LINE OF CREDIT AGREEMENT
LINE OF CREDIT AGREEMENT dated as of 8th day of June 2000, (the
"Agreement") between GMF Holdings (the "Investor"), MAY XXXXX
GROUP (the "Placement Agent") located at One World Trade Center,
New York, New York, a corporation organized under the laws of
Maryland, and MAJESTIC COMPANIES, LTD., 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 Two Million ($2,000,000) Dollars of
Debentures for a total purchase price of Two Million ($2,000,000)
Dollars; 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 there under (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 I
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 Date" shall mean the date of an Advance
by the Investor to the Company.
Section 1.3 "Advance Notice" shall mean a written notice to
the Investor setting forth the Advance Amount that the Company
requests from the Investor and Compliance Certification from the
Company as attached hereto as Exhibit B.
Section 1.4 "Bid Price" shall mean, on any date, the closing
bid price (as reported by Bloomberg L.P.) of the Common Stock on
the Principal Market or if the Common Stock is not traded on a
Principal Market, the highest reported bid price for the Common
Stock, as furnished by the National Association of Securities
Dealers, Inc, for the five trading days immediately preceding
such date.
Section 1.5 "Closing" shall mean one of the closings of a
purchase and sale of the Debentures pursuant to Section 2.1.
Section 1.6 "Commitment Amount" shall mean the $2,000,000 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 1.7 "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 $2,000,000
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 years from the date hereof.
Section 1.8 "Common Stock" shall mean the Company's common
stock, par value $0.001 per share.
Section 1.9 "Condition Satisfaction Date" shall have the
meaning set forth in Section 7.2.
Section 1.10 "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 1.11 "Debentures" shall mean the Debenture in the form
of Exhibit C annexed hereto.
Section 1.12 "Effective Date" shall mean the date on which the
SEC first declares effective a Registration Statement registering
the resale of the Registrable Securities as set forth in Section
7.2(a).
Section 1.13 "Escrow Agent" shall be First Union National
Bank or its successors.
Section 1.14 "Escrow Agreement" shall mean the document which
is annexed hereto and referenced in Section 2 of this Agreement.
Section 1.15 "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations
promulgated there under.
Section 1.16 "Legend" shall mean that legend as set forth in
Section 9.1.
Section 1.17 "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 1.18 "Maximum Advance Amount" on any Advance Date shall
be equal to the difference between (i) the amount indicated
opposite the range of the 30 Day Average Daily Trading Volume on
such Advance Date, as set forth in the table below and (ii) the
sum of the Advances made pursuant to this Agreement, in the 30
calendar days immediately preceding the Advance Notice:
30-Day Average Daily Trading (1) Maximum Advance Amount (2)
$25,000 - $ 50,000 $100,000
$50,001 - $100,000 $200,000
$100,001 - $200,000 $350,000
$200,001 and Over $500,000
(1) The 30-Day Average Trading Volume shall be equal to the
average of the Bid Price multiplied by the volume for each of the
30 calendar days preceding the Advance Date.
(2) Assuming that no Advances have been made pursuant to this
Agreement during the preceding 30 calendar days.
Section 1.19 "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section 1.20 "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 1.21 "Principal Market" shall mean the Nasdaq National
Market, the Nasdaq Small Cap Market, the American Stock Exchange
or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Section 1.22 "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.
Section 1.23 "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 annexed
hereto as Exhibit D.
Section 1.24 "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 there under 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 1.25 "Regulation D" shall have the meaning set forth in
the recitals of this Agreement.
Section 1.26 "SEC" shall mean the Securities and Exchange
Commission.
Section 1.27 "Section 4(2)" shall have the meaning set forth in
the recitals of this Agreement.
Section 1.28 "Securities Act" shall have the meaning set forth
in the recitals of this Agreement.
Section 1.29 "SEC Documents" shall meant the Form 10-KSB, Form
10-QSB's, Form 8-K's, 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 1.30 "Subscription Date" shall mean the date on which
this Agreement is executed and delivered by the parties hereto.
Section 1.31 "Trading Day" shall mean any day during which the
New York Stock Exchange shall be open for business.
ARTICLE II
Advances
Section 2.1 Investments.
(a) Advances. Upon the terms and conditions set forth herein
(including without limitation, the provisions of Article VII
hereof), on any Advance 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.
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 (i) less than
$25,000, or (ii) 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.
(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,
which shall be within five (5) Trading Days of an Advance Notice,
(i) the Company shall deliver to the Escrow Agent 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 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); 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
Placement Agent in accordance with Section 13.4, 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 Investor's counsel, the Escrow Agent, and the
Placement Agent 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
twenty (20) 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 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 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,
or this Agreement, and all Exhibits and Attachments hereto;
(ii) delivery into escrow 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 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 III
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 limitations, the Registration
Rights Agreement), on behalf of the Investor. This Agreement has
been duly executed and delivered by the Investor and, assuming
the execution and delivery hereof and acceptance thereof by the
Company, will constitute the legal, valid and binding obligations
of the Investor, enforceable against the Investor in accordance
with its terms.
Section 3.2 Evaluation of Risks. The Investor has such
knowledge and experience in financial tax and business matters as
to be capable of evaluating the merits and risks of, and bearing
the economic risks entailed by, an investment in the Company and
of protecting its interests in connection with this transaction.
It recognizes that its investment in the Company involves a high
degree of risk. 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. 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
his or, its counsel), if any, have been furnished with all
materials relating to the business, finances and operations of
the Company and information he 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.
Section 3.8 Receipt of Documents. Such Buyer and his or its
counsel has received and read in their entirety: (i) this Agreement and each
representation, warranty and covenant set forth herein, the
Certificate of Designations, 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 Form 10-KSB for the year ended
1999; (iv) the Company's Forms 10-QSB for the periods ended
March 31, 2000; and (v) answers to all questions the Buyer
submitted to the Company regarding an investment in the Company;
and the Buyer has relied on the information contained therein and
has not been furnished any other documents, literature,
memorandum or prospectus.
Section 3.9 Registration Rights. The parties have entered
into the Registration Rights Agreement.
Section 3.9 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 3.10 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 3.11 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 3.12 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 3.13 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 3.14 Further Representations by Foreign Investors.
If Investor is not a U.S. Person (as defined), such Investor
hereby represents that such Investor is satisfied as to full
observance of the laws of such Investor 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 IV
Representations and Warranties of the Company
Except as stated below or on the Disclosure Schedule attached
hereto as Exhibit G (the "Disclosure Schedule"), 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 4.3. 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
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, 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 and 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.
Section 4.2 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 June 8, 2000,
35,989,070 shares were issued and outstanding, and 0 shares of
preferred stock, of which as of June 8, 2000, 0 shares were
issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c), 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 3(c), 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 containing anti-dilution or similar provisions that
will be triggered by the issuance of the Series A Preferred
Shares, the Conversion Shares, the Warrants, or the Warrant
Shares as described in this Agreement. The Company has furnished
to the Buyers 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
Disclosure Schedule 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 OTC 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
Disclosure Schedule, 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
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. Except
as disclosed in S Disclosure Schedule , 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 4.6 No Default. Except as described in the Disclosure
Schedule, 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 Articles 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 4.7 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 4.8 Governmental Consent, etc. Except for matters
described in the Disclosure Schedule, 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 4.9 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 on Schedule
3(n), none of the Company's trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent
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 Schedule 3(n), 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 4.10 Employee Relations. Neither the Company nor any
of its subsidiaries is involved in any labor dispute nor, to the knowledge of
the Company or any of its subsidiaries, is any such dispute
threatened. None of the Company's or its subsidiaries' employees
is a member of a union and the Company and its subsidiaries
believe that their relations with their employees are good.
Section 4.11 Environmental Laws. The Company and its
subsidiaries are (i) in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.
Section 4.12 Title. 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, in each case free and clear
of all liens, encumbrances and defects except such as are
described in Schedule 3(p), are disclosed in the SEC Documents or
such as 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 4.13 Insurance. The Company and each of its
subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts
as management of the Company believes to be prudent and customary
in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither
the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect
the condition, financial or otherwise, or the earnings, business
or operations of the Company and its subsidiaries, taken as a
whole.
Section 4.14 Regulatory Permits. The Company and its
subsidiaries possess all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.
Section 4.15 Internal Accounting Controls. The Company
and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken
with respect to any differences.
Section 4.16 No Materially Adverse Contracts, etc. Except as
set forth in the SEC Documents, and the Disclosure Schedule,
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 4.17 Litigation. Except as disclosed in the SEC
Documents and/or the Disclosure Schedule, 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 4.18 Title to Assets. Except as set forth in the SEC
Documents, the Company has good and marketable title to all
properties and material assets described in the SEC Documents as
owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Company.
Section 4.19 Subsidiaries. Except as disclosed in the SEC
Documents, the Company does not presently own or control,
directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.
Section 4.20 Required Governmental Permits. Except as set
forth in the SEC Documents, the Company is in possession of and
operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal
and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force
and effect.
Section 4.21 Other Outstanding Securities/Financing
Restrictions. 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 4.22 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 4.23 Further Representation and Warranties of the
Company. For so long as any securities issuable hereunder held
by the Investor remain outstanding, the Company acknowledges,
represents, warrants and agrees that it will use commercially
reasonable efforts to maintain the listing of its Common Stock on
the NASDAQ Small Cap Stock Market and/or NASDAQ Bulletin Board .
Section 4.24 SEC Filings/Full Disclosure. Since January
20, 2000 the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with
the SEC under of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference
therein, being hereinafter referred to as the "SEC Documents").
The Company has delivered to the Buyers 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 Buyer 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 4.25 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 4.26 Opinion of Counsel. Investor shall receive an
opinion letter from counsel to the Company (updated where
applicable) prior to each Closing substantially to the effect
that:
(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, based on the Bid Price on the day of such
closing, 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 that 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, does 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, $0.001 par value per share,
and 0 shares of preferred stock.
(h) the Common Stock is registered pursuant to Section 12(g) of
the Securities and Exchange Act of 1934
Section 4.27 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, including,
but not limited to, obtaining for Investors, at the Company's
expense an opinion of counsel, subject only to receipt of a
Notice of Conversion in the form of Exhibit F, duly executed by
the Investor which shall be satisfactory to the Transfer Agent,
directing the Transfer Agent to remove the self-liquidating
legend.
Section 4.28 Dilution. The Company is aware and acknowledges
that conversion of the Debentures could cause dilution to
existing shareholder and could significantly increase the
outstanding number of shares of Common Stock.
Section 4.29 Tax Status. The Company and each of its subsidiaries has
made or filed allfederal 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 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 provision
reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis
for any such claim.
ARTICLE V
Representations and Warranties of the Company and Investor
The Investor and the Company represent to the other the following
with respect to itself:
Section 5.1 Line of Credit Agreement. This Agreement has been
duly authorized, validly executed and delivered on behalf of the
Company and the Investor and is a valid and binding agreement in
accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement
of creditors? rights generally.
Section 5.2 Non-contravention. Subject to the exceptions
referred to elsewhere in this Agreement (including the Disclosure
Schedule) the execution and delivery of this Agreement along with
all Exhibits and Attachments, and the consummation of the
issuance of the securities and the transactions contemplated by
this Agreement do not and will not conflict with or result in a
breach by the Company or the Investor of any of the terms or
provisions of, or constitute a default under, the articles of
incorporation or by-laws of the Company or the Investor, or any
indenture, mortgage, deed of trust of other material agreement or
instrument to which the Company or the Investor is a party or by
which it or any of its properties or assets are bound, or any
existing applicable law, rule or regulation or any applicable
decree, judgment or order of any court, Federal or State
regulatory body, administrative agency or other governmental body
having jurisdiction over the Company or Investor or any of its
properties or assets.
Section 5.3 Approvals. Neither the Company nor Investor is
aware of any authorization, approval or consent of any
governmental body which is legally required for the issuance and
sale of the securities.
Section 5.4 Indemnification. Each of the Company and the
Investors 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 attorneys?
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 VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect
and the Company shall comply in all material respects with the
terms thereof.
Section 6.2 Reservation of Common Stock. The Company shall
authorize and reserve and keep available at all times, free of
preemptive rights, 15,000,000 shares of Common Stock 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 obligations under the
Exchange Act, and will not take any action or file any document
(whether or not permitted by Exchange Act or the rules there
under 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) subject to the Registration
Rights Agreement the happening of any event that makes any
statement made in the Registration Statement or related
prospectus of any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration
Statement, related prospectus or documents so that, in the case
of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be
appropriate; and the Company will promptly make available to the
Investor any such supplement or amendment to the related
prospectus. The Company shall not deliver to the Investor any
Advance Notice during the continuation of any of the foregoing
events.
Section 6.8 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.
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 VII
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 otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so
(unless the SEC's concerns have been addressed and the Investor
is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the
use or withdrawal of the effectiveness of the Registration
Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to
the first Advance 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) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company shall be true
and correct in all material respects as of each Condition
Satisfaction Date as though made at each such time (except for
representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all
events and circumstances occurring or existing to and including
each Condition Satisfaction Date, except for any conditions which
have temporarily caused any representations or warranties herein
to be incorrect and which have been corrected with no continuing
impairment to the Company or the Investor.
(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) Adverse Changes. Since the date of filing of the Company's
most recent SEC Document, no event that had or is reasonably
likely to have a Material Adverse Effect has occurred, other than
possible de-listing of the Common Stock from the Nasdaq Smallcap
Market.
(g) No Suspension of Trading In or Delisting of Common Stock.
The trading of the Common Stock is not suspended by the SEC or
the Principal Market (if the Common Stock is traded on a
Principal Market). The issuance of shares of Common Stock with
respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market (if the
Common Stock is traded on a Principal market). The Company shall
not have received any notice threatening the listing of the
Common Stock on the Principal Market (if the Common Stock is
traded on a Principal Market).
(h) Maximum Advance Amount. The amount of the advance requested
by the Company does not exceed the Maximum Advance Amount.
(i) 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).
(j) Escrow Agreement. The parties hereto shall have entered
into the Escrow Agreement in the form annexed hereto.
(k) 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 an Exhibit 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.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1 Due Diligence Review. Prior to the filing of the
Registration Statement the Company shall make available for
inspection and review by the Investor, 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.
(b) Nothing herein shall require the Company to disclose non-
public information to the Investor or its advisors or
representatives, and the Company represents that it does not
disseminate non-public information to any investors who purchase
stock in the Company in a public offering, to money managers or
to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove
provided, immediately notify the advisors and representatives of
the Investor and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware,
constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due
diligence by such persons or entities), which, if not disclosed
in the prospectus included in the Registration Statement would
cause such prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to
make the statements, therein, in light of the circumstances in
which they were made, not misleading. Nothing contained in this
Section 8.2 shall be construed to mean that such persons or
entities other than the Investor (without the written consent of
the Investor prior to disclosure of such information) may not
obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration
Statement contains an untrue statement of material fact or omits
a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein,
in light of the circumstances in which they were made, not
misleading.
ARTICLE IX
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 X
Choice of Law/Jurisdiction
Section 10.1 Choice of Law: Venue: Jurisdiction. This
Agreement will be construed and enforced in accordance with and
governed by the laws of the State of New York, except for matters
arising under the Act, without reference to principles of
conflicts of law. Each of the parties consents to the
jurisdiction of the U.S. District Court sitting in the Southern
District of the State of New York or the state courts of the
State of New York sitting in Manhattan in connection with any
dispute arising under this Agreement and hereby waives, to the
maximum extent permitted by law, any objection, including any
objection based on forum non conveniens to the bringing of any
such proceeding in such jurisdictions. Each party hereby agrees
that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such
judgment may enforce same by summary judgment in the courts of
any country having jurisdiction over the party against whom such
judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of
such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
ARTICLE XI
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. Notwithstanding the foregoing,
(a) the provisions of this Agreement shall insure to the benefit
of, and be enforceable by, any permitted transferee of any of the
Debentures purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person, and (b) upon the
prior written consent of the Company, which consent shall not
unreasonably be withheld, the Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to
any other person or entity (including any affiliate of the
Investor) who agrees to make the representations and warranties
contained in Article III and who agrees to be bound by the
covenants of Article V.
Section 11.2 Termination. The obligations of the Investor to
make Advances under Article II hereof shall terminate two (2)
years after the date hereof.
ARTICLE XII
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:
0000 Xxx Xxx Xxxxx Xxxxx - 0xx Xxxxx
Xxx Xxxxx, XX 00000
Attn: President
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 XIII
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 Escrow Agreement, and the Registration Rights
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 Five Thousand
($25,000) Dollars, to Xxxxxx Xxxxxxxx, L.L.P. for legal,
administrative, and escrow fees, Five Thousand ($5,000) Dollars
immediately, and Twenty Thousand ($20,000) on the first day the
Registration Statement becomes effective. Subsequently on each
advance date, the Company will pay Xxxxxx Xxxxxxxx, LLP, the sum
of Five Hundred ($ 500) Dollars for escrow fees.
(b) Placement Agent Fees. Upon the execution of the Agreement
the Company will issue Warrants to purchase 252,000 shares of
Common Stock to the May Xxxxx Group (the "Placement Agent"). On
each advance date the Company shall pay the Placement Agent an
amount equal to 8.4% of the advance. The Company hereby agrees
that if such payment, as is described above, is not made by the
Company on the advance date, such payment will be made at the
direction of the Investor as outlined and mandated by Section 2.3
of this Agreement.
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 Placement Agent.
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.
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.
PLACEMENT AGENT:
THE MAY XXXXX GROUP, INC.
By: /s/ Xxxxxxx Xxxxxx
Name: Xxxxxxx Xxxxxx
Title: Managing Director
COMPANY:
MAJESTIC COMPANIES, LTD.
By: /s/ Xxxxxxx Xxxxxxxxx
Name: Xxxxxxx Xxxxxxxxx
Title: President and Chief Executive Officer
INVESTOR
GMF HOLDINGS
By: /s/ Xxxxx Xxxxx
Name: Xxxxx Xxxxx
Title: Managing Director
