EXHIBIT 10.8
------------
LINE OF CREDIT AGREEMENT
------------------------
THIS LINE OF CREDIT AGREEMENT is dated as of the 19th day of March , 2001,
(the "AGREEMENT") between CORNELL CAPITAL PARTNERS, LP (the "INVESTOR") and
NEXLAND, INC., a corporation organized and existing under the laws of the State
of Delaware (the "COMPANY").
WHEREAS, the Investor is a limited partnership and the business affairs of
the Investor are managed by Yorkville Advisors, LLC, a Delaware corporation;
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 Five
Million Dollars ($5,000,000) of Debentures for a total purchase price of Five
Million Dollars ($5,000,000); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("SECTION 4(2)") and the 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 in the Debentures to be made hereunder; and
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1.
CERTAIN DEFINITIONS
Section 1.1. "ADVANCE" shall mean each occasion the Company elects to
exercise its right to tender an Advance Notice requiring the Investor to advance
funds to the Company, subject to the terms of this Agreement.
Section 1.2. "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 Date
shall be less than twenty (20) Trading Days after the prior Advance Notice Date.
Section 1.3. "ADVANCE DATE" shall mean the date Xxxxxx Xxxxxxxx LLP/First
Union Escrow Account is in receipt of the funds from the Investor and Xxxxxx
Xxxxxxxx LLP, as the Investment Adviser's Counsel, is in possession of executed
Debentures in the amount of an Advance from the Company and therefore an Advance
by the Investor to the Company can be made and Xxxxxx Xxxxxxxx LLP can release
the executed Debentures in the amount of the Advance to the Investor.
Section 1.4. "ADVANCE NOTICE" shall mean a written notice to the Investor
setting forth the Advance Amount that the Company requests from the Investor and
Compliance Certification from the Company as attached hereto as Exhibit A.
Section 1.5. "ADVANCE PRICE" shall be set at eighty percent (80%) of the
Market Price.
Section 1.6. "AVERAGE DAILY VOLUME" shall be computed using the forty (40)
trading days prior to the Advance Date.
Section 1.7. "BID PRICE" shall mean, on any date, the closing bid price
(as reported by Bloomberg L.P.) of the Common Stock on a 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 1.8. "CLOSING" shall mean one of the closings of a purchase and
sale of the Debentures pursuant to Section 2.3.
Section 1.9. "COMMITMENT AMOUNT" shall mean the $5,000,000 up to which the
Investor has agreed to provide to the Company in order to purchase the
Debentures pursuant to the terms and conditions of this Agreement.
Section 1.10. "COMMITMENT PERIOD" shall mean the period commencing on the
earlier to occur of 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 purchased Debentures
pursuant to this Agreement in the amount of at least $5,000,000 unless such date
is extended by the Investor, (y) the date this Agreement is terminated pursuant
to Section 2.4., or (z) the date occurring two (2) years from the date hereof.
Section 1.11. "COMMON STOCK" shall mean the Company's common stock, par
value $0.0001 per share.
Section 1.12. "CONDITION SATISFACTION DATE" shall have the meaning set
forth in Section 7.2.
Section 1.13. "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 1.14. "DEBENTURES" shall mean the Debenture in the form of Exhibit
B attached hereto.
Section 1.15. "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 1.16. "ESCROW AGENT" shall be First Union National Bank or its
successors.
2
Section 1.17. "ESCROW AGREEMENT" shall mean the document in the form of
Exhibit C attached hereto and referenced in Section 7.2. Subparagraph (j) of
this Agreement.
Section 1.18. "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.19. "LEGEND" shall mean that "legend" as set forth in Section
9.1.
Section 1.20. "MARKET PRICE" shall mean the average of the three (3)
lowest closing Bid Prices of the Common Stock over the Pricing Period.
Section 1.21. "MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the ability
of the Company to enter into and perform any of its obligations under this
Agreement, the Debenture, the Registration Rights Agreement or the Escrow
Agreement in any material respect.
Section 1.22. "MONTHLY MAXIMUM ADVANCE AMOUNT" shall be equal to two
hundred percent (200%) of the Average Daily Volume of the Company's Common Stock
multiplied by the Company's average bid price as reported by Bloomberg, L.P.
during the Pricing Period.
Section 1.23. "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.24. "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 1.25. "INVESTMENT ADVISER" shall mean May Xxxxx Group, Inc.
Section 1.26. "PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock
Exchange or the Over the Counter Bulletin Board ("OTCBB") whichever is at the
time the principal trading exchange or market for the Common Stock.
Section 1.27. "PRICING PERIOD" shall mean the twenty (20) trading day
period immediately preceding the Advance Notice Date.
Section 1.28. "REGISTRABLE SECURITIES" shall mean the shares of Common
Stock (i) in respect of which the Registration Statement has not been declared
effective by the SEC, (ii) which have not 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 or (iii) which have
not been otherwise transferred to 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.
3
Section 1.29. "REGISTRATION RIGHTS AGREEMENT" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor on the
Subscription Date attached hereto as Exhibit C.
Section 1.30. "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 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 1.31. "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.32. "SEC" shall mean the Securities and Exchange Commission.
Section 1.33. "SECTION 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.34. "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.35. "SEC DOCUMENTS" shall mean the Form 10-KSB, Form 10-QSB,
Form 8-K, Form 10-SB, Form SB-2, Registration Statements or Proxy Statements of
the Company as supplemented to the date hereof, filed by the Company for a
period of at 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 1.36. "SUBSCRIPTION DATE" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.37. "TRADING DAY" shall mean any day during which the New York
Stock Exchange shall be open for business.
ARTICLE 2.
ADVANCES
Section 2.1. INVESTMENTS.
(a) ADVANCES. Upon the terms and conditions set forth herein (including
without limitation, the provisions of Article 7. hereof), on any Advance Date
the Company may request an Advance by the Investor by the delivery of an Advance
Notice. The amount of the Debenture that the Investor shall receive pursuant to
such Advance shall be equal to the amount of the Advance specified in the
Advance Notice, which Advance shall not exceed the Maximum Advance Amount on
such date.
4
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 2.4.; 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, unless otherwise
agreed by the Investor in the Investor's sole and absolute discretion. No
Advance Notice may be given by the Company until there is an effective
Registration Statement registering the underlying shares of Common Stock that
shall be issued upon conversion of the Convertible Debentures.
(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.
Section 2.3. CLOSINGS. On each Advance Date for an Advance (i) the Company
shall deliver to Xxxxxx Xxxxxxxx LLP one or more Debentures at the Investor's
option, representing the amount of the Advance by the Investor pursuant to
Section 2.1. herein, registered in the name of the Investor and (ii) the
Investor shall deliver to escrow the amount of the Advance specified in the
Advance Notice by wire transfer of immediately available funds to the Escrow
Agent on or before the Advance Date. In addition, on or prior to the Advance
Date, each of the Company and the Investor shall deliver to the Escrow Agent and
Xxxxxx Xxxxxxxx LLP 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. Payment
of funds to the Company and delivery of the Debentures to the Investor shall
occur out of escrow in accordance with the conditions set forth above and those
contained in the Escrow Agreement referred to in Section 7.2.(j) herein;
provided, however, that to the extent the Company has not paid the fees,
expenses, and disbursements of the Investor's counsel, Escrow Agent, and the
Investment Adviser in accordance with Section 13.4. herein, the amount of such
fees, expenses, and disbursements must be paid by the Company in immediately
available funds from the amount of the Advance held by the Escrow Agent, at the
direction of the Investor, to the Investor's counsel, the Escrow Agent, and the
Investment Adviser with no reduction in the amount of Debenture on such Advance
Date.
Section 2.4. TERMINATION OF INVESTMENT. The obligation of the Investor to
make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of thirty
(30) Trading Days during the Commitment Period, for any reason other than
deferral or suspensions in accordance with the Registration Rights Agreement as
a result of corporate developments subsequent to the Subscription Date that
would require such Registration Statement to be amended to reflect such event in
order to maintain its compliance with the disclosure requirements of the
5
Securities Act or (ii) the Company shall at any time fail materially to comply
with the requirements of Section 6.3., 6.4. or 6.6.
Section 2.5. AGREEMENT TO ADVANCE FUNDS.
(a) The Investor agrees to advance the amount specified in the Advance
Notice to the Company within five (5) Trading Days after the completion of each
of the following conditions and the other conditions set forth in this
Agreement:
(i) the execution and delivery by the Company, and the Investor, of
this Agreement, and all Exhibits and Attachments hereto;
(ii) delivery to Xxxxxx Xxxxxxxx LLP by the Company of the original
Debenture;
(iii) 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;
(iv) the Company shall have obtained all permits and qualifications
required by any applicable state as reasonably requested by the Investor 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; and
(v) payment of fees as set forth in Section 13.4. below.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to, and agrees with, the Company that:
Section 3.1. ORGANIZATION AND AUTHORIZATION. 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 all right, power
and authority to execute and deliver this Agreement and all other instruments
(including, without limitation, the Registration Rights Agreement), on behalf of
the Investor. This Agreement and all other instruments contemplated herein
(including, without limitation, the Registration Rights Agreement) have 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
6
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. The Investor acknowledges that it has been furnished with,
and has carefully read the applicable form of Debenture and form of Registration
Rights Agreement.
Section 3.3. INDEPENDENT COUNSEL. The Investor acknowledges that it has
been advised to consult with its own attorney regarding legal matters concerning
the Company and to consult with its tax advisor regarding the tax consequences
of acquiring the securities issuable hereunder.
Section 3.4. NO REGISTRATION. The Investor understands that the Debenture
and Common Stock underlying the Debenture issuable hereunder have not been
registered under the Act or any other securities laws but are being offered and
sold to it in reliance upon specific exemptions from the registration
requirements of federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Investor set forth herein
in order to determine the applicability of such exemptions and the suitability
of the Investor to acquire the securities hereunder.
Section 3.5. 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 is neither an underwriter, nor a dealer in, the Debenture or
the Common Stock issuable on conversion thereof. 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. 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 law or
unless, in the opinion of counsel satisfactory to the Company, an exemption from
such laws is available.
Section 3.6. ACCREDITED INVESTOR STATUS. Each Investor is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
Section 3.7. INFORMATION. Such 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, which have been requested by
such Investor. Such 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
such Investor's right to rely on the Company's representations and warranties
contained in Section 4. below. Such Investor understands that its investment
involves a high degree of risk. Investor is in a position regarding the Company,
which, based upon employment, family relationship or economic bargaining power,
enabled and enables Investor to obtain information from the Company in order to
evaluate the merits and risks of this investment. Such 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.
7
Section 3.8. RECEIPT OF DOCUMENTS. Such Investor and its counsel has
received and read in their entirety: (i) this Agreement and each representation,
warranty and covenant set forth herein, the Debenture, the Registration Rights
Agreement and the Escrow Agreement; (ii) all due diligence and other information
necessary to verify the accuracy and completeness of such representations,
warranties and covenants; (iii) the Company's SEC Documents; 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 or relied on any other documents, literature,
memorandum or prospectus.
Section 3.9. REGISTRATION RIGHTS. The parties have entered into the
Registration Rights Agreement.
Section 3.10. NO ADVERTISEMENTS. The Investor is not entering into this
Agreement as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
Section 3.11. 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. The Investor agrees that following the date of the Agreement it
will not, and will cause its Affiliates not to engage in any short sales, swaps,
purchasing of puts, or other hedging activities with respect to the Common Stock
or any activity that involves the direct or indirect use of Common Stock to
hedge its investment in the Debentures until the expiration of the conversion
period of the Debentures.
Section 3.12. AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Investor and is a
valid and binding agreement of such Investor enforceable in accordance with its
terms, except as such enforceability may be limited by general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
Section 3.13. DUE FORMATION OF CORPORATE AND OTHER INVESTORS. If the
Investor is a corporation, trust, partnership or other entity that is not an
individual person, it has been formed and validly exists and has not been
organized for the specific purpose of this transaction and is not prohibited
from doing so.
Section 3.14. DUE AUTHORIZATION OF FIDUCIARY INVESTORS. If the Investor is
purchasing the Securities in a fiduciary capacity for another person or entity,
including, without limitation, a corporation, partnership, trust or any other
entity, the Investor has been duly authorized and empowered to execute this
Agreement and such other person fulfills all the requirements for this
transaction and agrees to be bound by the obligations, representations,
warranties, and covenants contained herein. Upon request of the Company, the
Investor will provide true, complete and current copies of all relevant
documents creating the Investor, authorizing its investment in the Company
and/or evidencing the satisfaction of the foregoing.
Section 3.15. FURTHER REPRESENTATIONS BY FOREIGN INVESTORS. If the
Investor is not a U.S. Person (as defined below), such Investor hereby
represents that such Investor is satisfied as to the full observance of the laws
8
of such Investor's jurisdiction in connection with any invitation to subscribe
for the securities or any use of this Agreement, including: (i) the legal
requirements of such Investor's jurisdiction for the purchase of the securities,
(ii) any foreign exchange restrictions applicable to such purchase, (iii) any
governmental or other consents that may need to be obtained, and (iv) the income
tax and other tax consequences, if any, which may be relevant to the purchase,
holding, redemption, sale, or transfer of the securities. Such Investor's
subscription and payment for, and such Investor's continued beneficial ownership
of, the securities will not violate any applicable securities or other laws of
such Investor's jurisdiction. The term "U.S. PERSON" as used herein shall mean
any person who is a citizen or resident of the United States or Canada, or any
state, territory or possession thereof, including, but not limited to, any
estate of any such person, or any corporation, partnership, trust or other
entity created or existing under the laws thereof, or any entity controlled or
owned by any of the foregoing.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below or in the SEC Documents, or in any amendments or
supplements thereto, the Company hereby represents and warrants to, and
covenants with, the Investors that the following are true and correct as of the
date hereof and as of the Advance Date:
Section 4.1. ORGANIZATION AND QUALIFICATION. The Company and its
subsidiaries are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power to own their properties and to carry on their
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 and any
related agreements, and to consummate the transactions contemplated hereby in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and any related agreements by
the Company and the consummation by it of the transactions contemplated hereby
and thereby, including the issuance of shares of Common Stock upon the
conversion of the Debentures (the "DEBENTURE SHARES"), 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 and any related agreements have
been duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement 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.
9
Section 4.3. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, of which as
of date hereof, [36,027,378] shares were issued and outstanding, and 10,000,000
shares of preferred stock, no par value, of which no shares 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, 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 Schedule 4.3 attached hereto or as disclosed in the SEC
Documents, as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) 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 1933 Act (except pursuant to the Registration Rights
Agreements). There are no securities or instruments of the Company containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Debenture or the Debenture Shares as described in this Agreement. The
Company has made available 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. Except as disclosed in the SEC Documents, 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, 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 Nasdaq Stock Market Inc.'s Over-the-Counter
Bulletin Board on which the Common Stock is quoted) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected. Except as disclosed in the Disclosure
Schedule and/or described in the SEC Documents, neither the Company nor its
subsidiaries is in violation of any term of or in default under its Certificate
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, and shall not be 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 1933 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
10
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 facts or circumstance, which
might give rise to any of the foregoing.
Section 4.5. NO DEFAULT. Except as described in the SEC Documents, the
Disclosure Schedule, and/or this Agreement, 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, including the conversion provision of the
Debentures, 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, 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, other than anti-dilution provisions of certain
agreements and instruments with respect to warrants and other Common Stock
equivalents, or any statute or the memorandum or Certificate of Incorporation of
the Company or any decree, judgment, order rules of 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 and financial condition.
Section 4.6. ABSENCE OF EVENTS OF DEFAULT. Except for matters described in
the SEC Documents, the Disclosure Schedule and/or this Agreement, no Event of
Default, as defined in the respective agreement to which the Company is a party,
and no event which, with the giving of notice or the passage of time or both,
would become an Event of Default (as so defined), has occurred and is
continuing, which would have a material adverse effect on the Company's
business, properties, prospects, financial condition or results of operations.
Section 4.7. GOVERNMENTAL CONSENT, ETC. Except for matters described in
the SEC Documents, the Disclosure Schedule and/or this Agreement and except for
any required registration or filings with applicable federal or state securities
authorities, no consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required in connection with the valid execution and delivery of this
Agreement, or the offer, sale or issuance of the securities hereunder, or the
consummation of any other transaction contemplated hereby.
Section 4.8. INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess adequate rights or licenses to use all 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. Except as set forth in the Disclosure Schedule
and/or described in the SEC Documents, none of the Company's trademarks, trade
names, service marks, service xxxx registrations, service names, patents, patent
11
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets, or other intellectual property rights have expired or terminated,
or are expected to expire or terminate in the near future. 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, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on the SEC Documents, the Disclosure Schedule
and/or this Agreement, 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 and its
subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
Section 4.9. 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 4.10. ENVIRONMENTAL LAWS. The Company and its subsidiaries are (i)
in compliance with any and all applicable 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 4.11. TITLE. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, except as described in the SEC Documents,
the Disclosure Schedule and/or this Agreement, or incurred in the ordinary
course of business and which do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company and its subsidiaries. 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 4.12. 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
12
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
Section 4.13. 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 4.14. 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 4.15. NO MATERIALLY ADVERSE CONTRACTS, ETC. Except as set forth in
the SEC Documents, the Disclosure Schedule and/or this Agreement, 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. Neither the Company nor any of its subsidiaries is a party to any
contract or agreement which 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 4.16. LITIGATION. Except as disclosed in the SEC Documents, the
Disclosure Schedule and/or this Agreement, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened 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 4.17. SUBSIDIARIES. Except as disclosed in the SEC Documents, the
Disclosure Schedule and/or this Agreement, the Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.
13
Section 4.18. OTHER OUTSTANDING SECURITIES. As of the date hereof only,
other than warrants and options to acquire shares of Common Stock as disclosed
in the SEC Documents, there are no other warrants and options registered with
the SEC, which are available for sale as unrestricted ("FREE TRADING") stock.
Section 4.19. USE OF PROCEEDS. The Company represents that the net
proceeds from this offering will be used for working capital purposes and/or
general corporate purposes. However, in no event shall the net proceeds from
this offering be used by the Company 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.
Section 4.20. 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 use commercially reasonable efforts to maintain the listing of its Common
Stock on the NASDAQ Small Cap Stock Market and/or the Over-the-Counter Bulletin
Board.
Section 4.21. SEC FILINGS; FULL DISCLOSURE. Since January 1, 2001, 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 Investors or their representatives, or made available
through the SEC's website at xxxx://xxx.xxx.xxx., true and complete copies of
the SEC 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 4.22. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic conditions known to the public generally) that has
not been disclosed in writing to the Investor that (i) could reasonably be
expected to have a Material Adverse Effect on the financial condition or in the
earnings, business affairs, business prospects, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this
Agreement.
Section 4.23. OPINION OF COUNSEL. The Investor shall receive an opinion
letter from counsel to the Company (updated where applicable) prior to each
Closing substantially to the effect that:
14
(a) the Company is incorporated and validly existing in the
jurisdiction of its incorporation. The Company and/or its subsidiaries are duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where, to such counsel's knowledge, the Company and/or its
subsidiaries owns or leases properties, maintains employees or conducts
business, except for jurisdictions in which the failure to so qualify would not
have a Material Adverse Effect on the Company, and has all requisite corporate
power and authority to own its properties and conduct its business;
(b) to such counsel's knowledge, except for matters disclosed in the
SEC Documents, there is no action, proceeding or investigation pending, or
threatened against the Company which might result, either individually or in the
aggregate, in any material adverse change in the business or financial condition
of the Company;
(c) to such counsel's knowledge, except for matters disclosed in the
SEC Documents, the Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality;
(d) the shares of Common Stock issuable upon the conversion of the
Debentures have been duly authorized and upon issuance will be validly issued
under the laws of the Company's state of incorporation;
(e) this Agreement, the issuance of the Debentures hereunder, and the
shares of Common Stock issuable upon conversion of the Debentures, have been
duly approved by all required corporate action and that all such shares of
Common Stock, upon execution and delivery shall be validly issued and
outstanding, fully paid and nonassessable;
(f) the issuance of the Debentures and the shares of Common Stock
issuable upon conversion thereof, do not violate the applicable listing
agreement between the Company and any securities exchange or market on which the
Company's securities are listed;
(g) the authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, $0.0001 par value per share, and 10,000,000 shares of
preferred stock; and
(h) the Common Stock is registered pursuant to Section 12(g) of the
Exchange Act.
Section 4.24. 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 convert, exercise or sell the securities
issuable hereunder.
Section 4.25. DILUTION. The Company is aware and acknowledges that
conversion of the Debentures could cause dilution to existing shareholders and
could significantly increase the outstanding number of shares of Common Stock.
Section 4.26. TAX STATUS. 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 (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
15
unreported taxes) and 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 provisions 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.
ARTICLE 5.
INDEMNIFICATION
Section 5.1. INDEMNIFICATION. Each of the Company and the Investor agree
to indemnify the other and to hold the other harmless from and against any and
all losses, damages, liabilities, costs and expenses (including reasonable
attorney's fees) which the other may sustain or incur in connection with the
breach by the indemnifying party of any representation, warranty or covenant
made by it in this Agreement.
ARTICLE 6.
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. RESERVATION OF COMMON STOCK. The Company shall authorize and
reserve and keep available at all times, free of preemptive rights, shares of
Common Stock as shall be necessary for the purpose of enabling the Company to
satisfy any obligation to issue shares of Common Stock underlying the
Debentures, such number of shares of Common Stock to be reserved shall be
calculated based upon the Bid Price of the Common Stock from time to time while
such Debentures are outstanding. The number of shares so reserved from time to
time, while such Debentures are outstanding, as theretofore increased or reduced
as hereinafter provided, may be limited to shares issuable under outstanding
Debentures at the Bid Price reduced by the number of shares actually delivered
pursuant to the Debentures and the number of shares so reserved shall be
increased or decreased to reflect potential increases or decreases in the Common
Stock that the Company may thereafter be so obligated to issue.
Section 6.3. LISTING OF COMMON STOCK. The Company further agrees, if the
Company applies to have the Common Stock traded on any Principal Market, other
than the Nasdaq Small Cap Market, it will include in such application the shares
of Common Stock issuable upon the conversion of the Debentures and will 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 and will use commercially reasonable efforts to comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market.
Section 6.4. EXCHANGE ACT REGISTRATION. The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
use its best efforts to comply in all respects with its reporting and filing
16
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 thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Act.
Section 6.5. LEGENDS. The certificates evidencing the Common Stock to be
sold by the Investor pursuant to Section 9.1. shall be free of legends, except
as set forth herein.
Section 6.6. CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION
OF RIGHT TO MAKE AN ADVANCE. The Company will immediately notify the Investor
upon its becoming aware of the occurrence of any of the following events in
respect of a registration statement or related prospectus relating to an
offering of Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to 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. The Company shall
not deliver to the Investor any Advance Notice during the continuation of any of
the foregoing events. The Company will promptly make available to the Investor
any such supplement or amendment to the related prospectus.
Section 6.8. EXPECTATIONS REGARDING ADVANCE NOTICES. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Advance
Notices. Such notification shall constitute only the Company's good faith
estimate and shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Advance Notices. The failure
by the Company to comply with this provision can be cured by the Company's
notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
17
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 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 6.10. ISSUANCE OF DEBENTURES. The sale of the Debentures and the
issuance of the shares of Commons Stock pursuant to conversion hereof shall be
made in accordance with the provision and requirements of Section 4(2) of the
Securities Act, or Regulation D and any applicable state securities law.
ARTICLE 7.
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
Section 7.1. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL THE DEBENTURES. The obligation hereunder of the Company to issue
and sell the Debentures 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.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATION AND WARRANTIES. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time.
(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
AN ADVANCE NOTICE AND THE OBLIGATION OF THE INVESTOR TO PURCHASE DEBENTURES. The
right of the Company to deliver an Advance Notice and the obligation of the
Investor hereunder to acquire and pay for the Debentures incident to a Closing
is subject to the satisfaction or waiver by the Investor, 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
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)
18
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 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 Debentures and the
shares of Common Stock issuable upon the conversion thereof, or shall have the
availability of exemptions therefrom. The sale and issuance of the Debentures
and the shares of Common Stock issuable upon the conversion thereof 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, the Debenture 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
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 has not been 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 listing of the Common Stock on the Principal
Market (if the Common Stock is traded on a Principal Market).
(g) MONTHLY MAXIMUM ADVANCE AMOUNT. The amount of the advance requested
by the Company does not exceed the Maximum Advance Amount. The restriction on
19
the Monthly Maximum Advance Amount as outlined in Section 1.22 herein may be
waived only by the Investor.
(h) NO KNOWLEDGE. The Company has no knowledge of any event more likely
than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the fifteen (15) Trading Days following the Trading Day on which such
Notice is deemed delivered).
(i) ESCROW AGREEMENT. The parties hereto shall have entered into the
Escrow Agreement in the form attached hereto.
(j) 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 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.
ARTICLE 8.
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, advisors to and representatives of the Investor, 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.
Section 8.2. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not 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.
20
(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 9.
LEGENDS
Section 9.1. LEGENDS. The Debentures will bear, and the Common Stock will
also bear a similar a legend, substantially in the form below (the "LEGEND"):
THESE SECURITIES AND THE SHARES ISSUABLE UPON CONVERSION
HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
ARTICLE 10.
CHOICE OF LAW/JURISDICTION
Section 10.1. CHOICE OF LAW; VENUE: JURISDICTION. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of New York
without regard to the principles of conflict of laws. The parties further agree
that any action between them shall be heard in New York City, New York, and
expressly consent to the jurisdiction and venue of the Supreme Court of New York
21
and the United States District Court for the Southern District of New York for
the adjudication of any civil action asserted pursuant to this Paragraph.
ARTICLE 11.
ASSIGNMENT; TERMINATION
Section 11.1. ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person.
Section 11.2. TERMINATION. The obligations of the Investor to make
Advances under Article 2. hereof shall terminate two (2) years after the
effective date of the Registration Statement.
ARTICLE 12.
NOTICES
Section 12.1. NOTICES. All notices, demands, requests, consents, approvals
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (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.
Any notice or other communication requested 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 designed 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 upon
actual receipt of any mailing or delivery, whichever shall first occur. The
addresses for such communications shall be:
If to the Company, to: Nexland, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxx, 0xx Xxxxx
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx
President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
22
With a copy to: Xxxxxxxxxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxxxxx Xxxx. - Xxxxx 0000
Xxxxx, Xx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Transfer Jersey Transfer & Trust
Agent, to: 000 Xxxxxxxxxx Xxxxxx
X.X. Xxx 00
Xxxxxx, XX 00000
Attention: Xxxx Xxxxxx
If to the Investor: At the address listed on Schedule A.
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1. by giving at least ten (10) days
prior written notice of such changed address or facsimile number to the other
party hereto.
ARTICLE 13.
MISCELLANEOUS
Section 13.1. COUNTERPARTS/FACSIMILE/AMENDMENTS. 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. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. ENTIRE AGREEMENT. This Agreement, the Exhibits or
Attachments hereto, which include but are not limited to the Debenture, the
Registration Rights Agreement and the Escrow Agreement set forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understanding between the parties, both oral and writing relating to the line of
credit.
Section 13.3. 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 13.4. FEES AND EXPENSES.
(a) LEGAL 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 the sum of Twenty Thousand
23
Dollars ($20,000), to Xxxxxx Xxxxxxxx LLP for legal, administrative, and escrow
fees, upon execution of this Agreement. Subsequently on each Advance Date, the
Company will pay Xxxxxx Xxxxxxxx LLP, the sum of Five Hundred ($500) Dollars for
legal, administrative and escrow fees.
(b) INVESTMENT ADVISER FEES. Upon the execution of the Agreement the
Company will issue one hundred twenty-six thousand (126,000) shares of Common
Stock to the May Xxxxx Group, Inc. (the "INVESTMENT ADVISER"). The Company shall
grant to the Investment Adviser, upon the terms and conditions as set forth in
that certain Investment Adviser Agreement between the Company and the Investment
Adviser, "piggy-back" registration rights with respect to such shares of Common
Stock. In addition, on each advance date the Company shall pay the Investment
Adviser or it's duly appointed designee an amount equal to eight and 2/5 percent
(8.4%) of the advance directly from the gross proceeds of the Advance. The
Investment Advisor may apply the 8.4% directly to the Advance Amount. 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.
Section 13.5. 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, other
than the Investment Adviser. 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.
Section 13.6. 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 LEFT INTENTIONALLY BLANK]
24
IN WITNESS WHEREOF, the parties hereto have caused this Line of Credit
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
COMPANY:
NEXLAND, INC.
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors Management LLC
Its: General Partner
By:/s/ Xxxx X. Xxxxxx
----------------------------------
Name: Xxxx X. Xxxxxx
Its: Fund Manager
25
SCHEDULE OF INVESTORS
Cornell Capital Partners, L.P.
C/O Yorkville Advisors Management LLC
000 Xxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, XX 00000
26
