proceeds to
the Purchaser as a result of the sale of the Shares.
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Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the Indemnified Party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. In the event that the indemnifying party
advises an Indemnified Party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the Indemnified Party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the Indemnified Party's costs
(including reasonable attorneys' fees, charges and disbursements) and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification hereunder. The
Indemnified Party shall cooperate fully with the indemnifying party in
connection with any settlement negotiations or defense of any such action or
claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party, which relates to such
action or claim. The indemnifying party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article 7 to the contrary, the indemnifying
party shall not, without the Indemnified Party's prior written consent (which
consent shall not be unreasonably withheld), settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim. The
indemnification required by this Article 7 shall be made by periodic payments of
the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so long as
the Indemnified Party irrevocably agrees to refund such moneys, with interest,
if it is ultimately determined by a court of competent jurisdiction that such
party was not entitled to indemnification. The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
Indemnified Party against the indemnifying party or others, and (b) any
liabilities to which the indemnifying party may be subject.
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ARTICLE 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Each of the parties to this
Agreement shall pay its own fees and expenses related to the transactions
contemplated by this Agreement. The Company shall pay all stamp or other similar
taxes and duties levied in connection with issuance of the Shares pursuant
hereto.
Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 8.3. Entire Agreement; Amendment. The Transaction Documents
contain the entire understanding of the parties with respect to the matters
covered in the Transaction Documents. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought and no condition to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.
Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇-▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: L.L. ▇▇▇▇
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With copies to: Squire, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P.
(which shall not constitute Two Renaissance Square
Suite 2700
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
If to Purchaser: ▇/▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ Floor
Waterfront Drive
Road Town, Tortola
British Virgin Islands
Attn: ▇▇▇▇▇ ▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Green P.C.
(which shall not constitute ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇) ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Any party hereto may from time to time change its address for
notices by giving written notice of such changed address to the other party
hereto in accordance herewith.
Section 8.5. Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 8.6. Headings. The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
The parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment.
Section 8.8. No Third Party Beneficiaries.This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
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Section 8.9. Governing Law/Arbitration. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to the choice of law provisions thereof. The
Company and the Purchaser agree to submit themselves to the in personam
jurisdiction of the state and federal courts situated within the Southern
District of the State of New York with regard to any controversy arising out of
or relating to this Agreement. Any dispute under this Agreement or any Exhibit
attached hereto shall be submitted to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including reasonable attorneys' fees, from the non-prevailing party.
Section 8.10. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart. Execution may be made by
delivery by facsimile.
Section 8.11. Publicity. Neither the Company nor the Purchaser shall
issue any press release or otherwise make any public statement or announcement
with respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement, without the prior written consent of the other
party. After the Initial Closing, the Company may issue a press release or
otherwise make a public statement or announcement with respect to this Agreement
or the transactions contemplated hereby or the existence of this Agreement;
provided, however, that prior to issuing any such press release, making any such
public statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. The provisions of this Agreement are
severable and, in the event that The Board of Arbitration or any court or
officials of any regulatory agency of
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competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a
provision of this Agreement and this Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible, so long as such
construction does not materially adversely affect the economic rights of either
party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 8.14. Effectiveness of Agreement. This Agreement shall
become effective only upon satisfaction of the conditions precedent to the
Initial Closing set forth in Article I of the Escrow Agreement.
Section 8.15. Confidentiality. The Purchaser understands that the
CPI has been developed or obtained by the Company by the investment of
significant time, effort and expense and that such CPI provides the Company with
significant competitive advantages in its businesses. The Purchaser therefore
agrees (i) to maintain all CPI in confidence and take all necessary precautions
to protect said CPI, including without limitation, all precautions the Purchaser
normally employs with respect to its own confidential materials but in no event
less than a reasonable degree of care; (ii) not to divulge CPI or any
information derived therefrom outside of Purchaser; and (iii) not to utilize
said CPI for any purpose other than as necessary for purposes of performance
under this Agreement. The foregoing sentence shall not apply with respect to
information the Purchaser can establish (i) is in the public domain at the time
of disclosure or which thereafter enters the public domain, through no improper
action or inaction by the Purchaser; or (ii) was known to or independently
developed by or in the possession of Purchaser prior to receipt of such CPI from
the Company, as evidenced by written records; or (iii) was lawfully disclosed to
the Purchaser by a third party without restriction; or (iv) is required to be
disclosed by a government agency or court order or pursuant to applicable laws
and regulations provided that within five days of notification of such a
requirement and prior to complying with such requirement the Purchaser shall
notify the Company of such requirement pursuant to clause (iv) and shall limit
the disclosure to that portion of the CPI which is legally required in the
written opinion of counsel and shall use best efforts to ensure such CPI is
treated confidentially.
ARTICLE 9
DEFINITIONS
Section 9.1. Certain Definitions.
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(a) "Commencement Date" shall have the meaning assigned to
such term in Section 5.1(f) hereof.
(b) "Commitment Amount" shall have the meaning assigned to
such term in Section 1.1 hereof.
(c) "Commitment Period" shall mean the period commencing on
the Effective Date and expiring on the earliest to occur of (i) the date
on which the Purchaser shall have exercised an aggregate amount of Draw
Downs equal to the Commitment Amount, (ii) the date this Agreement is
terminated in accordance with the terms hereof, or (iii) the date
occurring twenty-four (24) months from the Effective Date..
(d) "Common Stock" shall mean the Company's common stock,
$.01 par value per share.
(e) "CPI" shall mean all oral and written information
concerning the Company which is non-public, confidential or proprietary in
nature and shall include, but not be limited to, existing,
future-developed or acquired products, processes, techniques, methods,
agents, computer programs, trade secrets, and other information regarding
the business of the Company, know-how, ideas (including patentable ideas),
inventions, unpublished patent applications, improvements, copyrightable
materials, schematics, product development plans, forecasts, strategies,
customers, suppliers, regulatory strategies and other technical, business,
financial, marketing and merchandising information of the Company.
(f) "Disclosure Schedule" shall mean the schedules prepared
by the Company and attached hereto.
(g) "Draw Down" shall have the meaning assigned to such term
in Section 5.1(a) hereof.
(h) "Draw Down Notice" shall have the meaning assigned to
such term in Section 5.1(f) hereof.
(i) "Draw Down Pricing Period" shall mean a period of
twenty-two (22) consecutive Trading Days beginning on the date specified
in the Draw Down Notice (as defined in Section 5.1(f) herein); provided,
however, the Draw Down Pricing Period shall not begin before the day on
which receipt of such notice is confirmed by the Purchaser.
(j) "DTC" shall have the meaning assigned to such term in
Section 5.1(g).
(k) "DWAC" shall have the meaning assigned to such term in
Section 5.1(g).
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(l) "Effective Date" shall mean the date the Registration
Statement of the Company covering the Shares being subscribed for hereby
is declared effective by the SEC.
(m) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
(n) "GAAP" shall mean the United States Generally Accepted
Accounting Principles as those conventions, rules and procedures are
determined by the Financial Accounting Standards Board and its predecessor
agencies.
(o) "Initial Closing" shall have the meaning assigned to
such term in Section 1.2 hereof.
(p) "Initial Closing Date" shall have the meaning assigned
to such term in Section 1.2 hereof.
(q) "Investment Amount" shall have the meaning assigned to
such term in Section 5.1(f) hereof.
(r) "Material Adverse Effect" shall mean any adverse effect
on the business, operations, properties or financial condition of the
Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the
ability of the Company to perform any of its material obligations under
this Agreement or the Registration Rights Agreement or to perform its
obligations under any other Material Agreement.
(s) "Material Agreement" shall mean any written or oral
contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which is required to be filed with the SEC as an
exhibit to any of the SEC Documents.
(t) "Principal Market" shall mean initially the OTC
Electronic Bulletin Board and shall include the American Stock Exchange,
The Nasdaq National Market, the Nasdaq Small-Cap Market and the New York
Stock Exchange if the Company becomes listed and trades on such market or
exchange after the date hereof.
(u) "Purchase Price" shall mean, with respect to Shares
purchased during each applicable Settlement Period, 92% of the VWAP on the
date in question.
(v) "Registration Statement" shall mean the registration
statement under the Securities Act, to be filed with the Securities and
Exchange Commission for the registration of the Shares pursuant to the
Registration Rights Agreement attached hereto as Exhibit A (the
"Registration Rights Agreement).
(w) "SEC" shall mean the Securities and Exchange Commission.
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(x) "SEC Documents" shall mean the Company's latest Form
10-K or Form 10-KSB as of the time in question, all Forms 10-Q or 10-QSB
and 8-K filed thereafter, and the Proxy Statement for its latest fiscal
year as of the time in question 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.
(y) "Securities Act" shall mean the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
(z) "Settlement" shall mean the delivery of the Draw Down
Shares into the Purchaser's DTC account via DTC's DWAC System in exchange
for payment therefor.
(aa) "Settlement Date" shall have the meaning assigned to
such term in Section 5.1(b).
(bb) "Settlement Period" shall have the meaning assigned to
such term in Section 5.1(b).
(cc) "Shares" shall mean, collectively, the shares of Common
Stock of the Company being subscribed for hereunder (the "Draw Down
Shares") and the shares of Common Stock issuable upon exercise of the
Warrant (the "Warrant Shares").
(dd) "Threshold Price" shall mean the price per Share
designated by the Company as the lowest VWAP during any Draw Down Pricing
Period at which the Company shall sell its Common Stock in accordance with
this Agreement.
(ee) "Trading Day" shall mean any day on which the Principal
Market is open for business.
(ff) "Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement and the Escrow Agreement.
(gg) "VWAP" shall mean the daily volume weighted average
price of the Company's Common Stock on the Principal Market as reported by
Bloomberg Financial L.P. (based on a trading day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time) using the VAP function on the date in
question.
(hh) "Warrant" shall mean the warrant issued to the Purchaser
pursuant to Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
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[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officer as of this 14th day of
May, 2001.
NATIONAL SCIENTIFIC CORPORATION,
A TEXAS CORPORATION
By: /s/ L.L. ▇▇▇▇
-----------------------------------
L.L. ▇▇▇▇, President & CEO
CORIANDER ENTERPRISES LIMITED
By: /s/ ▇▇▇▇▇ ▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇
Title: Director
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