EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
BRIGHTON OPPORTUNITY FUND, L.P.
AND
WATER STAR, INC.
DATED AS OF MAY 7,2002
This STOCK PURCHASE AGREEMENT is entered into as of the
7th day of May, 2002 (this "Agreement"), by and between Brighton
Opportunity Fund, L.P., an entity organized and existing under
the laws of California and affiliates it may designate as co-
investors (collectively "Investor") and Water Star, 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, up to $10,000,000 of the
Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon
the provisions of Section 4(2) ("Section 4(2)") and Regulation D
("Regulation D") of the United States Securities Act of 1933, as
amended and the rules and 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 in Common
Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I: CERTAIN DEFINITIONS
Section 1.1. "Adjustment Price" shall mean ninety percent
(90%) of the lowest closing bid price of the Company's Common
Stock during the Ten Trading Days prior to each Closing Date.
Section 1.2. "Adjustment Shares" shall mean all
shares issued pursuant to Section 2.6 below.
Section 1.3. "Bid Price" shall mean the closing bid
price as reported under Section 10.2 of this Agreement.
Section 1.4. "Capital Shares" shall mean the Common
Stock and any shares of any other class of common stock whether
now or hereafter authorized, having the right to participate in
the distribution of dividends (as and when declared)and assets
(upon liquidation of the Company).
Section 1.5. "Closing" shall mean one of the closings
of a purchase and sale of the Common Stock pursuant to Section
2.1.
Section 1.6. "Closing Date" shall mean, with respect
to a Closing, the Trading Day specified in Put Notice related to
such Closing, provided all conditions to such Closing have been
satisfied on or before such Trading Day.
Section 1.7. "Commitment Period" shall mean the
period commencing on the effectiveness of the Registration
Statement and expiring on the earlier to occur of (i) the date on
which the Investor shall have purchased Put Shares pursuant to
this Agreement for an aggregate Purchase Price of the Maximum
Commitment Amount, (ii) the date this Agreement is terminated
pursuant to Section 2.4, or (iii) the date occurring two years
from the Subscription Date.
Section 1.8. "Commitment Shares" shall mean any
shares of Common Stock which may be issued pursuant to Section
2.5 below.
Section 1.9. "Common Stock" shall mean the Company's
common stock, no par value per share.
Section 1.10. "Condition Satisfaction Date" shall have
the meaning set forth in Section 7.2 of this Agreement.
Section 1.11. "Daily Trading Value" shall mean, on any
Trading Day, the Bid Price multiplied by the trading volume of
the Common Stock.
Section 1.12. "Damages" shall mean any and all losses,
claims, damages, liabilities, costs and expenses (including,
without limitation, any and all investigative, legal and other
expenses reasonably incurred in connection with, and any and all
amounts paid in defense or settlement of, any action, suit or
proceeding between any indemnified party and any indemnifying
party or between any indemnified party and any third party, or
otherwise, or any claim asserted).
Section 1.13. "Effective Date" shall mean the earlier
to occur of: (i) the date on which the SEC has declared effective
a Registration Statement registering resale of Registrable
Securities as set forth in Section 7.2(a) and (ii) the date on
which such Registrable Securities first become eligible for
resale pursuant to Rule 144 of the Securities Act.
Section 1.14. "Exchange Act" shall mean the United
States Securities Exchange Act of 1934, as amended and the rules
and regulations promulgated thereunder.
Section 1.15. "Investment Amount" shall mean the
dollar amount to be invested by the Investor to purchase Put
Shares with respect to any Put Date as notified by the Company to
the Investor in accordance with Section 2.2 hereof.
Section 1.16. "Legend" shall have the meaning
specified in Section 8.1.
Section 1.17. "Lowest Price" shall mean the lowest
closing Bid Prices during the applicable Valuation Period.
Section 1.18. "Material Adverse Effect" shall mean any
effect on the business, operations, properties, prospects, or
financial condition of the Company that is material and adverse
to the Company or to the Company and such other entities
controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would
prohibit or otherwise interfere with the ability of the Company
to enter into and perform its obligations under any of (i) this
Agreement or (ii) the Registration Rights Agreement. Material
Adverse Effect shall include, but not be limited to, any
qualification of the Company's financial statements by its
auditor, any restatement of prior financial results, resignation
by any Director or failure to timely file any SEC documents.
Section 1.19. "Material Adverse Market Event" shall
mean a fall in the Nasdaq Composite Index or Standard and Poors
500 index in excess of 10 in any Trading Day or in excess of 20%
over any 5 consecutive Trading Days.
Section 1.20. "Maximum Commitment Amount" shall mean
$10,000,000.
Section 1.21. "Maximum Put Amount" shall mean the
lesser of: $500,000; remaining amounts available under the line;
an amount equal to 10% of the total dollar trading volume in
Company common stock (based on the closing bid prices) during the
month in questions; or the maximum amount which the Investor
could purchase without being required to file a Form 13D under
the Securities Exchange Act of 1934..
Section 1.22. "Minimum Bid Price" shall have the
meaning set forth in Section 7.2(j) of this Agreement.
Section 1.23. "Minimum Put Amount" shall mean $50,000.
Section 1.24. "Minimum Time Interval" shall mean the
mandatory twenty-two (22) Trading Days between any two Put Dates.
Section 1.25. "NASD" shall mean the National
Association of Securities Dealers, Inc.
Section 1.26. "Outstanding" when used with reference
to Common Shares or Capital Shares (collectively the "Shares"),
shall mean, at any date as of which the number of such Shares is
to be determined, all issued and outstanding Shares, and shall
include all such Shares issuable in respect of outstanding scrip
or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not refer to
any such Shares then directly or indirectly owned or held by or
for the account of the Company.
Section 1.27. "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 1.28. "Principal Market" shall mean the Nasdaq
National Market, the Nasdaq Small Cap Market, the American Stock
Exchange, the Bulletin Board or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market
for the Common Stock.
Section 1.29. "Purchase Price" shall mean, with
respect to a Put, ninety percent (90%) of the Lowest Price.
Section 1.30. "Put" shall mean each occasion the
Company elects to exercise its right to tender a Put Notice
requiring the Investor to purchase a discretionary amount of the
Company's Common Stock, subject to the terms and conditions of
this Agreement.
Section 1.31. "Put Date" shall mean the Trading Day
during the Commitment Period that a Put Notice to sell Common
Stock to the Investor is deemed delivered pursuant to Section
2.2(b) hereof.
Section 1.32. "Put Notice" shall mean a written notice
to the Investor setting forth the intended Closing Date, which
shall not be less than seven (7) nor more than ten (10) Trading
Days from the date the put Notice is delivered to the Investor.
and the Investment Amount that the Company intends to require the
Investor to purchase pursuant to the terms of this Agreement.
Section 1.33. "Put Notice Period" shall mean a period
beginning on a Put Date and ending on a Closing Date; provided
that in no event shall a Put Notice Period be less than seven (7)
nor more than ten (10) Trading Days.
Section 1.34. "Put Shares" shall mean all shares of
Common Stock issued or issuable pursuant to a Put that has been
exercised or may be exercised in accordance with the terms and
conditions of this Agreement and, in respect of representations
and warranties of the Company and any ongoing registration
obligations, shall also include any Commitment Shares and any
Adjustment Shares, whether or not those are specified or not
below.
Section 1.35. "Registrable Securities" shall mean (i)
the Put Shares, (ii) any Commitment Shares; (ii) any Adjustment
Shares and (iv) any securities issued or issuable with respect to
any of the foregoing by way of exchange, stock dividend or stock
split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization
or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities
when (w) the applicable Registration Statement has been declared
effective by the SEC and all such Registrable Securities have
been disposed of pursuant to the applicable Registration
Statement, (x) all such Registrable Securities have been sold
under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the
Securities Act("Rule 144") are met, (y) such time as all such
Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate
or other evidence of ownership for such securities not bearing a
restrictive legend or (z) in the opinion of counsel to the
Company, which counsel shall be reasonably acceptable to the
Investor, all such Registrable Securities may be sold without
registration or the need for an exemption from any registration
requirements and without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act.
Section 1.36. "Registration Rights Agreement" shall
mean the registration rights agreement in the form of Exhibit A
hereto.
Section 1.37. "Registration Statement" shall mean a
registration statement on Form S-3 (if use of such form is then
available to the Company pursuant to the rules of the SEC and, if
not, on such other form promulgated by the SEC 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, 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 1.38. "Regulation D" shall have the meaning
set forth in the recitals of this Agreement.
Section 1.39. "SEC" shall mean the Securities and
Exchange Commission.
Section 1.40. "SEC Documents" shall mean the Company's
latest Form 10-K as of the time in question, all Forms 10-Q and 8-
K filed thereafter, and the Proxy Statement for its latest fiscal
year as of the time in question until such time the Company no
longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights
Agreement.
Section 1.41. "Section 4(2)" shall have the meaning
set forth in the recitals of this Agreement.
Section 1.42. "Securities Act" shall have the meaning
set forth in the recitals of this Agreement.
Section 1.43. "Subscription Date" shall mean the date
on which this Agreement is executed and delivered by the parties
hereto.
Section 1.44. "Subsidiary" shall mean any Person in
which the Company, directly or indirectly through Subsidiaries or
otherwise, beneficially owns more than fifty percent (50%) of
either the equity interests in, or the voting control of, such
Person.
Section 1.45. "Trading Day" shall mean any day during
which the Principal Market shall be open for business.
Section 1.46. "Underwriter" shall mean any underwriter
participating in any disposition of the Registrable Securities on
behalf of the Investor pursuant to a Registration Statement.
Section 1.47. "Valuation Period" shall mean (i) with
respect to an Effective Date, the ten Trading Day period
immediately preceding such Effective Date and (ii) with respect
to a Closing Date, the ten Trading Day period immediately
preceding the applicable Put Date, during which the Purchase
Price of the Common Stock is determined.
ARTICLE II: PURCHASE AND SALE OF COMMON STOCK; TERMINATION OF
OBLIGATIONS
Section 2.1. Investments.
(a) Puts. Upon the terms and conditions set
forth herein (including, without limitation, the provisions of
Article VII hereof), on any Put Date the Company may exercise a
Put by the delivery of a Put Notice. The number of Put Shares
that the Investor shall receive pursuant to such Put shall be
determined by dividing the Investment Amount specified in the Put
Notice by the Purchase Price with respect to such Put Date.
(b) Maximum Amount of Puts. The obligation to
purchase stock pursuant to the definitive agreement in any
monthly period shall be limited to the lesser of: $500,000;
remaining amounts available under the line; an amount equal to
10% of the total dollar trading volume in Company common stock
(based on the closing bid prices) during the month in questions;
or the maximum amount which the Investor could purchase without
being required to file a Form 13D under the Securities Exchange
Act of 1934.
Section 2.2. Mechanics.
(a) Put Notice. At any time during the
Commitment Period, the Company may deliver a Put Notice to the
Investor, subject to the conditions set forth in Section 7.2;
provided, however, the Investment Amount for each Put as
designated by the Company in the applicable Put Notice shall be
neither less than the Minimum Put Amount nor more than the
Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice
shall be deemed delivered on (i) the Trading Day it is received
by facsimile or otherwise by the Investor if such notice is
received prior to 12:00 noon New York time, or (ii) the
immediately succeeding Trading Day if it is received by
facsimile or otherwise after 9:00 a.m. Pacific Coast time on a
Trading Day or at any time on a day which is not a Trading Day.
No Put Notice may be deemed delivered, on a day that is not a
Trading Day.
Section 2.3. Closings. The Closing Date shall not be
less than seven (7) nor more than ten (10) Trading Days from the
date the put Notice is delivered to the Investor. On each
Closing Date for a Put, (i) the Company shall deliver irrevocable
instructions to the transfer agent to prepare and deliver to the
Investor a share certificate in the name of the Investor and in
the amount of the applicable Put Shares and (ii) the Investor
shall deliver to the Company the Investment Amount specified in
the Put Notice by wire transfer of immediately available funds to
the account designated in the Put Notice. In addition, on or
prior to such Closing Date, each of the Company and the Investor
shall deliver to the other all documents, instruments and
writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement
and effect the transactions contemplated herein.
Section 2.4. Termination of Agreement and Investment
Obligation. The Company shall have the right to terminate this
Agreement at any time upon thirty (30) days' written notice to
the Investor. The Investor shall have the right to immediately
terminate this Agreement (including with respect to any Put,
notice of which has been given but the applicable Closing Date
has not yet occurred) in accordance with Section 6.12 or in the
event that: (i) the Registration Statement with respect to the
Registrable Securities is not effective within ninety (90) days
following the Subscription Date, (ii) a Registration Statement
with respect to Registrable Securities is no longer effective or
current at any point during the Commitment Period, (iii) there
shall occur any stop order or suspension of the effectiveness of
the Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, (iv) the Company shall
at any time fail to comply with the requirements of Section 6.2,
6.3, 6.4, 6.5, 6.6, 6.8 or 6.9; (v) a Material Adverse Market
Event has occurred; (vi) a regulatory authority of self
regulatory organization governing broker-dealers takes the
position that the intended purchase of the Common Stock
contemplated herein and its resale by the Investor may cause the
Investor to be a statutory underwriter subject alone or with its
agents to the restrictions of Regulation M as promulgated by the
SEC or otherwise restrict or prohibit the resale of the Common
Stock or (vii) the Company shall otherwise breach the terms of
this Agreement, including payment of the commitment fee provided
for in Section 2.5.
Section 2.5. The Commitment Fee. At Closing, the
Company shall pay Investor, or its designee, a commitment fee
equal to 1% of the equity line amount.
Section 2.6. Adjustment Shares. If the Adjustment
Price shall fall more than five percent (2.5%) below the Purchase
Price in respect of shares purchased by Investor on any Closing
Date, then the Investor shall be issued Adjustment Shares equal
to the difference between the number of shares purchased on the
last Closing Date and the amount that would have been purchased
if the Purchase Price had been the Adjustment Price. The
Adjustment Shares shall be issued to Investor within 12 Trading
Days of the Closing Date.
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1. Intent. The Investor is entering into
this Agreement for its own account and has no present arrangement
(whether or not legally binding) at any time to sell the
Registrable Securities to or through any person or entity;
provided, however, that by making the representations herein, the
Investor does not agree to hold the Registrable Securities for
any minimum or other specific term and reserves the right to
dispose of the Registrable Securities at any time pursuant to the
Registration Statement and in accordance with federal and state
securities laws applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is
a sophisticated investor (as described in Rule 506(b)(2)(ii) of
Regulation D) and an accredited investor (as defined in Rule 501
of Regulation D), and Investor has such experience in business
and financial matters that it is capable of evaluating the merits
and risks of an investment in the Common Stock. The Investor
acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.
Section 3.3. Authority. Each of this Agreement and
the Registration Rights Agreement has been duly authorized by all
necessary action and no further consent or authorization of the
Investor, or its partners, is required. Each of this Agreement
and the Registration Rights Agreement was validly executed and
delivered by the Investor and each is a valid and binding
agreement of the Investor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable
principles of general application.
Section 3.4. Not an Affiliate. The Investor is not
an officer, director or "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of the Company.
Section 3.5. Organization and Standing. Investor is
duly organized, validly existing, and in good standing under the
laws of California.
Section 3.6. Absence of Conflicts. The execution and
delivery of this Agreement and any other document or instrument
contemplated hereby, and the consummation of the transactions
contemplated thereby, and compliance with the requirements
thereof, will not (a) violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor,
or, to the Investor's knowledge, (b) violate any provision of any
indenture, instrument or agreement to which Investor is a party
or is subject, or by which Investor or any of its assets is
bound, (c) conflict with or constitute a material default
thereunder, (d) result in the creation or imposition of any lien
pursuant to the terms of any such indenture, instrument or
agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party, or (e) require the approval of any
third-party (that has not been obtained) pursuant to any material
contract to which Investor is subject or to which any of its
assets, operations or management may be subject.
Section 3.7. Disclosure; Access to Information.
Investor has received all documents, records, books and other
information pertaining to Investor's investment in the Company
that have been requested by Investor. The Investor has received
and reviewed copies of the SEC Documents.
Section 3.8. Manner of Sale. At no time was Investor
presented with or solicited by or through any leaflet, public
promotional meeting, television advertisement or any other form
of general solicitation or advertising.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 4.1. Organization of the Company. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada and has all
requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted.
Except as set forth in the SEC Documents, the Company does not
own more than fifty percent (50%) of the outstanding capital
stock of or control any other business entity. The Company is
duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so
to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the
requisite corporate power and authority to enter into and perform
its obligations under this Agreement and the Registration Rights
Agreement and to issue the Put Shares , the Commitment Shares and
the Additional Shares; (ii) the execution and delivery of this
Agreement and the Registration Rights Agreement by the Company
and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required;
and (iii) each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered by the Company and
constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 4.3. Corporate Documents. The Company has
furnished or made available to the Investor true and correct
copies of the Company's Articles of Incorporation, as amended and
in effect on the date hereof (the "Certificate"),and the
Company's By-Laws, as amended and in effect on the date hereof
(the"By-Laws").
Section 4.4. Books and Records. The minute books and
other similar records of the Company and its subsidiaries as made
available to Investor prior to the execution of this Agreement
contain a true and complete record, in all material respects, of
all action taken at all meetings and by all written consents in
lieu of meetings of the stockholders, the boards of directors and
committees of the boards of directors of the Company and the
subsidiaries. The stock transfer ledgers and other similar
records of the Company and the subsidiaries as made available to
Investor prior to the execution of this Agreement accurately
reflect all record transfers prior to the execution of this
Agreement in the capital stock of the Company and the
subsidiaries. Neither the Company nor any subsidiary has any of
its Books and Records recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process,
whether computerized or not) which(including all means of access
thereto and therefrom) are not under the exclusive ownership and
direct control of the Company or a subsidiary.
Section 4.5. Capitalization. The authorized capital
stock of the Company is 150,000,000, shares of Common Stock as of
May 8, 2002, of which 7,793,501 shares will be issued and
outstanding. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
Section 4.6. Registration and Listing of Common
Stock. The Company has registered its Common Stock pursuant to
Section 12(b) or 12(g) of the Exchange Act and is in full
compliance with all reporting requirements of the Exchange Act,
and the Company has maintained all requirements for the continued
listing or quotation of its Common Stock, and such Common Stock
is currently listed or quoted on the Principal Market. As of the
date hereof, the Principal Market is the NASDAQ Bullitin Board.
Section 4.7 Financial Statements. Prior to the
execution of this Agreement, the Company has delivered to the
Investor true and complete copies of the following financial
statements:
(a) the audited balance sheet of the Company as
of December 31, 2001, and the related audited consolidated
statements of operations, stockholders' equity and cash flows for
each of the fiscal years then ended, together with a true and
correct copy of the report of such audited information by
Xxxxxxxx & Company,P.A., and all letters from such accountants
with respect to the results of such audits; and
(b) the unaudited balance sheets of the Company
and its consolidated subsidiaries as of September 30, 2001, found
in the Company's 10-Q filed on Janurary 2, 2002, for the
quarterly period ended September 30, 2001 and the related
unaudited consolidated statements of operations and stockholders'
equity for the portion of the fiscal year then ended. The
financial statements of the Company delivered to the Investor
have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the
case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of
the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended(subject, in the case of
unaudited statements, to normal year-end audit adjustments).
Section 4.8. SEC Documents. The Company has
delivered or made available to the Investor true and complete
copies of the SEC Documents (including, without limitation, proxy
information and solicitation materials). The Company has not
provided to the Investor any information that, according to
applicable law, rule or regulation, should have been disclosed
publicly prior to the date hereof by the Company, but which has
not been so disclosed. As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be,
and other federal, state and local laws, rules and regulations
applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents
comply as to form and substance in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations
with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods
involved (except (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 include
summary notes and may be condensed or summary statements) and
fairly present in all material respects the financial position of
the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
Section 4.9. Exemption from Registration; Valid
Issuances; New Issuances. The sale and issuance of the Put
Shares , the Commitment Shares and the Additional Shares in
accordance with the terms and on the bases of the representations
and warranties set forth in this Agreement, may and shall be
properly issued pursuant to Rule 4(2), Regulation D and/or any
applicable state law. When issued and paid for as herein
provided, the Put Shares , the Commitment Shares and the
Additional Shares shall be duly and validly issued, fully paid,
and nonassessable. Neither the sales of the Put Shares or the
Additional Shares pursuant to, nor the Company's performance of
its obligations under, this Agreement or the Registration Rights
Agreement shall (i) result in the creation or imposition of any
liens, charges, claims or other encumbrances upon the Put Shares
or the Additional Shares or any of the assets of the Company, or
(ii) entitle the holders of Outstanding Capital Shares to
preemptive or other rights to subscribe to or acquire the Capital
Shares or other securities of the Company. The Put Shares , the
Commitment Shares and the Additional Shares shall not subject the
Investor to personal liability by reason of the ownership
thereof. The Put Shares , the Commitment Shares and the
Additional Shares have been duly authorized by the Company, but
have not been issued (whether or not subsequently repurchased by
the Company) to any Person, and when issued to the Investor in
accordance with this Agreement and will not have been
issued(whether or not subsequently repurchased by the Company) to
any Person other than the Investor.
Section 4.10. No General Solicitation or Advertising
in Regard to this Transaction. Neither the Company nor any of
its affiliates nor any distributor or any person acting on its or
their behalf (i) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation
D)or general advertising with respect to any of the Put Shares,
or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would
require registration of the Common Stock under the Securities
Act.
Section 4.11. No Conflicts. The execution, delivery
and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated
hereby, including without limitation the issuance of the Put
Shares , the Commitment Shares and the Additional Shares do not
and will not (i) result in a violation of the Certificate or By-
Laws or (ii) conflict with, or constitute a material default (or
an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material
agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any
federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including federal and state securities laws
and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for
such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect)
nor is the Company otherwise in violation of, conflict with or in
default under any of the foregoing; provided, however, that for
purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in
clause (iii), such representations and warranties are made only
to the best of the Company's knowledge insofar as the execution,
delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated
hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental entity,
except for possible violations that either singly or in the
aggregate do not and will not have a Material Adverse Effect. The
Company is not required under federal, state or local law, rule
or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or issue and
sell the Common Stock in accordance with the terms hereof (other
than any SEC, NASD or state securities filings that may be
required to be made by the Company subsequent to any Closing, any
registration statement that may be filed pursuant hereto, and any
shareholder approval required by the rules applicable to
companies whose common stock trades on the Principal Market);
provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy
of the relevant representations and agreements of the Investor
herein.
Section 4.12. No Material Adverse Change. Since April
3,2002 no event has occurred that would have a Material Adverse
Effect on the Company.
Section 4.13. No Undisclosed Liabilities. The Company
has no liabilities or obligations that are material, individually
or in the aggregate, other than those incurred in the ordinary
course of the Company's businesses since April 3, 2002 and which,
individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company.
Section 4.14. No Undisclosed Events or Circumstances.
Since April 3, 2002 no event or circumstance has occurred or
exists with respect to the Company or its businesses, properties,
prospects, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which
has not been so publicly announced.
Section 4.15. No Integrated Offering. Neither the
Company, nor any of its affiliates, nor any person acting on its
or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any
security, other than pursuant to this Agreement, under
circumstances that would require registration of the Common Stock
under the Securities Act.
Section 4.16. Litigation and Other Proceedings.
Except as may be set forth in the SEC Documents, there are no
lawsuits or proceedings pending or to the best knowledge of the
Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit,
proceeding or investigation, which might have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment,
order, writ, injunction or decree or award has been issued by or,
so far as is known by the Company, requested of any court,
arbitrator or governmental agency which might result in a
Material Adverse Effect.
Section 4.17. No Misleading or Untrue Communication.
The Company, any Person representing the Company, and, to the
knowledge of the Company, any other Person selling or offering to
sell the Put Shares , the Commitment Shares and the Additional
Shares in connection with the transactions contemplated by this
Agreement, have not made, at any time, any oral communication in
connection with the offer or sale of the same which contained any
untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not
misleading.
Section 4.18. Material Non-Public Information. The
Company is not in possession of, nor has the Company or its
agents disclosed to the Investor, any material non-public
information that (i) if disclosed, would, or could reasonably be
expected to have, an effect on the price of the Common Stock
or(ii) according to applicable law, rule or regulation, should
have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
ARTICLE V: COVENANTS OF THE INVESTOR
Section 5.1. No Short Sales. During the thirty (30)
days prior to the Subscription Date, neither the Investor nor any
affiliate of the Investor has, and during the Commitment Period
neither the Investor nor any affiliate of the Investor will (i)
engage in any short sale of the Common Stock of the Company
unless Investor has given prior written notice to the Company.
Nothing in this Section 5.2 shall prohibit the Investor or any
affiliate from making regular sales of the Common Stock acquired
pursuant to this Agreement or to require any approvals from the
Company.
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 respects with the
terms thereof.
Section 6.2. Reservation of Common Stock. As of the
date hereof, the Company has available and the Company shall
reserve and keep available at all times, free of preemptive
rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue the Put Shares , the
Commitment Shares and the Additional Shares; such amount of
shares of Common Stock to be reserved shall be calculated based
upon the minimum Purchase Price for the Put Shares under the
terms and conditions of this Agreement. The number of shares so
reserved from time to time, as theretofore increased or reduced
as hereinafter provided, may be reduced by the number of shares
actually delivered.
Section 6.3. Listing of Common Stock. The Company
shall exercise best efforts to maintain the listing of the Common
Stock on a Principal Market, and as soon as practicable (but in
any event prior to the Closing Date for any Put)will cause the
Put Shares , the Commitment Shares and the Additional Shares with
respect to such Put to be listed on the Principal Market. The
Company further shall, if the Company applies to have the Common
Stock traded on any other Principal Market, include in such
application the Put Shares , the Commitment Shares and the
Additional Shares, and shall take such other action as is
necessary or desirable in the opinion of the Investor to cause
the Common Stock to be listed on such other Principal Market as
promptly as possible. The Company shall use commercially
reasonable efforts to continue the listing and trading of its
Common Stock on the Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will
comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the NASD and the
Principal Market.
Section 6.4. Exchange Act Registration. After each
Registration Statement becomes effective, the Company shall cause
the Common Stock covered by such Registration Statement to
continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the
Exchange Act or the rules to terminate or suspend such
registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act.
Section 6.5. Legends. The certificates evidencing
the Put Shares , the Commitment Shares and the Additional Shares
shall be free of legends, except as provided for in Article VIII.
Section 6.6. Corporate Existence. The Company shall
take all steps necessary to preserve and continue the corporate
existence of the Company.
Section 6.7. Additional SEC Documents. During the
Commitment Period, the Company shall deliver to the Investor, as
and when the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to
the SEC.
Section 6.8. Notice of Certain Events Affecting
Registration; Suspension of Right to Make a Put. The Company
shall immediately notify the Investor, but in no event later than
two (2) business days by facsimile and by overnight courier, upon
the occurrence of any of the following events in respect of a
Registration Statement or related prospectus in respect of an
offering of Registrable Securities: (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 a
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 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 such Registration Statement or
related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration
Statement, related prospectus or documents so that, in the case
of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; (v) the declaration by the SEC of the effectiveness
of a Registration Statement; and (vi) the Company's reasonable
determination that a post-effective amendment to the Registration
Statement would be appropriate, and the Company shall promptly
make available to the Investor any such supplement or amendment
to the related prospectus. The Company shall not deliver to the
Investor any Put Notice during the continuation of any of the
foregoing events. While in possession of material non-public
information received from the Company, the Investor shall not
dispose of any Registrable Securities until such information is
disclosed to the public (a"Restricted Period"); provided that, if
such Restricted Period exceeds one hundred twenty (120) days, the
liquidated damages described in Section 1.1(c) of the
Registration Rights Agreement shall be increased to three percent
(3.0%)until such Restricted Period shall have elapsed.
Section 6.9. 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 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 6.10. Legal Opinion on Subscription Date. The
Company's independent counsel shall deliver to the Investor on
the Subscription Date an opinion in the form of Exhibit D, except
for paragraph 7 thereof.
Section 6.11. No Similar Arrangement; Right of First
Refusal. The Company shall refrain from entering into any other
agreements, arrangements or understandings granting to the
Company the right to sell shares of its securities to one or more
investors in placements exempt from registration under the
Securities Act until thirty (30) calendar days after this
Agreement is terminated pursuant to Section 2.4 hereof (the
"Exclusivity Period"). The Exclusivity Period shall not apply to
an issuance of securities exempt from registration under the
Securities Act by the Company in connection with any strategic
investment, corporate partnering arrangements, or other
situations in which the investment in the Company is not strictly
a financial one. If the Company, for the purpose of obtaining any
additional financing, wishes to sell shares of its securities in
placements exempt from registration under the Securities Act
during the Exclusivity Period (a "Sale") to a party other than
the Investor (the "Third Party"), the Company shall first offer
(the "Offer") to the Investor, in writing, the right to purchase
such shares (the "Offered Shares") at the bona fide price offered
by the Third Party (the "Offer Price").The Offer shall grant the
Investor the right during the five (5) Trading Days immediately
following the date of the Offer to elect to purchase any or all
of the Offered Shares. The Company, in connection with such a
Sale, shall refrain from circumventing or attempting to
circumvent the Investor's right of first refusal by way of making
such a Sale to any of its affiliates without first making an
Offer to the Investor. If the Investor so exercises it's right
to purchase any or all of the Offered Shares, the purchase will
be treated as a Put except that the purchase price for the
Offered Shares shall be the Offer Price. The closing and method
of payment shall be as provided for in Section 2.2 hereof and the
Closing Date shall be seven (7) Trading Days after the Investor
exercises such right. If the Investor fails to exercise its
right to purchase any or all of the Offered Shares, then during
the thirty (30) calendar days immediately following the
expiration of such right, the Company shall be free to sell any
or all of the Offered Shares to a purchaser for a purchase price
not lower than the Offer Price payable on terms and conditions
that are not more favorable to such purchaser than those
contained in the Offer. In the event that the Company effects a
Sale to a Third Party, the Investor may immediately terminate
this Agreement.
ARTICLE VII CONDITIONS TO DELIVERY OF PUT NOTICES AND
CONDITIONS TO CLOSING
Section 7.1. Conditions Precedent to the Obligation
of the Company to Issue and Sell Common Stock. The obligation
hereunder of the Company to issue and sell the Put Shares , the
Commitment Shares and the Additional Shares to the Investor
incident to each Closing is subject to the satisfaction, at or
before each such Closing, of each of the conditions set forth
below.
(a) Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the Investor
herein shall be true and correct in all material respects as of
the date of this Agreement and as of the date of each such
Closing as though made at each such time.
(b) Performance by the Investor. The Investor
shall have performed, satisfied and complied in all respects with
all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Investor at or prior to such Closing.
Section 7.2. Conditions Precedent to the Right of the
Company to Deliver a Put Notice and the Obligation of the
Investor to Purchase Put Shares. Following completion of the
Early Put, the right of the Company to deliver a Put Notice and
the obligation of the Investor hereunder to acquire and pay for
the Put Shares incident to a Closing is subject to the
satisfaction, on (i) the applicable Put Date and (ii) the
applicable Closing Date (each a "Condition Satisfaction Date"),
of each of the following conditions:
(a) Termination Events. None of the Events which
are listed in Section 2.4 which would allow the Investor to
terminate this Agreement has occurred.
(b) Effective Registration Statement. As set
forth in the Registration Rights Agreement, the Registration
Statement(s) 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 a Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of a 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), (ii) no
other suspension of the use or withdrawal of the effectiveness of
such Registration Statement or related prospectus shall exist and
(iii) with respect to the second Put only, the Company shall have
notified the Investor in accordance with Section 6.8 that the
Registration Statement covering the Registrable Securities
purchased by the Investor through the Early Put has been declared
effective by the SEC and (iv) at least 30 days shall have elapsed
since the Initial Registration Statement (as defined in the
Registration Rights Agreement) has been declared effective by the
SEC.
(c) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
shall be true and correct as of each Condition Satisfaction Date
as though made at each such time (except for representations and
warranties specifically made as of a particular date).
(d) 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 and the Registration Rights Agreement to be performed,
satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or adopted by any court or
governmental authority of competent jurisdiction that prohibits
the transactions contemplated by this Agreement or otherwise has
a Material Adverse Effect, and no actions, suits or proceedings
shall be in progress, pending or threatened by any Person, that
seek to enjoin or prohibit the transactions contemplated by this
Agreement or otherwise could reasonably be expected to have a
Material Adverse Effect. For purposes of this paragraph (e), no
proceeding shall be deemed pending or threatened unless one of
the parties has received written or oral notification thereof
prior to the applicable Closing Date.
(f) No Suspension of Trading In or Delisting of
Common Stock. The trading of the Common Stock shall not have
been suspended by the SEC, the Principal Market or the NASD and
the Common Stock shall have been approved for listing or
quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to
the applicable Closing, if any, shall not violate the shareholder
approval requirements of the Principal Market.
(g) Legal Opinion. The Company shall have caused
to be delivered to the Investor, within five (5) Trading Days of
the effective date of a Registration Statement, an opinion of the
Company's independent counsel in the form of Exhibit D hereto,
addressed to the Investor.
(h) Due Diligence. Pursuant to Section 7.3, the
Investor shall not have a material dispute with the Company as to
the adequacy of the disclosure contained in the Registration
Statement.
(i) Five Percent Limitation. On each Closing
Date, the number of Put Shares , the Commitment Shares and the
Additional Shares then to be purchased by the Investor shall not
exceed the number of such shares that, when aggregated with all
other shares of Common Stock and Registrable Securities then
owned by the Investor beneficially or deemed beneficially owned
by the Investor, would result in the Investor owning no more than
4.9% of all of such Common Stock as would be outstanding on such
Closing Date, as determined in accordance with Section 13(d) of
the Exchange Act and the regulations promulgated thereunder. For
purposes of this Section, in the event that the amount of Common
Stock outstanding as determined in accordance with Section 13(d)
of the Exchange Act and the regulations promulgated thereunder is
greater on a Closing Date than on the date upon which the Put
Notice associated with such Closing Date is given, the amount of
Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether the Investor, when aggregating
all purchases of Common Stock made pursuant to this Agreement and
would own more than 4.9% of the Common Stock following such
Closing Date.
(j) No Knowledge. The Company shall have no
knowledge of any event more likely than not to have the effect of
causing any Registration Statement to be suspended or otherwise
ineffective (which event is more likely than not to occur within
the fifteen Trading Days following the Trading Day on which such
notice is deemed delivered).
(k) Minimum Time Interval. The Minimum Time
Interval shall have elapsed since the immediately preceding Put
Date.
(l) Shareholder Vote. The issuance of shares of
Common Stock with respect to the applicable Closing, if any,
shall not violate the shareholder approval requirements of the
Principal Market.
(m) Other. On each Condition Satisfaction Date,
the Investor shall have received and been reasonably satisfied
with such other certificates and documents as shall have been
reasonably requested by the Investor in order for the Investor to
confirm the Company's satisfaction of the conditions set forth in
this Section 7.2., including, without limitation, a certificate
in substantially the form and substance of Exhibit E hereto,
executed in either case by an executive officer of the Company
and to the effect that all the conditions to such Closing shall
have been satisfied as at the date of each such certificate.
Section 7.3. Due Diligence Review; Non-
Disclosure of Non-Public Information.
(a) The Company shall make available for
inspection and review by the Investor, advisors to and
representatives of the Investor (who may or may not be affiliated
with the Investor and who are reasonably acceptable to the
Company), and any Underwriter, any 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 such 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 such Registration Statement.
(b) Each of the Company, its officers, directors,
employees and agents shall in no event disclose non-public
information to the Investor, advisors to or representatives of
the Investor unless prior to disclosure of such information the
Company identifies such information as being non-public
information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to
accept such non-public information for review. The Company may,
as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to
enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(c) 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 shall, as herein
above provided, immediately notify the advisors and
representatives of the Investor and 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 applicable
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 7.3 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 and
conditions 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 such Registration Statement contains an untrue
statement of a material fact or omits a material fact required to
be stated in such Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in
which they were made, not misleading.
ARTICLE VIII LEGENDS
Section 8.1. Legends. Unless otherwise provided
below, each certificate representing Registrable Securities will
bear the following legend (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE
SECURITIES LAWS AND HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND SUCH OTHER SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO A TRANSACTION THAT IS EXEMPT
FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE
COMPANY SET FORTH IN A STOCK PURCHASE
AGREEMENT, DATED AS OF _______ __, _______. A
COPY OF THE PORTION OF THE AFORESAID
AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE
OBTAINED FROM THE ISSUER'S EXECUTIVE OFFICES.
As soon as practicable after the execution and delivery
hereof, but in any event within five (5) Trading Days hereafter,
the Company shall issue to the transfer agent for its Common
Stock (and to any substitute or replacement transfer agent for
its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in
substantially the form of Exhibit F hereto, with a copy to the
Investor. Other than as required as a result of change in law,
such instructions shall be irrevocable by the Company from and
after the date hereof or from and after the issuance thereof to
any such substitute or replacement transfer agent, as the case
may be, except as otherwise expressly provided in the
Registration Rights Agreement. It is the intent and purpose of
such instructions, as provided therein, to require the transfer
agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates
evidencing such Registrable Securities free of the Legend during
the following periods and under the following circumstances and
without consultation by the transfer agent with the Company or
its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the
Company or its counsel or the Investor:
(a) At any time after the applicable Effective
Date, upon surrender of one or more certificates evidencing
Common Stock that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the
Legend to replace those surrendered; provided that (i) the
applicable Registration Statement shall then be effective and
(ii) if reasonably requested by the transfer agent the Investor
confirms to the transfer agent that the Investor has transferred
the Registrable Securities pursuant to such Registration
Statement and has complied with the prospectus delivery
requirement.
(b) At any time upon any surrender of one or more
certificates evidencing Registrable Securities that bear the
Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered and containing representations that the Investor is
permitted to dispose of such Registrable Securities without
limitation as to amount or manner of sale pursuant to Rule 144(k)
under the Securities Act.
Section 8.2. No Other Legend or Stock Transfer
Restrictions. No legend other than the one specified in Section
8.1 has been or shall be placed on the share certificates
representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or
other restrictions have been or shall be given to the Company's
transfer agent with respect thereto other than as expressly set
forth in this Article VIII.
Section 8.3. Investor's Compliance. Nothing in this
Article VIII shall affect in any way the Investor's obligations
under any agreement to comply with all applicable securities laws
upon resale of the Common Stock.
ARTICLE IX INDEMNIFICATION; ARBITRATION
Section 9.1. Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Investor, its partners, affiliates, officers,
directors, employees, and duly authorized agents, and each Person
or entity, if any, who controls the Investor within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange
Act, together with its controlling persons from and against any
Damages, joint or several, and any action in respect thereof to
which the Investor, its partners, affiliates, officers,
directors, employees, and duly authorized agents, and any such
controlling person becomes subject to, resulting from, arising
out of or relating to any misrepresentation, breach of warranty
or nonfulfillment of or failure to perform any covenant or
agreement on the part of Company contained in this Agreement, as
such Damages are incurred, unless such Damages result primarily
from the Investor's gross negligence, recklessness or bad faith
in performing its obligations under this Agreement; provided,
however, that the maximum aggregate liability of the Company
shall be limited to the amount actually invested by the Investor
under this Agreement, and provided, further, that in no event
shall this provision be deemed to limit any rights to
indemnification arising under the Registration Rights Agreement.
(b) The Investor agrees to indemnify and hold
harmless the Company, its partners, affiliates, officers,
directors, employees, and duly authorized agents, and each Person
or entity, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act, together with its controlling persons from and against any
Damages, joint or several, and any action in respect thereof to
which the Company, its partners, affiliates, officers, directors,
employees, and duly authorized agents, and any such controlling
person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement
on the part of the Investor contained in this Agreement, as such
Damages are incurred, unless such Damages result primarily from
the Company's gross negligence, recklessness or bad faith in
performing its obligations under this Agreement; provided,
however, that the maximum aggregate liability of the Investor
shall be limited to the amount actually invested by the Investor
under this Agreement, and provided, further, that in no event
shall this provision be deemed to limit any rights to
indemnification arising under the Registration Rights Agreement.
Section 9.2. Method of Asserting Indemnification
Claims. All claims for indemnification by any Indemnified Party
(as defined below) under Section 9.1 shall be asserted and
resolved as follows:
(a) In the event any claim or demand in respect
of which any person claiming indemnification under any provision
of Section 9.1 (an "Indemnified Party") might seek indemnity
under Section 9.1 is asserted against or sought to be collected
from such Indemnified Party by a person other than the Company,
the Investor or any affiliate of the Company (a "Third Party
Claim"), the Indemnified Party shall deliver a written
notification, enclosing a copy of all papers served, if any, and
specifying the nature of and basis for such Third Party Claim and
for the Indemnified Party's claim for indemnification that is
being asserted under any provision of Section 9.1 against any
person (the "Indemnifying Party"), together with the amount or,
if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such Third Party Claim (a "Claim
Notice") with reasonable promptness to the Indemnifying Party. If
the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice
of such Third Party Claim, the Indemnifying Party shall not be
obligated to indemnify the Indemnified Party with respect to such
Third Party Claim to the extent that the Indemnifying Party's
ability to defend has been irreparably prejudiced by such failure
of the Indemnified Party. The Indemnifying Party shall notify the
Indemnified Party as soon as practicable within the period ending
thirty (30) calendar days following receipt by the Indemnifying
Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "Dispute Period") whether the Indemnifying Party
disputes its liability or the amount of its liability to the
Indemnified Party under Section 9.1 and whether the Indemnifying
Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the
Indemnified Party within the Dispute Period that the Indemnifying
Party desires to defend the Indemnified Party with respect to the
Third Party Claim pursuant to this Section 9.2(a), then the
Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole
cost and expense of the Indemnifying Party, such Third Party
Claim by all appropriate proceedings, which proceedings shall be
vigorously and diligently prosecuted by the Indemnifying Party
to a final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified
Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for
the payment of monetary damages as to which the Indemnified Party
shall not be indemnified in full pursuant to Section 9.1). The
Indemnifying Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole
cost and expense of the Indemnified Party, at any time prior to
the Indemnifying Party's delivery of the notice referred to in
the first sentence of this clause (i), file any motion, answer or
other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to
protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnifying Party in contesting any Third
Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause (i), and except as
provided in the preceding sentence, the Indemnified Party shall
bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right
to indemnity under Section 9.1 with respect to such Third Party
Claim.
(ii) If the Indemnifying Party fails to
notify the Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Third Party Claim
pursuant to Section 9.2(a), or if the Indemnifying Party gives
such notice but fails to prosecute vigorously and diligently or
settle the Third Party Claim, or if the Indemnifying Party fails
to give any notice whatsoever within the Dispute Period, then the
Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party Claim
by all appropriate proceedings, which proceedings shall be
prosecuted by the Indemnified Party in a reasonable manner and in
good faith or will be settled at the discretion of the
Indemnified Party (with the consent of the Indemnifying Party,
which consent will not be unreasonably withheld). The Indemnified
Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided,
however, that if requested by the Indemnified Party, the
Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the
Indemnified Party and its counsel in contesting any Third Party
Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause (ii), if the Indemnifying
Party has notified the Indemnified Party within the Dispute
Period that the Indemnifying Party disputes its liability or the
amount of its liability hereunder to the Indemnified Party with
respect to such Third Party Claim and if such dispute is resolved
in favor of the Indemnifying Party in the manner provided in
clause (iii) below, the Indemnifying Party will not be required
to bear the costs and expenses of the Indemnified Party's defense
pursuant to this clause (ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full
for all reasonable costs and expenses incurred by the
Indemnifying Party in connection with such litigation. The
Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party
pursuant to this clause (ii), and the Indemnifying Party shall
bear its own costs and expenses with respect to such
participation.
(iii) If the Indemnifying Party notifies
the Indemnified Party that it does not dispute its liability or
the amount of its liability to the Indemnified Party with respect
to the Third Party Claim under Section 9.1 or fails to notify the
Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its
liability to the Indemnified Party with respect to such Third
Party Claim, the Damages in the amount specified in the Claim
Notice shall be conclusively deemed a liability of the
Indemnifying Party under Section 9.1 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on
demand. If the Indemnifying Party has timely disputed its
liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute,
and if not resolved through negotiations within the period of
thirty (30) calendar days immediately following the Dispute
Period, such dispute shall be resolved by arbitration in
accordance with Section 9.3.
(b) In the event any Indemnified Party should
have a claim under Section 9.1 against the Indemnifying Party
that does not involve a Third Party Claim, the Indemnified Party
shall deliver a written notification of a claim for indemnity
under Section 9.1 specifying the nature of and basis for such
claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of
such claim (an "Indemnity Notice") with reasonable promptness to
the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If
the Indemnifying Party notifies the Indemnified Party that it
does not dispute the claim or the amount of the claim described
in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes
the claim or the amount of the claim described in such Indemnity
Notice, the Damages in the amount specified in the Indemnity
Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 9.1 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on
demand. If the Indemnifying Party has timely disputed its
liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute,
and if not resolved through negotiations within the period of
thirty (30) calendar days immediately following the Dispute
Period, such dispute shall be resolved by arbitration in
accordance with Section 9.3.
Section 9.3. Arbitration. Any dispute under or
related to this Agreement (including, without limitation,
pursuant to Section 9.2) or the Registration Rights Agreement
shall be submitted to arbitration and shall be finally and
conclusively determined by the decision of a board of arbitration
consisting of three (3) members (the "Board of Arbitration")
selected as hereinafter provided. Each of the Company, on the
one hand, and the Investor and/or any other Indemnified Party, on
the other hand, shall select one (1) member and the third member
shall be selected by mutual agreement of the other members, or if
the other members fail to reach agreement on a third member
within twenty (20) days after their selection, such third member
shall thereafter be selected by the American Arbitration
Association upon application made to it for such purpose by the
other members. The Board of Arbitration shall meet on
consecutive business days in Los Angeles or such other place as a
majority of the members of the Board of Arbitration determines
more appropriate, and shall reach and render a decision in
writing (concurred in by a majority of the members of the Board
of Arbitration). In connection with rendering its decision, the
Board of Arbitration shall adopt and follow such rules and
procedures as a majority of the members of the Board of
Arbitration deems necessary or appropriate. To the extent
practicable, 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
the Company and the Investor and/or any other Indemnified Party.
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 Company and the
Investor and/or any other Indemnified Party and entitled to be
enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction. The non-prevailing party to
any arbitration shall bear the expense of both parties in
relation thereto, including but not limited to the parties'
attorneys' fees, if any, and the expenses and fees of the Board
of Arbitration.
ARTICLE X MISCELLANEOUS
Section 10.1. Transaction Costs. Each party shall
bear its own legal fees and other out of pocket costs in
connecting with the negotiation and execution of this Agreement.
The Company agrees to pay its own expenses incident to the
performance of its obligations hereunder, including, but not
limited to, any registration of securities or delivery of
documentation.
Section 10.2. 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 the
Principal Market on any given Trading Day for the purposes of
this Agreement shall be the NASDAQ. The written mutual consent of
the Investor and the Company shall be required to employ any
other reporting entity.
Section 10.3. Brokerage. Each of the parties hereto
represents that it has had no dealings in connection with this
transaction with any finder or broker which would impose a legal
obligation to pay any fee or commission. 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 persons claiming brokerage commissions or
finder's fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 10.4. Notices. All notices, demands,
requests, consents, approvals, and other communications required
or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served,(ii) deposited
in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by hand delivery,
telegram, or facsimile, addressed as set forth below or to such
other address as such party shall have specified most recently by
written notice given in accordance herewith. Any notice or other
communication required or permitted to be given hereunder shall
be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on
a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the
date of mailing by 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:
Water Star, Inc.
0000 Xxxxxx Xxx Xxx
Xxx Xxxxx, XX 00000
Attention: Xxxxxx Xxxxxx
Telephone:000-000-0000
If to the Investor: Brighton Opportunity Fund
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attention: Tisno Onggara
Telephone: 000-000-0000
Facsimile: 000-000-0000
Either party hereto may from time to time change its
address or facsimile number for notices under this Section by
giving at least ten (10) days' prior written notice of such
changed address or facsimile number to the other party hereto.
Section 10.5. Assignment. Neither this Agreement nor
any rights of the Investor or the Company hereunder may be
assigned by either party to any other person. Notwithstanding
the foregoing, the Investor's interest in this Agreement may be
assigned at any time, in whole or in part, to any affiliate of
the Investor or co-investor, provided, however, that any such
assignment or transfer shall relieve the Investor of its duties
under this Agreement only upon performance thereof by any such
assignee or transferee.
Section 10.6. Amendment; No Waiver. No party shall be
liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically
set forth in this Agreement or therein. Except as expressly
provided in this Agreement, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other
than by a written instrument signed by both parties hereto. The
failure of the either party to insist on strict compliance with
this Agreement, or to exercise any right or remedy under this
Agreement, shall not constitute a waiver of any rights provided
under this Agreement, nor stop the parties from thereafter
demanding full and complete compliance nor prevent the parties
from exercising such a right or remedy in the future.
Section 10.7. Annexes and Exhibits; Entire Agreement.
All annexes and exhibits to this Agreement are incorporated
herein by reference and shall constitute part of this Agreement.
This Agreement and the Registration Rights Agreement set forth
the entire agreement and understanding of the parties relating to
the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements, negotiations and understandings
between the parties, both oral and written, relating to the
subject matter hereof.
Section 10.8. Survival. The provisions of Articles
VI, VIII, IX and X, and of Section 7.3, shall survive the
termination of this Agreement.
Section 10.9. Severability. In the event that any
provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective
if it materially changes the economic benefit of this Agreement
to any party.
Section 10.10. Title and Subtitles. The titles and
subtitles used in this Agreement are used for the convenience of
reference and are not to be considered in construing or
interpreting this Agreement.
Section 10.11. Counterparts. This Agreement may be
executed in multiple counterparts, each of which may be executed
by less than all of the parties and shall be deemed to be an
original instrument which shall be enforceable against the
parties actually executing such counterparts and all of which
together shall constitute one and the same instrument.
Section 10.12. Choice of Law. This Agreement shall be
construed under the laws of the State of California.
Section 10.13. Other Expenses. In the event that a
dispute between the parties is not determined by a Board of
Arbitration, the non-prevailing party in any action, suit or
proceeding shall bear all investigative, legal and other expenses
reasonably incurred in connection with, and any and all amounts
paid in defense or settlement of such action, suit or proceeding,
including of the other party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by the undersigned, there unto duly
authorized, as of the date first set forth above.
Water Star, Inc.
By: /s/
Name X.X. Xxxxxxx
Title President
BRIGHTON OPPORTUNITY FUND, L.P.
By Its General Partner
/s/
Name Tisno Onggara
For Brighton Partners
Title General Partner