STANDBY EQUITY DISTRIBUTION AGREEMENT
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THIS AGREEMENT dated as of the 28 day of January 2005 (the
"Agreement") between CORNELL CAPITAL PARTNERS, LP, a Delaware limited
partnership (the "Investor"), and KRONOS ADVANCED TECHNOLOGIES, INC., a
corporation organized and existing under the laws of the State of Nevada (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase from
the Company up to Twenty Million U.S. Dollars ($20,000,000) of the Company's
common stock, par value $0.001 per share (the "Common Stock"); and
WHEREAS, such investments will be made in reliance upon the
provisions of Regulation D ("Regulation D") of the Securities Act of 1933, as
amended, and the regulations promulgated thereunder (the "Securities Act"),
and or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
to be made hereunder.
WHEREAS, the Company has engaged Newbridge Securities Corporation (the
"Placement Agent"), to act as the Company's exclusive placement agent in
connection with the sale of the Company's Common Stock to the Investor hereunder
pursuant to the Placement Agent Agreement dated the date hereof by and among the
Company, the Placement Agent and the Investor (the "Placement Agent Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Certain Definitions
Section 1.1. "Advance" shall mean the portion of the Commitment
Amount requested by the Company in the Advance Notice.
Section 1.2. "Advance Date" shall mean the date the Xxxxx Xxxxxxxx
Attorney Trust Account is in receipt of the funds from the Investor and Xxxxx
Xxxxxxxx, Esq., is in possession of free trading shares from the Company and
therefore an Advance by the Investor to the Company can be made and Xxxxx
Xxxxxxxx, Esq. can release the free trading shares to the Investor. The
Advance Date shall be the first (1st) Trading Day after expiration of the
applicable Pricing Period for each Advance.
Section 1.3. "Advance Notice" shall mean a written notice to the
Investor setting forth the Advance amount that the Company requests from the
Investor and the Advance Date.
Section 1.4. "Advance Notice Date" shall mean each date the
Company delivers to the Investor an Advance Notice requiring the Investor to
advance funds to the Company, subject to the terms of this Agreement. No Advance
Notice Date shall be less than five (5) Trading Days after the prior Advance
Notice Date.
Section 1.5. "Bid Price" shall mean, on any date, the closing bid
price (as reported by Bloomberg L.P.) of the Common Stock on the Principal
Market or if the Common Stock is not traded on a Principal Market, the highest
reported bid price for the Common Stock, as furnished by the National
Association of Securities Dealers, Inc.
Section 1.6. "Closing" shall mean one of the closings of a
purchase and sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate amount
of up to Twenty Million U.S. Dollars ($20,000,000) which the Investor has
agreed to provide to the Company in order to purchase the Company's Common
Stock pursuant to the terms and conditions of this Agreement.
Section 1.8. "Commitment Period" shall mean the period commencing
on the earlier to occur of (i) the Effective Date, or (ii) such earlier date as
the Company and the Investor may mutually agree in writing, and expiring on
the earliest to occur of (x) the date on which the Investor shall have made
payment of Advances pursuant to this Agreement in the aggregate amount of
Twenty Million U.S. Dollars ($20,000,000), (y) the date this Agreement is
terminated pursuant to Section 2.4, or (z) the date occurring twenty-four (24)
months after the Effective Date.
Section 1.9. "Common Stock" shall mean the Company's common stock,
par value $0.001 per share.
Section 1.10. "Condition Satisfaction Date" shall have the meaning
set forth in Section 7.2.
Section 1.11. "Damages" shall mean any loss, claim, damage,
liability, costs and expenses (including, without limitation, reasonable
attorney's fees and disbursements and costs and expenses of expert witnesses and
investigation).
Section 1.12. "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the resale of
the Registrable Securities as set forth in Section 7.2(a).
Section 1.13. "Escrow Agreement" shall mean the escrow agreement
among the Company, the Investor, and Xxxxx Xxxxxxxx, Esq., dated the date
hereof.
Section 1.14. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.15. "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially
interfere with the ability of the Company to enter into and perform any of its
obligations under this Agreement or the Registration Rights Agreement in any
material respect.
Section 1.16. "Market Price" shall mean the lowest VWAP of the
Common Stock during the Pricing Period.
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Section 1.17. "Maximum Advance Amount" shall be One Million Five
Hundred Thousand U.S. Dollars (US$1,500,000) per Advance Notice.
Section 1.18. "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section 1.19. "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.20. "Placement Agent" shall mean Newbridge Securities
Corporation, a registered broker-dealer.
Section 1.21. "Pricing Period" shall mean the five (5) consecutive
Trading Days after the Advance Notice Date.
Section 1.22. "Principal Market" shall mean the Nasdaq National
Market, the Nasdaq SmallCap Market, the American Stock Exchange, the OTC
Bulletin Board or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Section 1.23. "Purchase Price" shall be set at ninety eight percent
(98%) of the Market Price during the Pricing Period.
Section 1.24. "Registrable Securities" shall mean the shares of
Common Stock to be issued hereunder (i) in respect of which the Registration
Statement has not been declared effective by the SEC, (ii) which have not
been sold under circumstances meeting all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act ("Rule
144") or (iii) which have not been otherwise transferred to a holder who may
trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for
such securities not bearing a restrictive legend.
Section 1.25. "Registration Rights Agreement" shall mean the
Registration Rights Agreement dated the date hereof, regarding the filing of
the Registration Statement for the resale of the Registrable Securities,
entered into between the Company and the Investor.
Section 1.26. "Registration Statement" shall mean a registration
statement on Form S-1 or SB-2 (if use of such form is then available to the
Company pursuant to the rules of the SEC and, if not, on such other form
promulgated by the SEC for which the Company then qualifies and which counsel
for the Company shall deem appropriate, and which form shall be available for
the resale of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement and the Registration Rights
Agreement, and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section 1.27. "Regulation D" shall have the meaning set forth in
the recitals of this Agreement.
Section 1.28. "SEC" shall mean the Securities and Exchange
Commission.
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Section 1.29. "Securities Act" shall have the meaning set forth in
the recitals of this Agreement.
Section 1.30. "SEC Documents" shall mean Annual Reports on Form
10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.31. "Trading Day" shall mean any day during which the New
York Stock Exchange shall be open for business.
Section 1.32. "VWAP" shall mean the volume weighted average price
of the Company's Common Stock as quoted by Bloomberg, LP.
ARTICLE II.
Advances
Section 2.1. Investments.
(a) Advances. Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article VII hereof),
on any Advance Notice Date the Company may request an Advance by the Investor
by the delivery of an Advance Notice. The number of shares of Common Stock that
the Investor shall receive for each Advance shall be determined by dividing
the amount of the Advance by the Purchase Price. No fractional shares shall be
issued. Fractional shares shall be rounded to the next higher whole number of
shares. The aggregate maximum amount of all Advances that the Investor shall be
obligated to make under this Agreement shall not exceed the Commitment Amount.
Section 2.2. Mechanics.
(a) Advance Notice. At any time during the Commitment
Period, the Company may deliver an Advance Notice to the Investor, subject to
the conditions set forth in Section 7.2; provided, however, the amount for
each Advance as designated by the Company in the applicable Advance Notice,
shall not be more than the Maximum Advance Amount. The aggregate amount of the
Advances pursuant to this Agreement shall not exceed the Commitment Amount.
There shall be a minimum of five (5) Trading Days between each Advance Notice
Date.
(b) Date of Delivery of Advance Notice. An Advance
Notice shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior to
12:00 noon Eastern Time, or (ii) the immediately succeeding Trading Day if
it is received by facsimile or otherwise after 12:00 noon Eastern Time on a
Trading Day or at any time on a day which is not a Trading Day. No Advance
Notice may be deemed delivered on a day that is not a Trading Day.
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Section 2.3. Closings. On each Advance Date, which shall be the
first (1st) Trading Day after expiration of the applicable Pricing Period
for each Advance, (i) the Company shall deliver to Xxxxx Xxxxxxxx, Esq. (the
"Escrow Agent") shares of the Company's Common Stock, representing the amount of
the Advance by the Investor pursuant to Section 2.1 herein, registered in the
name of the Investor which shall be delivered to the Investor, or otherwise in
accordance with the Escrow Agreement and (ii) the Investor shall deliver to
Escrow Agent the amount of the Advance specified in the Advance Notice by wire
transfer of immediately available funds which shall be delivered to the
Company, or otherwise in accordance with the Escrow Agreement. In addition, on
or prior to the Advance Date, each of the Company and the Investor shall
deliver to the other through the Investor's counsel, all documents,
instruments and writings required to be delivered by either of them pursuant to
this Agreement in order to implement and effect the transactions contemplated
herein. Payment of funds to the Company and delivery of the Company's Common
Stock to the Investor shall occur in accordance with the conditions set forth
above and those contained in the Escrow Agreement; provided, however, that to
the extent the Company has not paid the fees, expenses, and disbursements of
the Investor, the Investor's counsel, or the Company's counsel in accordance
with Section 12.4, the amount of such fees, expenses, and disbursements may
be deducted by the Investor (and shall be paid to the relevant party) from the
amount of the Advance with no reduction in the amount of shares of the Company's
Common Stock to be delivered on such Advance Date.
Section 2.4. Termination of Investment. The obligation of the
Investor to make an Advance to the Company pursuant to this Agreement shall
terminate permanently (including with respect to an Advance Date that has not
et occurred) in the event that (i) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement for an
aggregate of fifty (50) Trading Days, other than due to the acts of the
Investor, during the Commitment Period, and (ii) the Company shall at any
time fail materially to comply with the requirements of Article VI and such
failure is not cured within thirty (30) days after receipt of written notice
from the Investor, provided, however, that this termination provision shall
not apply to any period commencing upon the filing of a post-effective
amendment to such Registration Statement and ending upon the date on which
such post effectiveamendment is declared effective by the SEC.
Section 2.5. Agreement to Advance Funds. The Investor agrees to
advance the amount specified in the Advance Notice to the Company after the
completion of each of the following conditions and the other conditions set
forth in this Agreement:
(a) the execution and delivery by the Company, and the
Investor, of this Agreement and the Exhibits hereto;
(b) the Escrow Agent shall have received the shares of
Common Stock applicable to the Advance in accordance with Section 2.3. Such
shares shall be free of restrictive legends.
(c) the Company's Registration Statement with respect to
the resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement shall have been declared effective by the SEC;
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(d) the Company shall have obtained all material permits
and qualifications required by any applicable state for the offer and sale of
the Registrable Securities, or shall have the availability of exemptions
therefrom. The sale and issuance of the Registrable Securities shall be legally
permitted by all laws and regulations to which the Company is subject;
(e) the Company shall have filed with the Commission in a
timely manner all reports, notices and other documents required of a "reporting
company" under the Exchange Act and applicable Commission regulations;
(f) the fees as set forth in Section 12.4 below shall
have been paid or can be withheld as provided in Section 2.3; and
(g) the conditions set forth in Section 7.2 shall have
been satisfied.
(h) the Company shall have provided to the Investor an
acknowledgement, from Sherb & Co. as to its ability to provide all consents
required in order to file a registration statement in connection with this
transaction;
(i) The Company's transfer agent shall be DWAC eligible.
Section 2.6. Lock Up Period.
(i) During the Commitment Period, and except as
disclosed in the SEC Documents and as set forth in the loan transaction
documents by and among the Company, Kronos Air Technologies, Inc. and FKA
Distributing Co. d/b/a HoMedics, Inc., a Michigan corporation ("HoMedics"),
including that certain Master Loan and Investment Agreement, dated May 9, 2003,
that certain Secured Promissory Note in the principal amount of $2,400,000, that
certain Secured Promissory Note in the principal amount of $1,000,000, that
certain Security Agreement, dated May 9, 2003, that certain Registration Rights
Agreement, dated May 9, 2003, that certain Warrant No. 1, dated May 9, 2003 and
that certain Warrant No. 2, dated May 9, 2003 (collectively referred to as the
"HoMedics Transaction Documents"), the Company shall not issue or sell (i) any
Common Stock or Preferred Stock without consideration or for a consideration per
share less than the Bid Price on the date of issuance or (ii) issue or sell any
warrant, option, right, contract, call, or other security or instrument granting
the holder thereof the right to acquire Common Stock without consideration or
for a consideration per share less than the Bid Price on the date of issuance.
(ii) On the date hereof, the Company shall obtain
from each officer and director a lock-up agreement, as defined below, in the
form annexed hereto as Schedule 2.6 agreeing to only sell in compliance with the
volume limitation of Rule 144.
Section 2.7. Hardship. In the event the Investor sells shares of
the Company's Common Stock after receipt of an Advance Notice and the Company
fails to perform its obligations as mandated in Section 2.3, and specifically
the Company fails to deliver to the Escrow Agent on the Advance Date the shares
of Common Stock corresponding to the applicable Advance, the Company
acknowledges that the Investor shall suffer financial hardship and therefore
shall be liable for any and all losses, commissions, fees, or financial hardship
caused to the Investor.
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ARTICLE III.
Representations and Warranties of Investor
Investor hereby represents and warrants to, and agrees with, the
Company that the following are true and as of the date hereof and as of each
Advance Date:
Section 3.1. Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.
Section 3.2. Evaluation of Risks. The Investor has such knowledge
and experience in financial tax and business matters as to be capable of
evaluating the merits and risks of, and bearing the economic risks entailed by,
an investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
Section 3.3. No Legal Advice From the Company. The Investor
acknowledges that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with his or its own legal counsel
and investment and tax advisors. The Investor is relying solely on such counsel
and advisors and not on any statements or representations of the Company or any
of its representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this Agreement or
the securities laws of any jurisdiction.
Section 3.4. Investment Purpose. The securities are being
purchased by the Investor for its own account, for investment and without any
view to the distribution, assignment or resale to others or fractionalization in
whole or in part. The Investor agrees not to assign or in any way transfer the
Investor's rights to the securities or any interest therein and acknowledges
that the Company will not recognize any purported assignment or transfer except
in accordance with applicable Federal and state securities laws. No other person
has or will have a direct or indirect beneficial interest in the securities. The
Investor agrees not to sell, hypothecate or otherwise transfer the Investor's
securities unless the securities are registered under Federal and applicable
state securities laws or unless, in the opinion of counsel satisfactory to the
Company, an exemption from such laws is available.
Section 3.5. Accredited Investor. The Investor is an "Accredited
Investor" as that term is defined in Rule 501(a)(3) of Regulation D of the
Securities Act.
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Section 3.6. Information. The Investor and its advisors (and
its counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information it deemed
material to making an informed investment decision. The Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence
investigations conducted by such Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor's right to rely on
the Company's representations and warranties contained in this Agreement. The
Investor understands that its investment involves a high degree of risk. The
Investor is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such
Investor to obtain information from the Company in order to evaluate the merits
and risks of this investment. The Investor has sought such accounting, legal and
tax advice, as it has considered necessary to make an informed investment
decision with respect to this transaction.
Section 3.7. Receipt of Documents. The Investor and its counsel
have received and read in their entirety: (i) this Agreement and the Exhibits
annexed hereto; (ii) all due diligence and other information necessary to verify
the accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-KSB for the year ended June 30, 2003 and Form 10-QSB
for the period ended March 31, 2004; and (iv) answers to all questions the
Investor submitted to the Company regarding an investment in the Company; and
the Investor has relied on the information contained therein and has not been
furnished any other documents, literature, memorandum or prospectus.
Section 3.8. Registration Rights Agreement and Escrow Agreement.
The parties have entered into the Registration Rights Agreement and the Escrow
Agreement, each dated the date hereof.
Section 3.9. No General Solicitation. 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 of Common Stock offered hereby.
Section 3.10. Not an Affiliate. The Investor is not an officer,
director or a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with
the Company or any "Affiliate" of the Company (as that term is defined in Rule
405 of the Securities Act).
Section 3.11. Trading Activities. The Investor's trading
activities with respect to the Company's Common Stock shall be in compliance
with all applicable federal and state securities laws, rules and regulations and
the rules and regulations of the Principal Market on which the Company's Common
Stock is listed or traded. Neither the Investor nor its affiliates has an open
short position in the Common Stock of the Company, the Investor agrees that it
shall not, and that it will cause its affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock, provided that
the Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor is permitted to sell the shares to be issued to the Investor pursuant
to the Advance Notice during the applicable Pricing Period.
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ARTICLE IV.
Representations and Warranties of the Company
Except as stated below, on the disclosure schedules attached hereto or
in the SEC Documents (as defined herein), the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
Section 4.1. Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
Section 4.2. Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements have
been duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Placement Agent
Agreement and assuming the execution and delivery thereof and acceptance by the
Investor and any related agreements constitute the valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
Section 4.3. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of 500,000,000 shares of Common
Stock, par value $0.001 per share and 50,000,000 shares of Preferred Stock of
which 63,951,360 shares of Common Stock and 0 shares of Preferred Stock were
issued and outstanding. All of such outstanding shares have been validly issued
and are fully paid and nonassessable. Except as disclosed in the SEC Documents
and preemptive rights granted in the HoMedics Transaction Documents, no shares
of Common Stock are subject to preemptive rights or any other similar rights or
any liens or encumbrances suffered or permitted by the Company. Except as
disclosed in the SEC Documents, the HoMedics Transaction Documents, and pursuant
to any restructuring of the HoMedics Transaction Documents, as of the date
hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
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securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, (ii) there are no outstanding debt securities (iii) there are no
outstanding registration statements other than on Form S-8 and (iv) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the Securities
Act (except pursuant to the Registration Rights Agreement). Except for the
preemptive rights granted in the HoMedics Transaction Documents, there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by this Agreement or any related agreement or the consummation
of the transactions described herein or therein. As of the date hereof, the
Company has granted HoMedics warrants to purchase shares of Common Stock and
following a potential restructuring of the HoMedics transaction Documents,
HoMedics could be granted additional warrants to purchase shares of Common
Stock. The Company has furnished to the Investor true and correct copies of the
Company's Certificate of Incorporation, as amended and as in effect on the date
hereof (the "Certificate of Incorporation"), and the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
Section 4.4. No Conflict. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) result in a violation of the
Certificate of Incorporation, any certificate of designations of any outstanding
series of preferred stock of the Company or By-laws or (ii) conflict with or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market on which the Common Stock is quoted)
applicable to the Company or any of its subsidiaries or by which any material
property or asset of the Company or any of its subsidiaries is bound or affected
and which would cause a Material Adverse Effect. Except as disclosed in the SEC
Documents, neither the Company nor its subsidiaries is in violation of any term
of or in default under its Articles of Incorporation or By-laws or their
organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted in violation of any material law, ordinance, regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the Securities Act and any applicable state securities laws,
the Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under or
contemplated by this Agreement or the Registration Rights Agreement in
accordance with the terms hereof or thereof. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its subsidiaries are unaware of any fact or
circumstance which might give rise to any of the foregoing.
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Section 4.5. SEC Documents; Financial Statements. Since January
1, 2002, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC under of the Exchange
Act. The Company has delivered to the Investor or its representatives, or made
available through the SEC's website at xxxx://xxx.xxx.xxx, true and complete
copies of the SEC Documents, as well as the HoMedics Transaction Documents. As
of their respective dates, the financial statements of the Company disclosed in
the SEC Documents (the "Financial Statements") complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Investor which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 4.6. 10b-5. The SEC Documents do not include any untrue
statements of material fact, nor do they omit to state any material fact
required to be stated therein necessary to make the statements made, in light of
the circumstances under which they were made, not misleading.
Section 4.7. No Default. Except as disclosed in the SEC Documents,
the Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its property is bound and neither the execution,
nor the delivery by the Company, nor the performance by the Company of its
obligations under this Agreement or any of the exhibits or attachments hereto
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under its
Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of
trust or other material agreement applicable to the Company or instrument to
which the Company is a party or by which it is bound, or any statute, or any
decree, judgment, order, rules or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, in each case
which default, lien or charge is likely to cause a Material Adverse Effect on
the Company's business or financial condition.
Section 4.8. Absence of Events of Default. Except for matters
described in the SEC Documents and/or this Agreement, no Event of Default, as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (as so defined), has occurred and is continuing,
which would have a Material Adverse Effect on the Company's business,
properties, prospects, financial condition or results of operations.
11
Section 4.9. Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all material
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. The Company and its subsidiaries do not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, and, to the knowledge of the Company, there
is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company has informed the Investor of a license granted to HoMedics and of
HoMedics' rights thereunder, as set forth in the SEC Documents.
Section 4.10. Employee Relations. Neither the Company nor any of
its subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
Section 4.11. Environmental Laws. The Company and its subsidiaries
are (i) in compliance with any and all applicable material foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval.
Section 4.12. Title. Except as set forth in the SEC Documents and
the HoMedics Transaction Documents, the Company has good and marketable title to
its properties and material assets owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Company. Any real property and
facilities held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.
Section 4.13. Insurance. The Company and each of its subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
12
Section 4.14. Regulatory Permits. The Company and its subsidiaries
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
Section 4.15. Internal Accounting Controls. The Company and
each of its subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Section 4.16. No Material Adverse Breaches, etc. Except as set
forth in the SEC Documents, neither the Company nor any of its subsidiaries is
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company's
officers has or is expected in the future to have a Material Adverse Effect on
the business, properties, operations, financial condition, results of operations
or prospects of the Company or its subsidiaries. Except as set forth in the SEC
Documents, neither the Company nor any of its subsidiaries is in breach of any
contract or agreement which breach, in the judgment of the Company's officers,
has or is expected to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
Section 4.17. Absence of Litigation. Except as set forth in the
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending against or affecting the Company, the Common Stock
or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or
finding would (i) have a Material Adverse Effect on the transactions
contemplated hereby (ii) adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, this
Agreement or any of the documents contemplated herein, or (iii) except as
expressly disclosed in the SEC Documents, have a Material Adverse Effect on the
business, operations, properties, financial condition or results of operation of
the Company and its subsidiaries taken as a whole.
Section 4.18. Subsidiaries. Except as disclosed in the SEC
Documents, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.
Section 4.19. Tax Status. Except as disclosed in the SEC Documents,
the Company and each of its subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
13
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
Section 4.20. Certain Transactions. Except as set forth in the
SEC Documents none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
Section 4.21. Fees and Rights of First Refusal. Except as set
forth in the SEC Documents, the HoMedics Transaction Documents and pursuant to a
potential restructuring of the HoMedics Transaction Documents, the Company is
not obligated to offer the securities offered hereunder on a right of first
refusal basis or otherwise to any third parties including, but not limited to,
current or former shareholders of the Company, underwriters, brokers, agents or
other third parties.
Section 4.22. Use of Proceeds. The Company shall use the net
proceeds from this offering for general corporate purposes, including, without
limitation, the payment of loan incurred by the Company. However, in no event
shall the Company use the net proceeds from this offering, for the payment (or
loaned to any such person for the payment) of any judgment, or other liability,
incurred by any executive officer, officer, director or employee of the Company,
except for any liability owed to such person for services rendered, or if any
judgment or other liability is incurred by such person originating from services
rendered to the Company, or the Company has indemnified such person from
liability.
Section 4.23. Further Representation and Warranties of the
Company. For so long as any securities issuable hereunder held by the Investor
remain outstanding, the Company acknowledges, represents, warrants and agrees
that it will maintain the listing of its Common Stock on the Principal Market.
Section 4.24. Opinion of Counsel. Investor shall receive an
opinion letter from counsel to the Company on the date hereof.
Section 4.25. Opinion of Counsel. The Company will obtain for
the Investor, at the Company's expense, any and all opinions of counsel which
may be reasonably required in order to sell the securities issuable hereunder
without restriction.
14
Section 4.26. Dilution. The Company is aware and acknowledges
that issuance of shares of the Company's Common Stock could cause dilution to
existing shareholders and could significantly increase the outstanding number of
shares of Common Stock. The Company has informed the Investor of the potential
dilution from warrants issued to HoMedics in connection with the HoMedics
Transaction Documents and pursuant to additional warrants issued prior to a
potential restructuring of the HoMedics Transaction Documents.
ARTICLE V.
Indemnification
The Investor and the Company represent to the other the following with
respect to itself:
Section 5.1. Indemnification.
(a) In consideration of the Investor's execution and
delivery of this Agreement, and in addition to all of the Company's other
obligations under this Agreement, the Company shall defend, protect, indemnify
and hold harmless the Investor, and all of its officers, directors, partners,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "Investor Indemnitees") from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and expenses in connection therewith (irrespective of whether any such Investor
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by the Investor Indemnitees or any of them
as a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in this Agreement
or the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Investor Indemnitee not arising out of any action
or inaction of an Investor Indemnitee, and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Investor Indemnitees. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.
(b) In consideration of the Company's execution and
delivery of this Agreement, and in addition to all of the Investor's other
obligations under this Agreement, the Investor shall defend, protect, indemnify
and hold harmless the Company and all of its officers, directors, shareholders,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "Company Indemnitees") from and against any and all Indemnified Liabilities
incurred by the Company Indemnitees or any of them as a result of, or arising
out of, or relating to (a) any misrepresentation or breach of any representation
or warranty made by the Investor in this Agreement, the Registration Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
15
by the Investor, (b) any breach of any covenant, agreement or obligation of the
Investor(s) contained in this Agreement, the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor, or (c) any cause of action, suit or claim brought or
made against such Company Indemnitee based on misrepresentations or due to a
breach by the Investor and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(c) The obligations of the parties to
indemnify or make contribution under this Section 5.1 shall survive termination.
ARTICLE VI.
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
Section 6.2. Listing of Common Stock. The Company shall maintain
the Common Stock's authorization for quotation on the National Association of
Securities Dealers Inc.'s Over the Counter Bulletin Board.
Section 6.3. Exchange Act Registration. The Company will cause
its Common Stock to continue to be registered under Section 12(g) of the
Exchange Act, will file in a timely manner all reports and other documents
required of it as a reporting company under the Exchange Act and will not take
any action or file any document (whether or not permitted by Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Exchange Act.
Section 6.4. Transfer Agent Instructions. Upon effectiveness of
the Registration Statement the Company shall deliver instructions to its
transfer agent to issue shares of Common Stock to the Investor free of
restrictive legends on or before each Advance Date
Section 6.5. Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6. Notice of Certain Events Affecting Registration;
Suspension of Right to Make an Advance. The Company will immediately notify the
Investor upon its becoming aware of the occurrence of any of the following
events in respect of a registration statement or related prospectus relating to
an offering of Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other Federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other Federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
16
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to the Investor any
Advance Notice during the continuation of any of the foregoing events.
Section 6.7. Restriction on Sale of Capital Stock. During the
Commitment Period and except as set forth in the SEC
Documents, the HoMedics Transaction Documents and pursuant to a potential
restructuring of the HoMedics Transaction Documents, the Company shall not issue
or sell (i) any Common Stock or Preferred Stock without consideration or for a
consideration per share less than the bid price of the Common Stock determined
immediately prior to its issuance, (ii) issue or sell any Preferred Stock
warrant, option, right, contract, call, or other security or instrument granting
the holder thereof the right to acquire Common Stock without consideration or
for a consideration per share less than such Common Stock's Bid Price determined
immediately prior to its issuance, or (iii) file any registration statement on
Form S-8.
Section 6.8. Consolidation; Merger. The Company shall not,
at any time after the date hereof, effect any merger or consolidation of the
Company with or into, or a transfer of all or substantially all the assets of
the Company to another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation to deliver to the Investor such shares of stock and/or securities
as the Investor is entitled to receive pursuant to this Agreement.
Section 6.9. Issuance of the Company's Common Stock. The sale
of the shares of Common Stock shall be made in accordance with the provisions
and requirements of Regulation D and any applicable state securities law.
ARTICLE VII.
Conditions for Advance and Conditions to Closing
Section 7.1. Conditions Precedent to the Obligations of the
Company. The obligation hereunder of the Company to issue and sell the shares of
Common Stock to the Investor incident to each Closing is subject to the
satisfaction, or waiver by the Company, at or before each such Closing, of each
of the conditions set forth below.
17
(a) Accuracy of the Investor's Representations and
Warranties. The representations and warranties of the Investor shall be true and
correct in all material respects.
(b) Performance by the Investor. The Investor shall
have performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Investor at or
prior to such Closing.
Section 7.2. Conditions Precedent to the Right of the Company to
Deliver an Advance Notice and the Obligation of the Investor to Purchase Shares
of Common Stock. The right of the Company to deliver an Advance Notice and the
obligation of the Investor hereunder to acquire and pay for shares of the
Company's Common Stock incident to a Closing is subject to the fulfillment by
the Company, on (i) the date of delivery of such Advance Notice and (ii) the
applicable Advance Date (each a "Condition Satisfaction Date"), of each of the
following conditions:
(a) Registration of the Common Stock with the SEC. The
Company shall have filed with the SEC a Registration Statement with respect to
the resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement. As set forth in the Registration Rights
Agreement, the Registration Statement shall have previously become effective and
shall remain effective on each Condition Satisfaction Date and (i) neither the
Company nor the Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the SEC otherwise has suspended or withdrawn the effectiveness of the
Registration Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been addressed and the
Investor is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of the Registration Statement or related
prospectus shall exist. The Registration Statement must have been declared
effective by the SEC prior to the first Advance Notice Date.
(b) Authority. The Company shall have obtained all
permits and qualifications required by any applicable state in accordance with
the Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(c) Fundamental Changes. There shall not exist any
fundamental changes to the information set forth in the Registration Statement
which would require the Company to file a post-effective amendment to the
Registration Statement.
(d) Performance by the Company. The Company shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement (including,
without limitation, the conditions specified in Section 2.5 hereof) and the
Registration Rights Agreement to be performed, satisfied or complied with by the
Company at or prior to each Condition Satisfaction Date.
18
(e) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
(f) No Suspension of Trading in or Delisting of Common
Stock. The trading of the Common Stock is not suspended by the SEC or the
Principal Market (if the Common Stock is traded on a Principal Market). The
issuance of shares of Common Stock with respect to the applicable Closing, if
any, shall not violate the shareholder approval requirements of the Principal
Market (if the Common Stock is traded on a Principal Market). The Company shall
not have received any notice threatening the continued listing of the Common
Stock on the Principal Market (if the Common Stock is traded on a Principal
Market).
(g) Maximum Advance Amount. The amount of an Advance
requested by the Company shall not exceed the Maximum Advance Amount. In
addition, in no event shall the number of shares issuable to the Investor
pursuant to an Advance cause the aggregate number of shares of Common Stock
beneficially owned by the Investor and its affiliates to exceed nine and 9/10
percent (9.9%) of the then outstanding Common Stock of the Company. For purposes
of this section, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act.
(h) No Knowledge. The Company has no knowledge of any
event which would be more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective.
(i) Other. On each Condition Satisfaction Date, the
Investor shall have received the certificate executed by an officer of the
Company in the form of Exhibit A attached hereto.
ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1. Due Diligence Review. Prior to the filing of the
Registration Statement the Company shall make available for inspection and
review by the Investor, its advisors and representatives, and any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
19
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public
information to the Investor, its advisors, or its representatives, unless prior
to disclosure of such information the Company identifies such information as
being non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX.
Choice of Law/Jurisdiction
Section 9.1. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Nevada without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Xxxxxx County, New Jersey, and expressly
consent to the jurisdiction and venue of the Superior Court of New Jersey,
sitting in Xxxxxx County, New Jersey and the United States District Court of New
Jersey, sitting in Newark, New Jersey, for the adjudication of any civil action
asserted pursuant to this paragraph.
20
ARTICLE X.
Assignment; Termination
Section 10.1. Assignment. Neither this Agreement nor any rights
of the Company hereunder may be assigned to any other Person.
Section 10.2. Termination. The obligations of the Investor to make
Advances under Article II hereof shall terminate twenty-four (24) months after
the Effective Date.
ARTICLE XI.
Notices
Section 11.1. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: Kronos Advanced Technologies, Inc.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxxxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxxxxx Xxxxxxxxx - Xxxxx 0000
Xxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investor(s): Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx -Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
21
With a Copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
ARTICLE XII.
Miscellaneous
Section 12.1. Counterparts. This Agreement may be executed in two
or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof, though failure to deliver such copies shall not affect the
validity of this Agreement.
Section 12.2. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Investor, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
Section 12.3. Reporting Entity for the Common Stock. The
reporting entity relied upon for the determination of the trading price or
trading volume of the Common Stock on any given Trading Day for the purposes of
this Agreement shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.
Section 12.4. Fees and Expenses. The Company hereby agrees to pay
the following fees:
(a) Structuring Fees. Each of the parties shall pay
its own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby, except that the Company will pay a
structuring fee of Fifteen Thousand Dollars ($15,000) to Yorkville Advisors
Management, LLC, which shall be paid directly from the gross proceeds of the
closing pursuant to the Securities Purchase Agreement dated the date hereof.
Subsequently on each advance date, the Company will pay Yorkville Advisors
Management, LLC a structuring fee of Five Hundred Dollars ($500) and any
outstanding fees of Xxxxxxxxxxx & Xxxxxxxx, LLP directly out the proceeds of any
Advances hereunder.
22
(b) Due Diligence Fee. Company shall pay the Investor a
non-refundable due diligence fee of Two Thousand Five Hundred Dollars ($2,500)
upon submission of the due diligence documents to the Investor.
(c) Commitment Fees.
(i) On each Advance Date the Company shall pay
to the Investor, directly from the gross proceeds held in escrow, an amount
equal to five percent (5%) of the amount of each Advance. The Company hereby
agrees that if such payment, as is described above, is not made by the Company
on the Advance Date, such payment will be made at the direction of the Investor
as outlined and mandated by Section 2.3 of this Agreement. (ii) Furthermore the
Company shall pay to the Investor One Hundred Forty Thousand Dollars ($140,000)
upon the execution of this Agreement and Sixty Thousand Dollars ($60,000) two
(2) business days from the date the Registration Statement filed pursuant to the
Registration Rights Agreement dated the date hereof is filed with the United
States Securities and Exchange Commission.
(ii) Six (6) months from the date hereof the
Company shall issue to the Investor One Million Four Hundred Seventy Thousand
Five Hundred Eighty Seven (1,470,587) shares of the Company's Common Stock and
on the twelve (12) month anniversary of the execution of this Agreement the
Company shall issue to the Investor One Million Four Hundred Seventy Thousand
Five Hundred Eighty Eight (1,470,588) shares of the Company's Common Stock (the
"Investor's Shares"). In the event this Agreement is terminated in accordance
with the terms of this Agreement, or the Company does not forward any Advance
Notices during the term of this Agreement (as defined herein), the Investor
shall return Two Million Five Hundred (2,500,000) shares of the Investor's
Shares to the Company.
(ii) Fully Earned. The Investor's Shares shall
be deemed fully earned as of the date hereof.
(iv) Registration Rights. The Investor's Shares
will have "piggy-back" registration rights.
(v) Due Diligence Fee. In addition, the
Company shall pay to the Investor a non-refundable due diligence fee of Two
Thousand Five Hundred Dollars ($2,500).
Section 12.5. Brokerage. Each of the parties hereto represents
that it has had no dealings in connection with this transaction with any finder
or broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
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Section 12.6. Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Standby
Equity Distribution Agreement to be executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.
COMPANY:
KRONOS ADVANCED TECHNOLOGIES, INC.
By: /s/Xxxxxx X. Xxxxxx
-----------------------
Name: Xxxxxx X. Xxxxxx
Title: President
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/Xxxx X. Xxxxxx
--------------------
Name: Xxxx X. Xxxxxx
Title: Portfolio Manager
25
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
KRONOS ADVANCED TECHNOLOGIES, INC.
The undersigned, _______________________ hereby certifies, with
respect to the sale of shares of Common Stock of KRONOS ADVANCED TECHNOLOGIES,
INC. (the "Company"), issuable in connection with this Advance Notice and
Compliance Certificate dated ___________________ (the "Notice"), delivered
pursuant to the Standby Equity Distribution Agreement (the "Agreement"), as
follows:
1. The undersigned is the duly elected ______________ of the
Company.
2. There are no fundamental changes to the information set forth
in the Registration Statement which would require the Company to file a post
effective amendment to the Registration Statement.
3. The Company has performed in all material respects all
covenants and agreements to be performed by the Company on or prior to the
Advance Date related to the Notice and has complied in all material respects
with all obligations and conditions contained in the Agreement.
4. The undersigned hereby represents, warrants and covenants that
it has made all filings ("SEC Filings") required to be made by it pursuant to
applicable securities laws (including, without limitation, all filings
required under the Securities Exchange Act of 1934, which include Forms 10-Q,
10-K, 8-K, etc. All SEC Filings and other public disclosures made by the
Company, including, without limitation, all press releases, analysts meetings
and calls, etc. (collectively, the "Public Disclosures"), have been reviewed
and approved for release by the Company's attorneys and, if containing financial
information, the Company's independent certified public accountants. None of
the Company's Public Disclosures contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
5. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of_________
_________________.
KRONOS ADVANCED TECHNOLOGIES, INC.
By:_______________________________
Name:
Title:
26
SCHEDULE 2.6
------------
KRONOS ADVANCED TECHNOLOGIES, INC.
----------------------------------
The undersigned hereby agrees that for a period commencing on the
date hereof and expiring on the termination of the Agreement dated _______,
2005 between Kronos Advanced Technologies, Inc., (the "Company"), and Cornell
Capital Partners, LP, (the "Investor") (the "Lock-up Period"), he, she or it
will not, directly or indirectly, without the prior written consent of the
Investor, issue, offer, agree or offer to sell, sell, grant an option for
the purchase or sale of, transfer, pledge, assign, hypothecate, distribute
or otherwise encumber or dispose of except pursuant to Rule 144 of the General
Rules and Regulations under the Securities Act of 1933, any securities of the
Company, including common stock or options, rights, warrants or other securities
underlying, convertible into, exchangeable or exercisable for or evidencing any
right to purchase or subscribe for any common stock (whether or not beneficially
owned by the undersigned), or any beneficial interest therein (collectively, the
"Securities").
In order to enable the aforesaid covenants to be enforced, the
undersigned hereby consents to the placing of legends and/or stop-transfer
orders with the transfer agent of the Company's securities with respect to any
of the Securities registered in the name of the undersigned or beneficially
owned by the undersigned, and the undersigned hereby confirms the undersigned's
investment in the Company.
Dated: _______________, 2005
Signature
Name: ____________________________________
Address:
City, State, Zip Code:
__________________________________________
Print Social Security Number
or Taxpayer I.D. Number
27
