Exhibit 10.1
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this AGREEMENT), dated as of September 15, 2006 by and between Save the
World Air, Inc. a Nevada corporation (the Company), and Dutchess Private Equities Fund, LP, a
Delaware limited partnership (the Investor).
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein,
the Investor shall invest up to Ten Million dollars ($10,000,000) to purchase the Companys Common
Stock, $.001 par value per share (the Common Stock);
WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2) under the
Securities Act of 1933, as amended (the 1933 Act), Rule 506 of Regulation D, and the rules and
regulations promulgated thereunder, and/or upon such other exemption from the registration
requirements of the 1933 Act as may be available with respect to any or all of the investments in
Common Stock to be made hereunder; and
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto
are executing and delivering a Registration Rights Agreement substantially in the form attached
hereto (the Registration Rights Agreement) pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act, and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral
part of this Agreement, the covenants and agreements set forth hereafter, and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company
and the Investor hereby agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following meanings specified or
indicated below, and such meanings shall be equally applicable to the singular and plural forms of
such defined terms.
1933
Act
shall have the meaning set forth in the preamble of this agreement.
1934
Act
shall mean the Securities Exchange Act of 1934, as it may be amended.
Affiliate
shall have the meaning specified in Section 5(H), below.
Agreement
shall mean this Investment Agreement.
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Best Bid
shall mean the highest posted bid price of the Common Stock during a given
period of time.
By-laws
shall have the meaning specified in Section 4(C).
Certificate of Incorporation
shall have the meaning specified in Section 4(C).
Closing
shall have the meaning specified in Section 2(G).
Closing Date
shall mean no more than seven (7) Trading Days following the Put
Notice Date.
Common Stock
shall have the meaning set forth in the preamble of this Agreement.
Control
or
Controls
shall have the meaning specified in Section 5(H).
Effective Date
shall mean the date the SEC declares effective under the 1933 Act
the Registration Statement covering the Securities.
Environmental Laws
shall have the meaning specified in Section 4(M).
Equity Line Transaction Documents
shall mean this Agreement, the Registration
Rights Agreement.
Execution Date
shall mean the date indicated in the preamble to this Agreement.
Indemnities
shall have the meaning specified in Section 11.
Indemnified
Liabilities
shall have the meaning specified in Section 11.
Ineffective Period
shall mean any period of time that the Registration Statement or
any Supplemental Registration Statement (as defined in the Registration Rights Agreement between
the parties) becomes ineffective or unavailable for use for the sale or resale, as applicable, of
any or all of the Registrable Securities (as defined in the Registration Rights Agreement) for any
reason (or in the event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
Investor
shall have the meaning indicated in the preamble of this Agreement.
Material Adverse Effect
shall have the meaning specified in Section 4(A).
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Maximum Common Stock Issuance
shall have the meaning specified in Section
2(H).
Minimum Acceptable Price
with respect to any Put Notice Date shall mean
seventy-five percent (75%) of the lowest closing bid prices for the ten (10) Trading Day period
immediately preceding each Put Notice Date.
Open
Market Adjustment Amount
shall have the meaning specified
in Section 2(I).
Open
Market Purchase
shall have the meaning specified in Section 2(I)
Open
Market Share Purchase
shall have the meaning specified in Section 2(I).
Open Period
shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier to occur of (i) the date which
is thirty-six (36) months from the Effective Date; or (ii) termination of the Agreement in
accordance with Section 9, below.
Pricing Period
shall mean the period beginning on the Put Notice Date and ending on
and including the date that is five (5) Trading Days after such Put Notice Date.
Principal Market
shall mean the American Stock Exchange, Inc., the National
Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board, the NASDAQ National
Market System or the NASDAQ SmallCap Market, whichever is the principal market on which the Common
Stock is listed or quoted.
Prospectus
shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.
Purchase Amount
shall mean the total amount being paid by the Investor on a
particular Closing Date to purchase the Securities.
Purchase Price
shall mean ninety-seven percent (97%) of the lowest closing Best Bid
price of the Common Stock during the Pricing Period.
Put
shall have the meaning set forth in Section 2(B)(1) hereof.
Put Amount
shall have the meaning set forth in Section 2(B)(1) hereof.
Put Notice
shall mean a written notice sent to the Investor by the Company stating
the Put Amount in U.S. dollars the Company intends to sell to the Investor pursuant to the terms
of the Agreement and stating the current number of Shares issued and outstanding on such date.
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Put Notice Date
shall mean the Trading Day, as set forth below, immediately
following the day on which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered on
(a)
the Trading Day it is received by facsimile or otherwise by the Investor if such
notice is received prior to 9:00 am Eastern Time, or
(b)
the immediately succeeding Trading Day if
it is received by facsimile or otherwise after 9:00 am Eastern Time on a Trading Day. No Put Notice
may be deemed delivered on a day that is not a Trading Day.
Put Restriction
shall mean the days between the beginning of the Pricing Period and
Closing Date. During this time, the Company shall not be entitled to deliver another Put Notice.
Put
Shares Due
shall have the meaning specified in Section 2(I).
Registration Period
shall have the meaning specified in Section 5(C), below.
Registration Rights Agreement
shall have the meaning set forth in the recitals,
above.
Registration Statement
means the registration statement of the Company filed under
the 1933 Act covering the Common Stock issuable hereunder.
Related Party
shall have the meaning specified in Section 5(H).
Resolution
shall have the meaning specified in Section 8(E).
SEC
shall
mean the U.S. Securities & Exchange Commission.
SEC Documents
shall have
the meaning specified in Section 4(F).
Securities
shall mean the shares of Common Stock issued pursuant to the terms of the
Agreement.
Shares
shall mean the shares of the Companys Common Stock.
Subsidiaries
shall have the meaning specified in Section 4(A).
Trading Day
shall mean any day on which the Principal Market for the Common Stock
is open for trading, from the hours of 9:30 am until 4:00 pm.
SECTION 2. PURCHASE AND SALE OF COMMON STOCK.
(A) PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions set forth herein, the
Company shall issue and sell to the Investor, and
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the Investor shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of Ten Million dollars ($10,000,000).
(B) DELIVERY OF PUT NOTICES.
(I) Subject to the terms and conditions of the Transaction Documents, and from time to time during
the Open Period, the Company may, in its sole discretion, deliver a Put Notice to the Investor
which states the dollar amount (designated in U.S. Dollars) (the Put Amount), which the Company
intends to sell to the Investor on a Closing Date (the Put). The Put Notice shall be in the form
attached hereto as Exhibit C and incorporated herein by reference. The amount that the Company
shall be entitled to Put to the Investor (the Put Amount) shall be equal to, at the Companys
sole election, either: (A) Two Hundred percent (200%) of the average daily volume (U.S. market
only) of the Common Stock for the Ten (10) Trading Days prior to the applicable Put Notice Date,
multiplied by the average of the three (3) daily closing bid prices immediately preceding the Put
Date, or (B) two hundred fifty thousand dollars ($250,000). During the Open Period, the Company
shall not be entitled to submit a Put Notice until after the previous Closing has been completed.
The Purchase Price for the Common Stock identified in the Put Notice
shall be equal to ninety-seven percent (97%) of the lowest closing Best Bid price of the Common Stock during the Pricing Period.
(C) COMPANYS RIGHT TO WITHRDRAWL. The Company shall reserve the
right, but not the obligation, to withdraw that portion of the Put that is below the
Minimal Acceptable Price, by submitting to the Investor, in writing, a notice to
cancel that portion of the Put. Any shares above the Minimal Acceptable price
due to the Investor shall be carried out by the Company under the terms of this
Agreement.
(D) INTENTIONALLY OMITTED
(E) CONDITIONS TO INVESTORS OBLIGATION TO PURCHASE SHARES.
Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and the Investor shall not be obligated to
purchase any Shares at a Closing (as defined in Section 2(G)) unless each of the
following conditions are satisfied:
(I) a Registration Statement shall have been declared effective and shall
remain effective and available for the resale of all the Registrable Securities (as
defined in the Registration Rights Agreement) at all times until the Closing with
respect to the subject Put Notice;
(II) at all times during the period beginning on the related Put Notice Date
and ending on and including the related Closing Date, the Common Stock shall
have been listed on the Principal Market and shall not have been suspended
from trading thereon for a period of two (2) consecutive Trading Days during the
Open Period and the Company shall not have been notified of any pending or
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threatened proceeding or other action to suspend the trading of the Common Stock;
(III) the Company has complied with its obligations and is otherwise not in
breach of or in default under, a material provision of this Agreement, the
Registration Rights Agreement or any other agreement executed in connection
herewith which has not been cured prior to delivery of the Investors Put Notice
Date;
(IV) no injunction shall have been issued and remain in force, or action
commenced by a governmental authority which has not been stayed or
abandoned, prohibiting the purchase or the issuance of the Securities; and
(V) the issuance of the Securities will not violate any shareholder approval
requirements of the Principal Market.
If any of the events described in clauses (I) through (V) above occurs during a Pricing Period,
then the Investor shall have no obligation to purchase the Put Amount of Common Stock set forth in
the applicable Put Notice.
(F) RESERVED
(G) MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the
satisfaction of the conditions set forth in Sections 2(E), 7 and 8, the closing of the
purchase by the Investor of Shares (a Closing) shall occur on the date which is
no later than seven (7) Trading Days following the applicable Put Notice Date
(each a Closing Date). Prior to each Closing Date, (I) the Company shall deliver
to the Investor pursuant to this Agreement, certificates representing the Shares
to be issued to the Investor on such date and registered in the name of the
Investor; and (II) the Investor shall deliver to the Company the Purchase Price to
be paid for such Shares, determined as set forth in Sections 2(B). In lieu of
delivering physical certificates representing the Securities and provided that the
Companys transfer agent then is participating in The Depository Trust Company
(DTC) Fast Automated Securities Transfer (FAST) program, upon request of
the Investor, the Company shall use commercially reasonable efforts to cause its
transfer agent to electronically transmit the Securities by crediting the account of
the Investors prime broker (as specified by the Investor within a reasonably in
advance of the Investors notice) with DTC through its Deposit Withdrawal Agent
Commission (DWAC) system.
The Company understands that a delay in the issuance of Securities beyond the Closing Date could
result in economic damage to the Investor. After the Effective Date, as compensation to the
Investor for such loss, the Company agrees to make late payments to the Investor for late issuance
of Securities (delivery of Securities after the applicable Closing Date) in accordance with the
following schedule (where No. of Days Late is defined as the number of trading days beyond the
Closing Date, with the Amounts being cumulative.):
6
|
|
|
|
|
LATE PAYMENT FOR EACH
|
|
|
NO. OF DAYS LATE
|
|
$10,000 WORTH OF COMMON STOCK
|
1
|
|
$
|
100
|
|
2
|
|
$
|
200
|
|
3
|
|
$
|
300
|
|
4
|
|
$
|
400
|
|
5
|
|
$
|
500
|
|
6
|
|
$
|
600
|
|
7
|
|
$
|
700
|
|
8
|
|
$
|
800
|
|
9
|
|
$
|
900
|
|
10
|
|
$
|
1,000
|
|
Over 10
|
|
$1,000 + $200 for each
|
|
|
Business Day late beyond 10 days
|
The Company shall make any payments incurred under this Section in immediately available
funds upon demand by the Investor. Nothing herein shall limit the Investors right to pursue
actual damages for the Companys failure to issue and deliver the Securities to the Investor,
except that such late payments shall offset any such actual damages incurred by the Investor,
and any Repurchase Adjustment Amount, as set forth below.
(H) OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained herein to the
contrary, if during the Open Period the Company becomes listed on an exchange that limits the
number of shares of Common Stock that may be issued without shareholder approval, then the
number of Shares issuable by the Company and purchasable by the Investor, shall not exceed
that number of the shares of Common Stock that may be issuable without shareholder approval
(the Maximum Common Stock Issuance). If such issuance of shares of Common Stock could cause
a delisting on the Principal Market, then the Maximum Common Stock Issuance shall first be
approved by the Companys shareholders in accordance with applicable law and the By-laws and
Amended and Restated Certificate of Incorporation of the Company, if such issuance of shares
of Common Stock could cause a delisting on the Principal Market. The parties understand and
agree that the Companys failure to seek or obtain such shareholder approval shall in no way
adversely affect the validity and due authorization of the issuance and sale of Securities or
the Investors obligation in accordance with the terms and conditions hereof to purchase a
number of Shares in the aggregate up to the Maximum Common Stock Issuance limitation, and
that such approval pertains only to the applicability of the Maximum Common Stock Issuance
limitation provided in this Section 2(H).
(I) LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary in this
Agreement, in no event shall the Investor be entitled to purchase that number of Shares,
which when added to the sum of the number of shares of Common Stock beneficially owned (as
such term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor,
would exceed
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4.99% of the number of shares of Common Stock outstanding on the Closing Date, as determined in
accordance with Rule 13d-1(j) of the 1934 Act.
(J) If, by the third (3rd) business day after the Closing Date, the Company fails to deliver any
portion of the shares of the Put to the Investor (the Put Shares Due) and the Investor purchases,
in an open market transaction or otherwise, shares of Common Stock necessary to make delivery of
shares which would have been delivered if the full amount of the shares to be delivered to the
Investor by the Company (the Open Market Share Purchase) , then the Company shall pay to the
Investor, in addition to any other amounts due to Investor pursuant to the Put, and not in lieu
thereof, the Open Market Adjustment Amount (as defined below). The Open Market Adjustment Amount
is the amount equal to the excess, if any, of (x) the Investors total purchase price (including
brokerage commissions, if any) for the Open Market Share Purchase minus (y) the net proceeds (after
brokerage commissions, if any) received by the Investor from the sale of the Put Shares Due. The
Company shall pay the Open Market Adjustment Amount to the Investor in immediately available funds
within five (5) business days of written demand by the Investor. By way of illustration and not in
limitation of the foregoing, if the Holder purchases shares of Common Stock having a total purchase
price (including brokerage commissions) of $11,000 to cover an Open Market Purchase with respect to
shares of Common Stock it sold for net proceeds of $10,000, the Open Market Purchase Adjustment
Amount which the Company will be required to pay to the Holder will be $1,000.
SECTION 3. INVESTORS REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Investor represents and warrants to the Company, and covenants, that:
(A) SOPHISTICATED INVESTOR. The Investor has, by reason of its business
and financial experience, such knowledge, sophistication and experience in
financial and business matters and in making investment decisions of this type
that it is capable of (I) evaluating the merits and risks of an investment in the
Securities and making an informed investment decision; (II) protecting its own
interest; and (III) bearing the economic risk of such investment for an indefinite
period of time.
(B) AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Investor and is a valid
and binding agreement of the Investor enforceable against the Investor in
accordance with its terms, subject as to enforceability to 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.
(C) SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the
Investor will comply with the provisions of Section 9 of the 1934 Act, and the
8
rules promulgated thereunder, with respect to transactions involving the Common Stock. The
Investor agrees not to sell the Companys stock short, either directly or indirectly through its
affiliates, principals or advisors, the Companys common stock during the term of this Agreement.
(D) ACCREDITED INVESTOR. Investor is an Accredited Investor as that term
is defined in Rule 501 (a) of Regulation D of the 1933 Act.
(E) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby will not result in a violation of
Partnership Agreement or other organizational documents of the Investor.
(F) OPPORTUNITY TO DISCUSS. The Investor has received all materials
relating to the Companys business, finance and operations which it has
requested. The Investor has had an opportunity to discuss the business,
management and financial affairs of the Company with the Companys
management.
(G) INVESTMENT PURPOSES. The Investor is purchasing the Securities for its
own account for investment purposes and not with a view towards distribution
and agrees to resell or otherwise dispose of the Securities solely in accordance
with the registration provisions of the 1933 Act (or pursuant to an exemption from
such registration provisions).
(H) NO REGISTRATION AS A DEALER. The Investor is not and will not be required to be registered as
a dealer under the 1934 Act, either as a result of its execution and performance of its
obligations under this Agreement or otherwise.
(I) GOOD STANDING. The Investor is a Limited Partnership, duly organized, validly existing and in
good standing in the State of Delaware.
(J) TAX LIABILITIES. The Investor understands that it is liable for its own tax liabilities.
(K) REGULATION M. The Investor will comply with Regulation M under the 1934 Act, if applicable.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, or as disclosed on the Companys SEC
Documents, the Company represents and warrants to the Investor that:
(A) ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Nevada, and has the requisite corporate
power and authorization to own its
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properties and to carry on its business as now being conducted. Both the Company and the companies
it owns or controls (Subsidiaries) are duly qualified to do business and are in good standing in
every jurisdiction in which its ownership of property or 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. As used in this Agreement, Material
Adverse Effect means any material adverse effect on the business, properties, assets, operations,
results of operations, financial condition or prospects of the Company and its Subsidiaries, if
any, taken as a whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined in Section 1 and
4(B), below).
(B) 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 each of
the other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the Transaction
Documents), and to issue the Securities in accordance with the terms hereof
and thereof.
(II) The execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby
and thereby, including without limitation the reservation for issuance and the
issuance of the Securities pursuant to this Agreement, have been duly and
validly authorized by the Companys Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors, or its
shareholders.
(III) The Transaction Documents have been duly and validly executed and
delivered by the Company.
(IV) The Transaction Documents 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.
(C) CAPITALIZATION. As of the date hereof, the authorized capital stock of the
Company consists of 200,000,000 shares of Common Stock, $.001 par value per
share, of which as of the date hereof, 39,340,119 shares are issued and
outstanding; no shares of Preferred Stock are authorized or issued or
outstanding; 31,536,171 shares of common stock are reserved for issuance
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pursuant to options, warrants and other convertible securities; and an additional 1,614,000 shares
of common stock will have been reserved for issuance pursuant to options, warrants and other
convertible securities on or before the date of the filing of the Registration Statement with the
SEC. All of such outstanding shares have been, or upon issuance will be, validly issued, fully
paid and non-assessable.
Except as disclosed in the Companys publicly available filings with the SEC:
(I) no shares of the Companys capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (II) there are no
outstanding debt securities; (III) there are no outstanding shares of capital stock, 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, except that the Company may be
obligated to issue a warrant to its distributor in China exercisable for up to 1,000,000 shares of
common stock, with the exact amount depending upon the number of units ordered by the distributor
over a five-year period commencing upon the execution of the related distribution agreement; (IV)
there are no agreements or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement), except that the Company (A) has granted piggyback registration
rights to the Companys former public relations firm with respect to 41,665 shares of common stock,
(B) is presently negotiating the granting of piggyback registration rights with the bankruptcy
trustee under the Companys former royalty agreement with respect to its ZEFS technology with
respect to 50,000 shares of common stock, and (C) is presently negotiating the granting of S-8
registration rights to one consultant for 450,000 shares of common stock issuable upon the exercise
of options; (V) there are no outstanding securities of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (VI) there are no securities
or instruments containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement; (VII) the Company does not have any
stock appreciation rights or phantom stock plans or agreements or any similar plan or agreement;
and (VIII) there is no dispute as to the classification of any shares of the Companys capital
stock.
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The Company has furnished to the Investor, or the Investor has had access through EDGAR
to, true and correct copies of the Companys Amended and Restated Certificate of Incorporation, as
in effect on the date hereof (the Certificate of Incorporation), and the Companys 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.
(D) ISSUANCE OF SHARES. The Company has reserved, or will have reserved
on or before the date of the filing of the Registration Statement with the SEC,
7,000,000 Shares for issuance pursuant to this Agreement, which Shares will
have been duly authorized and reserved for issuance (subject to adjustment
pursuant to the Companys covenant set forth in Section 5(F) below) pursuant to
this Agreement. Upon issuance in accordance with this Agreement, the
Securities will be validly issued, fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof. In the event the
Company cannot register a sufficient number of Shares for issuance pursuant to
this Agreement, the Company will use its best efforts to authorize and reserve for
issuance the number of Shares required for the Company to perform its
obligations hereunder as soon as reasonably practicable.
(E) NO CONFLICTS. The execution, delivery and performance of the Equity Line
Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby will not (I) result
in a violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the By-laws; or (II) conflict with, or constitute a material default (or
an event which with notice or lapse of time or both would become a material
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, contract, indenture
mortgage, indebtedness or instrument to which the Company or any of its
Subsidiaries is a party, or to the Companys knowledge result in a violation of any
law, rule, regulation, order, judgment or decree (including United States federal
and state securities laws and regulations and the rules and regulations of the
Principal Market or principal securities exchange or trading market on which the
Common Stock is traded or listed) 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 Schedule 4(e), neither
the Company nor its Subsidiaries is in violation of any term of, or in default under,
the Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or
the By-laws or their organizational charter or by-laws, respectively, or any contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
Subsidiaries, except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in the
aggregate have or constitute a Material Adverse Effect. The business of the
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Company and its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any governmental authority
or agency, regulatory or self-regulatory agency, or court, except for possible violations the
sanctions for which either individually or in the aggregate would not have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act or
any securities laws of any states, to the Companys knowledge, the Company is not required to
obtain any consent, authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement as outlined in the Registration Rights Agreement between the
Parties) with, any court, governmental authority or agency, regulatory or self-regulatory agency or
other third party in order for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof or thereof. All
consents, authorizations, permits, 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 and are in full force and effect as of the date hereof. Except as disclosed in Schedule
4(e), the Company and its Subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company is not, and will not be, in violation of the listing
requirements of the Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would reasonably lead to delisting of the Common Stock by
the Principal Market in the foreseeable future.
(F) SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of 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 Investor or its representatives, or they have had access through EDGAR
to, true and complete copies of the SEC Documents. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the SEC Documents
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, by a firm that is a
member of the Public Companies Accounting Oversight Board (PCAOB) consistently applied, during
the periods involved (except (I) as may be otherwise indicated in such financial statements or the
notes thereto, or (II) in
13
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 written information provided by or on behalf of the Company to the Investor
which is not included in the SEC Documents, including, without limitation, information referred to
in Section 4(D) of this Agreement, contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements therein, in the light of the circumstance
under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries
or any of their officers, directors, employees or agents have provided the Investor with any
material, nonpublic information which was not publicly disclosed prior to the date hereof and any
material, nonpublic information provided to the Investor by the Company or its Subsidiaries or any
of their officers, directors, employees or agents prior to any Closing Date shall be publicly
disclosed by the Company prior to such Closing Date.
(G) ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC Documents, the Company
does not intend to change the business operations of the Company in any material way. The Company
has not taken any steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings.
(H) ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or, to the knowledge of the
executive officers of Company or any of its Subsidiaries, threatened against or affecting the
Company, the Common Stock or any of the Companys Subsidiaries or any of the Companys or the
Companys Subsidiaries officers or directors in their capacities as such, in which an adverse
decision could have a Material Adverse Effect.
(I) ACKNOWLEDGMENT REGARDING INVESTORS PURCHASE OF SHARES. The Company acknowledges and agrees
that the Investor is acting solely in the capacity of an arms length purchaser with respect to
the Transaction Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Equity Line Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by the Investor or any of its
respective representatives or agents in connection with the Equity Line Transaction Documents and
the transactions contemplated hereby and thereby is merely incidental to the Investors purchase
of the Securities, and is not being relied on
14
by the Company. The Company further represents to the Investor that the Companys decision
to enter into the Equity Line Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
(J) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set forth in the
SEC Documents, as of the date hereof, no event, liability, development or circumstance has occurred
or exists, or to the Companys knowledge is contemplated to occur, with respect to the Company or
its Subsidiaries or their respective business, properties, assets, prospects, operations or
financial condition, that would be required to be disclosed by the Company under applicable
securities laws on a registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.
(K) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved in any union
labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company
that such officer intends to leave the Companys employ or otherwise terminate such officers
employment with the Company.
(L) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights
or licenses to use all trademarks, trade names, service marks, service mark 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 SEC Documents, none of the Companys trademarks, trade names,
service marks, service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or other intellectual
property rights necessary to conduct its business as now or as proposed to be conducted have
expired or terminated, or are expected to expire or terminate within two (2) years from the date of
this Agreement. 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 mark 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 in the SEC Documents, there is
no claim, action or proceeding being made or brought against, or to the Companys knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents,
patent rights, invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement; and the Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to
15
any of the foregoing. The Company and its Subsidiaries have taken commercially reasonable
security measures to protect the secrecy, confidentiality and value of all of their intellectual
properties.
(M) ENVIRONMENTAL LAWS. The Company (I) is, to the knowledge of the management and directors of
the Company, 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) has, to the
knowledge of the management and directors of the Company, received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its business; and (III) is
in compliance, to the knowledge of the management and directors of the Company, with all terms and
conditions of any such permit, license or approval where, in each of the three (3) foregoing
cases, the failure to so comply would have, individually or in the aggregate, a Material Adverse
Effect.
(N) TITLE. The Company and its Subsidiaries have 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
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 or any of its
Subsidiaries. Any real property and facilities held under lease by the Company or any of 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.
(O) INSURANCE. Each of the Companys Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management of the Company
reasonably believes to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any of its Subsidiaries has been refused any
insurance coverage sought or applied for and neither the Company nor its Subsidiaries 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 have a Material Adverse Effect.
(P) REGULATORY PERMITS. The Company and its Subsidiaries have in full force and effect all
certificates, approvals, authorizations and permits from the appropriate federal, state, local or
foreign regulatory authorities and comparable foreign regulatory agencies, necessary to own, lease
or operate their respective properties and assets and 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, approval,
16
authorization or permit, except for such certificates, approvals, authorizations or permits which
if not obtained, or such revocations or modifications which, would not have a Material Adverse
Effect.
(Q) 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 managements general or specific authorizations; (II) transactions are
recorded as necessary to permit preparation of financial statements in conformity with generally
accepted accounting principles by a firm with membership to the PCAOB and to maintain asset
accountability; (III) access to assets is permitted only in accordance with managements 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.
(R) NO MATERIALLY ADVERSE CONTRACTS, ETC. 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 Companys officers has or is expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Companys officers has or is expected to have a
Material Adverse Effect.
(S) TAX STATUS. The Company and each of its Subsidiaries has made or filed all United States
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 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.
(T) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at least ten (10) days
prior to the date hereof and except for arms length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable than the Company
could obtain from disinterested third parties and other than the grant of stock options disclosed
in the SEC Documents, none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other arrangement
providing for the
17
furnishing of services to or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an officer, director,
trustee or partner.
(U) DILUTIVE EFFECT. The Company understands and acknowledges that the number of shares of Common
Stock issuable upon purchases pursuant to this Agreement will increase in certain circumstances
including, but not necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines during the period between the Effective Date and the end of the Open Period. The
Companys executive officers and directors have studied and fully understand the nature of the
transactions contemplated by this Agreement and recognize that they have a potential dilutive
effect on the shareholders of the Company. The Board of Directors of the Company has concluded, in
its good faith business judgment, and with full understanding of the implications, that such
issuance is in the best interests of the Company. The Company specifically acknowledges that,
subject to such limitations as are expressly set forth in the Equity Line Transaction Documents,
its obligation to issue shares of Common Stock upon purchases pursuant to this Agreement is
absolute and unconditional regardless of the dilutive effect that such issuance may have on the
ownership interests of other shareholders of the Company.
(V) LOCK-UP. The Company shall cause its officers, insiders, directors, and affiliates or other
related parties under control of the Company, to refrain from selling Common Stock during each
Pricing Period.
(W) NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting
on its behalf, has engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the Common Stock to be offered as
set forth in this Agreement.
(X) NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS. No brokers, finders or financial
advisory fees or commissions will be payable by the Company, its agents or Subsidiaries, with
respect to the transactions contemplated by this Agreement, except as otherwise provided for in
Section 12(M) of this Agreement.
SECTION 5. COVENANTS OF THE COMPANY
(A) BEST EFFORTS. The Company shall use commercially reasonable efforts to
timely satisfy each of the conditions set forth in Section 7 of this Agreement.
(B) BLUE SKY. The Company shall, at its sole cost and expense, on or before
each of the Closing Dates, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for the
18
Securities for, sale to the Investor at each of the Closings pursuant to this Agreement under
applicable securities or Blue Sky laws of such states of the United States, as reasonably
specified by the Investor, and shall provide evidence of any such action so taken to the Investor
on or prior to the Closing Date.
(C) REPORTING STATUS. Until the first of the following occurs, the Company
shall file all reports required to be filed with the SEC pursuant to the 1934 Act,
and the Company shall not terminate its status, or take an action or fail to take
any action, which would terminate its status as a reporting company under the
1934 Act: (i) this Agreement terminates pursuant to Section 9 and the Investor
has the right to sell all of the Securities without restrictions pursuant to Rule
144(k) promulgated under the 1933 Act, or such other exemption; or (ii) the date
on which the Investor has sold all the Securities and this Agreement has been
terminated pursuant to Section 9.
(D) USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Shares (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) for general corporate and working capital purposes and
acquisitions or assets, businesses or operations or for other purposes that the
Board of Directors, in its good faith deem to be in the best interest of the
Company.
(E) FINANCIAL INFORMATION. During the Registration Period, the Company
agrees to make available to the Investor via EDGAR or other electronic means
the following documents and information on the forms set forth: (I) within five (5)
Trading Days after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any Current Reports on
Form 8-K and any Registration Statements or amendments filed pursuant to the
1933 Act; (II) copies of any notices and other information made available or given
to the shareholders of the Company generally, contemporaneously with the
making available or giving thereof to the shareholders; and (III) within two (2)
calendar days of filing or delivery thereof, copies of all documents filed with, and
all correspondence sent to, the Principal Market, any securities exchange or
market, or the National Association of Securities Dealers, Inc., unless such
information is material nonpublic information.
(F) RESERVATION OF SHARES. Subject to the following sentence, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Securities to the Investor as required
hereunder. In the event that the Company determines that it does not have a
sufficient number of authorized shares of Common Stock to reserve and keep
available for issuance as described in this Section 5(F), the Company shall use
commercially reasonable efforts to increase the number of authorized shares of
Common Stock by seeking shareholder approval for the authorization of such
additional shares.
19
(G) LISTING. The Company shall promptly secure and maintain the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) on the Principal Market
and each other national securities exchange and automated quotation system, if any, upon which
shares of Common Stock are then listed or quoted (subject to official notice of issuance) and
shall maintain, such listing of all Registrable Securities from time to time issuable under the
terms of the Equity Line Transaction Documents. Neither the Company nor any of its Subsidiaries
shall take any action which would be reasonably expected to result in the delisting or suspension
of the Common Stock on the Principal Market (excluding suspensions of not more than one (1)
trading day resulting from business announcements by the Company). The Company shall promptly
provide to the Investor copies of any notices it receives from the Principal Market regarding the
continued eligibility of the Common Stock for listing on such automated quotation system or
securities exchange. The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 5(G).
(H) TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of its Subsidiaries
not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend,
modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any
Subsidiarys officers, directors, persons who were officers or directors at any time during the
previous two (2) years, shareholders who beneficially own 5% or more of the Common Stock, or
Affiliates or with any individual related by blood, marriage or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more beneficial interest (each
a Related Party), except for (I) customary employment arrangements and benefit programs on
reasonable terms, (II) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable from a disinterested
third party other than such Related Party, or (III) any agreement, transaction, commitment or
arrangement which is approved by a majority of the disinterested directors of the Company. For
purposes hereof, any director who is also an officer of the Company or any Subsidiary of the
Company shall not be a disinterested director with respect to any such agreement, transaction,
commitment or arrangement. Affiliate for purposes hereof means, with respect to any person or
entity, another person or entity that, directly or indirectly, (I) has a 5% or more equity interest
in that person or entity, (II) has 5% or more common ownership with that person or entity, (III)
controls that person or entity, or (IV) is under common control with that person or entity.
Control or Controls for purposes hereof means that a person or entity has the power, directly
or indirectly, to conduct or govern the policies of another person or entity.
(I) FILING OF FORM 8-K. On or before the date which is four (4) Trading Days after the Execution
Date, the Company shall file a Current Report on Form 8-K with the SEC describing the terms of the
transaction contemplated by the Equity
20
Line Transaction Documents in the form required by the 1934 Act, if such filing is required.
(J) CORPORATE EXISTENCE. The Company shall use commercially reasonable efforts to preserve and
continue the corporate existence of the Company.
(K) NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company
shall promptly notify the Investor upon the occurrence of any of the following events in respect of
a Registration Statement or related prospectus in respect of an offering of the 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 any 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 Securities for sale in any jurisdiction or the initiation or
notice of any proceeding for such purpose; (IV) the happening of any event that makes any statement
made in such Registration Statement or related prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that requires the making of
any changes in the Registration Statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading; and (V) the Companys reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and the Company shall promptly make
available to Investor any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the foregoing events in
this Section 5(K).
(L) REIMBURSEMENT. If (I) the Investor becomes involved in any capacity in any action, proceeding
or investigation brought by any shareholder of the Company, in connection with or as a result of
the consummation of the transactions contemplated by the Equity Line Transaction Documents, or if
the Investor is impleaded in any such action, proceeding or investigation by any person (other
than as a result of a breach of the Investors representations and warranties set forth in this
Agreement); or (II) the Investor becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in connection with or as a
result of the consummation of the transactions contemplated by the Equity Line Transaction
21
Documents (other than as a result of a breach of the Investors representations and warranties
set forth in this Agreement), or if this Investor is impleaded in any such action, proceeding or
investigation by any person, then in any such case, the Company will reimburse the Investor for its
reasonable legal and other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. In addition, other than with
respect to any matter in which the Investor is a named party, the Company will pay to the Investor
the charges, as reasonably determined by the Investor, for the time of any officers or employees of
the Investor devoted to appearing and preparing to appear as witnesses, assisting in preparation
for hearings, trials or pretrial matters, or otherwise with respect to inquiries, hearing, trials,
and other proceedings relating to the subject matter of this Agreement. The reimbursement
obligations of the Company under this section shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of
the Investor that are actually named in such action, proceeding or investigation, and partners,
directors, agents, employees, attorneys, accountants, auditors and controlling persons (if any), as
the case may be, of Investor and any such affiliate, and shall be binding upon and inure to the
benefit of any successors of the Company, the Investor and any such affiliate and any such person.
(M) TRANSFER AGENT. Upon effectiveness of the Registration Statement, and for so long as the
Registration Statement is effective, the Company shall deliver instructions to its transfer agent
to issue Shares to the Investor that are covered for resale by the Registration Statement free of
restrictive legends.
SECTION 6. INTENTIONALLY OMITTED
SECTION 7. CONDITIONS OF THE COMPANYS OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the Securities to the Investor is
further subject to the satisfaction, at or before each Closing Date, of each of the following
conditions set forth below. These conditions are for the Companys sole benefit and may be waived
by the Company at any time in its sole discretion.
(A) The Investor shall have executed this Agreement and the Registration Rights
Agreement and delivered the same to the Company.
(B) The Investor shall have delivered to the Company the Purchase Price for the
Securities being purchased by the Investor between the end of the Pricing Period
and the Closing Date via a Put Settlement Sheet (hereto attached as Exhibit D).
After receipt of confirmation of delivery of such Securities to the Investor, the
Investor, by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company will disburse the funds constituting the
Purchase Amount.
22
(C) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions contemplated by this
Agreement.
SECTION 8. FURTHER CONDITIONS OF THE INVESTORS OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject to the satisfaction, on or
before each Closing Date, of each of the following conditions set forth below.
(A) The Company shall have executed the Equity Line Transaction Documents
and delivered the same to the Investor.
(B) The Common Stock shall be authorized for quotation on the Principal Market
and trading in the Common Stock shall not have been suspended by the
Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of not
more than one (1) Trading Day resulting from business announcements by the
Company, provided that such suspensions occur prior to the Companys delivery
of the Put Notice related to such Closing).
(C) The representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the applicable
Closing Date as though made at that time (except for (I) representations and
warranties that speak as of a specific date and (II) with respect to the
representations made in Sections 4(g), (h) and (j) and the third sentence of
Section 4(k) hereof, events which occur on or after the date of this Agreement
and are disclosed in SEC filings made by the Company at least ten (10) Trading
Days prior to the applicable Put Notice Date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Equity Line Transaction Documents to be performed,
satisfied or complied with by the Company on or before such Closing Date,
except where the failure to do so would not constitute a Material Adverse Effect.
The Investor may request an update as of such Closing Date regarding the
representation contained in Section 4(C) above.
(D) The Company shall have executed and delivered to the Investor the
certificates representing, or have executed electronic book-entry transfer of, the
Securities (in such denominations as the Investor shall request) being purchased
by the Investor at such Closing.
(E) The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(B)(II) above (the Resolutions) and such Resolutions
shall not have been amended or rescinded prior to such Closing Date.
23
(F) Reserved
(G) No statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(H) The Registration Statement shall be effective on each Closing Date and no stop order
suspending the effectiveness of the Registration statement shall be in effect or to the Companys
knowledge shall be pending or threatened. Furthermore, on each Closing Date (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 such Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or
intends or has threatened to do so (unless the SECs concerns have been addressed and 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 such Registration
Statement or related prospectus shall exist.
(I) At the time of each Closing, the Registration Statement (including information or documents
incorporated by reference therein) and any amendments or supplements thereto shall 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 or which would require public
disclosure or an update supplement to the prospectus.
(J) If applicable, the shareholders of the Company shall have approved the issuance of any Shares
in excess of the Maximum Common Stock Issuance in accordance with Section 2(H) or the Company
shall have obtained appropriate approval pursuant to the requirements of Nevada law and the
Companys Articles of Incorporation and By-laws.
(K) The conditions to such Closing set forth in Section 2(E) shall have been satisfied on or
before such Closing Date.
(L) The Company shall have certified to the Investor the number of Shares of Common Stock
outstanding when a Put Notice is given to the Investor. The Companys delivery of a Put Notice to
the Investor constitutes the Companys certification of the existence of the necessary number of
shares of Common Stock reserved for issuance of such Shares.
SECTION 9. TERMINATION. This Agreement shall terminate upon any of the following events:
24
(I) when the Investor has purchased an aggregate of Ten Million dollars
($10,000,000) in the Common Stock of the Company pursuant to this Agreement;
or,
(II) on the date which is thirty-six (36) months after the Effective Date.
SECTION 10. SUSPENSION
This Agreement shall be suspended upon any of the following events, and shall remain suspended
until such event is rectified:
(I) the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of two (2) consecutive Trading Days
during the Open Period; or,
(II) The Common Stock ceases to be registered under the 1934 Act or
listed, quoted or traded on the Principal Market. Immediately upon the
occurrence of one of the above-described events, the Company shall send
written notice of such event to the Investor.
SECTION 11. INDEMNIFICATION.
In consideration of the parties mutual obligations set forth in the Transaction Documents,
each of the parties (in such capacity, an Indemnitor) shall defend, protect, indemnify and hold
harmless the other and all of the other partys shareholders, officers, directors, employees,
counsel, and direct or indirect investors and any of the foregoing persons agents or other
representatives (including, without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the Indemnitees) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and reasonable expenses in connection therewith (irrespective of whether any such Indemnitee is a
party to the action for which indemnification hereunder is sought), and including reasonable
attorneys fees and disbursements (the Indemnified Liabilities), incurred by any Indemnitee as a
result of, or arising out of, or relating to (I) any misrepresentation or breach of any
representation or warranty made by the Indemnitor or any other certificate, instrument or document
contemplated hereby or thereby; (II) any breach of any covenant, agreement or obligation of the
Indemnitor contained in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby; or (III) any cause of action, suit or claim brought or made against
such Indemnitee by a third party and arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, except insofar as any such misrepresentation, breach or
any untrue statement, alleged untrue statement, omission or alleged omission is made in reliance
upon and in conformity with information furnished to Indemnitor which is specifically intended for
use in the preparation of any such Registration
25
Statement, preliminary prospectus, prospectus or amendments to the prospectus. To the extent that
the foregoing undertaking by the Indemnitor may be unenforceable for any reason, the Indemnitor
shall make the maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The indemnity provisions contained herein
shall be in addition to any cause of action or similar rights Indemnitor may have, and any
liabilities to which the Indemnitor or the Indemnitees may be subject.
SECTION 12. GOVERNING LAW; DISPUTES SUBMITTED TO ARBITRATION.
(A) ARBITRATION. All disputes arising under this agreement shall be governed
by and interpreted in accordance with the laws of the Commonwealth of
Massachusetts, without regard to principles of conflict of laws. The parties to this
agreement will submit all disputes arising under this agreement to arbitration in
Boston, Massachusetts before a single arbitrator of the American Arbitration
Association (AAA). The arbitrator shall be selected by application of the rules
of the AAA, or by mutual agreement of the parties, except that such arbitrator
shall be an attorney admitted to practice law in the Commonwealth of
Massachusetts. No party to this agreement will challenge the jurisdiction or
venue provisions as provided in this section. No party to this agreement will
challenge the jurisdiction or venue provisions as provided in this section. Nothing
contained herein shall prevent the party from obtaining an injunction.
(B) LEGAL FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth
in the Transaction Documents, each party shall pay the fees and expenses of its
advisers, counsel, the accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. Any attorneys fees and
expenses incurred by either the Company or the Investor in connection with the
preparation, negotiation, execution and delivery of any amendments to this
Agreement or relating to the enforcement of the rights of any party, after the
occurrence of any breach of the terms of this Agreement by another party or any
default by another party in respect of the transactions contemplated hereunder,
shall be paid on demand by the party which is determined, pursuant to Section
12(A), to have breached the Agreement and/or defaulted, as the case may be.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of any Securities.
(C) COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original
signature.
26
(D) HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the interpretation of,
this Agreement. Whenever required by the context of this Agreement, the
singular shall include the plural and masculine shall include the feminine.
(E) SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this Agreement in
any other jurisdiction.
(F) ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the FINAL
AGREEMENT between the Company and the Investor with respect to the terms
and conditions set forth herein, and, the terms of this Agreement may not be
contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the Parties. No provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and the Investor,
and no provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought. The execution and
delivery of the Equity Line Transaction Documents shall not alter the force and
effect of any other agreements between the Parties, and the obligations under
those agreements.
(G) NOTICES. Any notices or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (I) upon receipt, when delivered personally; (II) upon receipt,
when sent by facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (III) one (1) day
after deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Save the World Air, Inc.
5125 Lankershim Blvd. North Hollywood, CA 91601
Telephone: (818) 487-8000
Facsimile: (818) 487-8003
27
with a copy to:
Lance Jon Kimmel, Esq.
SEC Law Firm
11693 San Vicente Boulevard
Suite 357
Los Angeles, CA 90049
Telephone: (310)557-3059
Facsimile: (310)388-1320
If to the Investor:
Dutchess Private Equities Fund, LP,
50 Commonwealth Avenue, Suite 2
Boston, MA 02116
Telephone: (617) 301-4700
Facsimile: (617) 249-0947
Each party shall provide five (5) days prior written notice to the other party of any change in
address or facsimile number.
(H) NO ASSIGNMENT. This Agreement may not be assigned.
(I) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto
and is not for the benefit of, nor may any provision hereof be enforced by, any other person,
except that the Company acknowledges that the rights of the Investor may be enforced by its
general partner.
(J) SURVIVAL. The representations and warranties of the Company and the Investor contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4 and 5, the indemnification
provisions set forth in Section 11 and the nondisclosure provisions set forth in Section 13, shall
survive each of the Closings and the termination of this Agreement.
(K) PUBLICITY. The Company and the Investor shall consult with each other in issuing any press
releases or otherwise making public statements with respect to the transactions contemplated hereby
and no party shall issue any such press release or otherwise make any such public statement without
the prior consent of the other party, which consent shall not be unreasonably withheld or delayed,
except that no prior consent shall be required if such disclosure is required by law, in which such
case the disclosing party shall provide the other party with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Investor
without the prior consent of the Investor, except to the extent required by law. The Investor
acknowledges that this Agreement and all or part of the Transaction Documents may be deemed to be
material contracts as that term is defined by Item
28
601(b)(10) of Regulation S-B, and that the Company may therefore be required to file such
documents as exhibits to reports or registration statements filed under the 1933 Act or the 1934
Act. The Investor further agrees that the status of such documents and materials as material
contracts shall be determined solely by the Company, in consultation with its counsel.
(L) FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(M) PLACEMENT AGENT. The Company agrees to pay Spencer Clarke LLC, a registered broker dealer eight
percent (8%) of the Put Amount on each draw toward the fee. The Investor shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf of other persons or
entities for fees of a type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents. The Company shall indemnify and hold
harmless the Investor, their employees, officers, directors, agents, and partners, and their
respective affiliates, from and against all claims, losses, damages, costs (including the costs of
preparation and attorneys fees) and expenses incurred in respect of any such claimed or existing
fees, as such fees and expenses are incurred.
(N) NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict construction will be
applied against any party, as the parties mutually agree that each has had a full and fair
opportunity to review this Agreement and seek the advice of counsel on it.
(O) REMEDIES. The Investor shall have all rights and remedies set forth in this Agreement and the
Registration Rights Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which the Investor has by law.
Any person having any rights under any provision of this Agreement shall be entitled to enforce
such rights specifically (without posting a bond or other security), to recover damages by reason
of any default or breach of any provision of this Agreement, including the recovery of reasonable
attorneys fees and costs, and to exercise all other rights granted by law.
(P) PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Investor
hereunder or under the Registration Rights Agreement or the Investor enforces or exercises its
rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
29
refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other
person under any law (including, without limitation, any bankruptcy law, state or federal law,
common law or equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement or setoff had not
occurred.
(Q) PRICING OF COMMON STOCK. For purposes of this Agreement, the bid price of the Common Stock
shall be as reported on Bloomberg.
SECTION 13. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose non-public information to the Investor, its
advisors, or its representatives.
(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 13 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.
* * *
30
SIGNATURE PAGE OF INVESTMENT AGREEMENT
Your signature on this Signature Page evidences your agreement to be bound by the terms and
conditions of the Investment Agreement and the Registration Rights Agreement as of the date first
written above.
The undersigned signatory hereby certifies that he has read and understands the Investment
Agreement, and the representations made by the undersigned in this Investment Agreement are true
and accurate, and agrees to be bound by its terms.
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DUTCHESS PRIVATE EQUITIES FUND, L.P.
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BY ITS GENERAL PARTNER,
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DUTCHESS CAPITAL MANAGEMENT, LLC
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By:
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Douglas H. Leighton, Managing Member
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SAVE THE WORLD AIR, INC.
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By
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,
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Eugene E. Eichler, Chief Executive Officer
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LIST OF EXHIBITS
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EXHIBIT A
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Registration Rights Agreement
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EXHIBIT B
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Opinion of Companys Counsel
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EXHIBIT C
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Put Notice
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EXHIBIT D
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Put Settlement Sheet
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EXHIBIT A
Registration Rights Agreement
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EXHIBIT B
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Date:
[TRANSFER AGENT]
Re:
Save the World Air, Inc.
Ladies and Gentlemen:
We are counsel to
Save the World Air, Inc.,
a Nevada corporation (the Company), and
have represented the Company in connection with that certain Investment Agreement (the Investment
Agreement) entered into by and among the Company and Duchess Private Equities Fund, LP (the
Holder), pursuant to which the Company has agreed to issue to the Holder shares of the Companys
common stock, $.001 par value per share (the Common Stock) on the terms and conditions set forth
in the Investment Agreement. Pursuant to the Investment Agreement, the Company also has entered
into a Registration Rights Agreement with the Holder (the Registration Rights Agreement)
pursuant to which the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement), including the shares of Common Stock issued or
issuable under the Investment Agreement under the Securities Act of 1933, as amended (the 1933
Act). In connection with the Companys
obligations under the Registration Rights Agreement,
on
, 2006, the
Company filed a Registration Statement on Form SB-2 (File
No. 333-
) (the
Registration Statement) with the Securities and Exchange Commission (the SEC) relating to the
Registrable Securities which names the Holder as a selling shareholder thereunder.
In
connection with the foregoing, we advise you that
[a member of the SECs staff has advised
us by telephone that the SEC has entered an order declaring the Registration Statement effective]
[
the Registration Statement has become effective
] under the
1933 Act at
[enter the time of
effectiveness]
on
[enter the date of effectiveness]
and to the best of our knowledge,
after telephonic inquiry of a member of the SECs staff, no stop order suspending its effectiveness
has been issued and no proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
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Very truly yours,
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[Company Counsel]
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34
EXHIBIT C
Date:
RE: Put
Notice Number
Dear Mr. Leighton,
This is to inform you that as of today, Save the World Air, Inc., a Nevada corporation (the
Company), hereby elects to exercise its right pursuant to the Investment Agreement to require
Dutchess Private Equities Fund, LP to purchase shares of its common stock. The Company hereby
certifies that:
The amount of this put is $
.
The Pricing Period runs from
until
.
The current number of shares issued and outstanding as of the Company are:
The number of shares currently available for issuance on the SB-2 for the Equity Line are:
Regards,
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Eugene E. Eichler, Chief Executive Officer
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Save the World Air, Inc.
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EXHIBIT D
PUT SETTLEMENT SHEET
Date:
Dear Mr. Eichler,
Pursuant to the Put given by Save the World Air, Inc. to Dutchess Private
Equities Fund, L.P. on
200
_, we are now submitting the
amount of common shares for you to issue to Dutchess.
Please have a certificate bearing no restrictive legend totaling
shares issued to Dutchess Private Equities Fund, LP immediately and send via DWAC to the following
account:
xxxxxx
If not
DWAC eligible, please send FedEx Priority Overnight to:
XXXXXX
Once these shares are received by us, we will have the funds wired to the Company.
Regards,
Douglas H. Leighton, Managing Member
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER,
DUTCHESS CAPITAL MANAGEMENT, LLC
36
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DATE
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PRICE
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Date of Day 1
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Closing Bid of Day 1
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Date of Day 2
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Closing Bid of Day 2
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Date of Day 3
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Closing Bid of Day 3
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Date of Day 4
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Closing Bid of Day 4
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Date of Day 5
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Closing Bid of Day 5
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LOWEST 1 (ONE) CLOSING BID IN PRICING PERIOD
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PUT AMOUNT
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AMOUNT WIRED TO COMPANY
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PURCHASE PRICE (97)% (NINETY-SEVEN PERCENT))
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AMOUNT OF SHARES DUE
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The undersigned has completed this Put as of this
day of
,
200
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SAVE THE WORLD AIR, INC.
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Eugene E. Eichler, Chief Executive Officer
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SCHEDULE 4(e) CONFLICTS
None
38
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
Registration
Rights Agreement (the
Agreement
), dated as of September 15, 2006, by
and between Save the World Air, Inc., a corporation organized under the laws of the state of
Nevada, with its principal executive office at 5125 Lankershim Blvd., North Hollywood, CA 91601
(the Company), and Dutchess Private Equities Fund, L.P., a Delaware limited partnership with its
principal office at 50 Commonwealth Avenue, Suite 2, Boston, MA 02116 (the Holder).
Whereas,
in connection with the Investment Agreement by and between the Company and the
Investor of this date (the
Investment Agreement
), the Company has agreed to issue and
sell to the Investor an indeterminate number of shares of the Companys Common Stock, $.001 par
value per share (the
Common Stock
), to be purchased pursuant to the terms and subject to the
conditions set forth in the Investment Agreement; and
Whereas,
to induce the Investor to execute and deliver the Investment Agreement, the Company
has agreed to provide certain registration rights under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar successor statute (collectively, the
1933 Act
), and applicable state securities laws, with respect to the shares of Common Stock
issuable pursuant to the Investment Agreement.
Now therefore, in consideration of the foregoing promises and the mutual covenants contained
hereinafter and other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Investor hereby agree as follows:
Section 1.
DEFINITIONS
.
As used in this Agreement, the following terms shall have the following meanings:
Execution Date
means the date of this Agreement set forth above.
Investor
means Dutchess Private Equities Fund, L.P., a Delaware limited partnership.
Person
means a corporation, a limited liability company, an association, a partnership, an
organization, a business, an individual, a governmental or political subdivision thereof or a
governmental agency.
Potential Material Event
means any of the following:
(i)
the possession by the
Company of material information not ripe for disclosure in the Registration Statement, which shall
be evidenced by determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the Registration Statement would be
1
detrimental to the business and affairs of the Company, or
(ii)
any material engagement or activity
by the Company which would, in the good faith determination of the Board of Directors of the
Company, be adversely affected by disclosure in the Registration Statement at such time, which
determination shall be accompanied by a good faith determination by the Board of Directors of the
Company that the Registration Statement would be materially misleading absent the inclusion of such
information.
Principal Market
shall mean The American Stock Exchange, National Association of
Securities Dealers, Inc., Over-the-Counter electronic bulletin board, the Nasdaq National Market
or The Nasdaq SmallCap Market whichever is the principal market on which the Common Stock of the
Company is listed or quoted.
Register
.
Registered
. and
Registration
refer to the Registration effected by
preparing and filing one (1) or more Registration Statements in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on
a continuous basis (
Rule 415
), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange Commission (the SEC).
Registrable Securities
means
(i)
the shares of Common Stock issued or issuable
pursuant to the Investment Agreement, and
(ii)
any shares of capital stock issued or issuable with
respect to such shares of Common Stock, if any, as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, which have not been
(x)
included in the
Registration Statement that has been declared effective by the SEC, or
(y)
sold under circumstances
meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under
the 1933 Act.
Registration Statement
means the registration statement of the Company filed under
the 1933 Act covering the Registrable Securities.
All capitalized terms used in this Agreement and not otherwise defined herein shall have the
same meaning ascribed to them as in the Investment Agreement.
Section 2.
REGISTRATION
.
(a)
The Company shall, within thirty (30) days of the date of this Agreement, file with the
SEC the Registration Statement or Registration Statements (as is necessary) on Form SB-2 (or, if
such form is unavailable for such a registration, on such other form as is available for such
registration), covering the resale of all of the Registrable Securities, which Registration
Statement(s) shall state that, in accordance with Rule 416 promulgated under the 1933 Act, such
Registration Statement also covers such indeterminate number of additional shares of Common Stock
as may become issuable upon stock splits, stock dividends or similar transactions. The Company
shall initially register for resale 7,000,000 shares of Common Stock which would be issuable on the
date preceding the filing of the Registration Statement based on the closing bid price of the
Companys Common Stock on such date and the amount reasonably calculated that
2
represents Common Stock issuable to other parties as set forth in the Investment Agreement except
to the extent that the SEC requires the share amount to be reduced as a condition of
effectiveness.
(b)
The Company shall use commercially reasonable efforts to have the
Registration Statement(s) declared effective by the SEC within ninety (90) calendar
days after the Execution Date.
(c)
The Company agrees not to include any other securities in the Registration
Statement covering the Registrable Securities without Investors prior written consent
which Investor may withhold in its sole discretion; provided, however, that Investor
consents to the inclusion in the Registration Statement of up to 50,000 shares of the
Companys Common Stock to be registered on behalf of the bankruptcy trustee in
Australia pursuant to a settlement agreement entered into between the Company and
said trustee in connection with royalty payments to be made in connection with the sale
of the Companys ZEFS products. Furthermore, the Company agrees that it will not file
any other Registration Statement for other securities until thirty (30) calendar days after
the Registration Statement for the Registrable Securities is declared effective by the
SEC.
Sections 3.
RELATED OBLIGATIONS
.
At such time as the Company is obligated to prepare and file the Registration Statement with
the SEC pursuant to Section 2(a), the Company will effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and, with respect thereto,
the Company shall have the following obligations:
(a)
The Company shall use commercially reasonable efforts to cause such Registration Statement
relating to the Registrable Securities to become effective within ninety (90) days after the
Execution Date and shall keep such Registration Statement effective until the earlier to occur of
the date on which
(A)
the Investor shall have sold all the Registrable Securities; or
(B)
the
Investor has no right to acquire any additional shares of Common Stock under the Investment
Agreement (the
Registration Period
). The Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or necessary to make
the statements therein, in light of the circumstances in which they were made, not misleading. The
Company shall use all commercially reasonable efforts to respond to all SEC comments within seven
(7) business days from receipt of such comments by the Company. The Company shall use all
commercially reasonable efforts to cause the Registration Statement relating to the Registrable
Securities to become effective no later than five (5) business days after notice from the SEC that
the Registration Statement may be declared effective. The Investor agrees to provide all
information which it is required by law to provide to the Company, including the intended method of
disposition of the Registrable Securities, and the Companys obligations set forth above
3
shall be conditioned on the receipt of such information.
(b)
The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration Statement
and the prospectus used in connection with such Registration Statement, which
prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may
be necessary to keep such Registration Statement effective during the Registration
Period, and, during such period, comply with the provisions of the 1933 Act with respect
to the disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities shall have
been disposed of in accordance with the intended methods of disposition by the
Investor thereof as set forth in such Registration Statement. In the event the number of
shares of Common Stock covered by the Registration Statement filed pursuant to this
Agreement is at any time insufficient to cover all of the Registrable Securities, the
Company shall amend such Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as to cover all
of the Registrable Securities, in each case, as soon as practicable, but in any event
within thirty (30) calendar days after the necessity therefor arises (based on the then
Purchase Price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely), assuming the Company has sufficient authorized shares at
that time, and if it does not, within thirty (30) calendar days after such shares are
authorized. The Company shall use commercially reasonable efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof.
(c)
The Company shall make available to the Investor whose Registrable
Securities are included in any Registration Statement and its legal counsel without
charge
(i)
promptly after the same is prepared and filed with the SEC at least one (1)
copy of such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and all
exhibits, the prospectus included in such Registration Statement (including each
preliminary prospectus) and, with regards to such Registration Statement(s), any
correspondence by or on behalf of the Company to the SEC or the staff of the SEC and
any correspondence from the SEC or the staff of the SEC to the Company or its
representatives;
(ii)
upon the effectiveness of any Registration Statement, the Company
shall make available copies of the prospectus, via EDGAR, included in such
Registration Statement and all amendments and supplements thereto; and
(iii)
such
other documents, including copies of any preliminary or final prospectus, as the Investor
may reasonably request from time to time in order to facilitate the disposition of the
Registrable Securities.
(d)
The Company shall use commercially reasonable efforts to
(i)
register and
qualify the Registrable Securities covered by the Registration Statement under such
other securities or blue sky laws of such states in the United States as the Investor
reasonably requests;
(ii)
prepare and file in those jurisdictions, such amendments
(including post-effective amendments) and supplements to such registrations and
4
qualifications as may be necessary to maintain the effectiveness thereof during the
Registration Period;
(iii)
take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration Period, and
(iv)
take all other actions reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions;
provided, however,
that the Company shall not be required in connection
therewith or as a condition thereto to
(x)
qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d), or
(y)
subject itself to
general taxation in any such jurisdiction. The Company shall promptly notify the Investor who holds
Registrable Securities of the receipt by the Company of any notification with respect to the
suspension of the registration or qualification of any of the Registrable Securities for sale under
the securities or blue sky laws of any jurisdiction in the United States or its receipt of actual
notice of the initiation or threatening of any proceeding for such purpose.
(e)
As promptly as practicable after becoming aware of such event, the Company shall notify
Investor in writing of the happening of any event as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not misleading (
Registration
Default
) and use all diligent efforts to promptly prepare a supplement or amendment to such
Registration Statement and take any other necessary steps to cure the Registration Default (which,
if such Registration Statement is on Form S-3, may consist of a document to be filed by the Company
with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act (as defined below) and
to be incorporated by reference in the prospectus) to correct such untrue statement or omission,
and make available copies of such supplement or amendment to the Investor. The Company shall also
promptly notify the Investor
(i)
when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and when the Registration Statement or any post-effective amendment has
become effective (the Company will prepare notification of such effectiveness which shall be
delivered to the Investor on the same day of such effectiveness and by overnight mail),
additionally, the Company will promptly provide to the Investor, a copy of the effectiveness order
prepared by the SEC once it is received by the Company;
(ii)
of any request by the SEC for
amendments or supplements to the Registration Statement or related prospectus or related
information,
(iii)
of the Companys reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate,
(iv)
in the event the Registration Statement is no
longer effective, or
(v)
if the Registration Statement is stale as a result of the Companys
failure to timely file its financials or otherwise. The Company acknowledges that its failure to
cure the Registration Default within ten (10) business days will cause the Investor to suffer
damages in an amount that will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include a provision for liquidated damages. The parties acknowledge and agree that
the liquidated damages provision set forth in this section represents the parties good faith
effort to quantify such damages and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. It is the intention of the parties that
interest payable under
5
any of the terms of this Agreement shall not exceed the maximum amount permitted under any
applicable law. If a law, which applies to this Agreement, which sets the maximum interest amount,
is finally interpreted so that the interest in connection with this Agreement exceeds the
permitted limits, then:
(1)
any such interest shall be reduced by the amount necessary to reduce
the interest to the permitted limit; and
(2)
any sums already collected (if any) from the Company
which exceed the permitted limits will be refunded to the Company. The Investor may choose to make
this refund by reducing the amount that the Company owes under this Agreement or by making a
direct payment to the Company. If a refund reduces the amount that the Company owes the Investor,
the reduction will be treated as a partial payment.
(f)
The Company shall use commercially reasonable efforts to prevent the
issuance of any stop order or other suspension of effectiveness of the Registration
Statement, or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to obtain the
withdrawal of such order or suspension at the earliest possible moment and to notify the
Investor holding Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat of any
proceeding concerning the effectiveness of the registration statement.
(g)
The Company shall permit the Investor and one (1) legal counsel, designated
by the Investor, to review and comment upon the Registration Statement and all
amendments and supplements thereto at least one (1) calendar day prior to their filing
with the SEC. However, any postponement of a filing of a Registration Statement or
any postponement of a request for acceleration or any postponement of the effective
date or effectiveness of a Registration Statement by written request of the Investor
(collectively, the Investors Delay) shall not act to trigger any penalty of any kind, or
any cash amount due or any in-kind amount due the Investor from the Company under
any and all agreements of any nature or kind between the Company and the Investor.
The event(s) of an Investors Delay shall act to suspend all obligations of any kind or
nature of the Company under any and all agreements of any nature or kind between the
Company and the Investor.
(h)
At the request of the Investor, the Companys counsel shall furnish to the Investor an
opinion letter confirming the effectiveness of the registration statement. Such opinion letter
shall be issued as of the date of the effectiveness of the registration statement and be in the
form attached as Exhibit B to the Investment Agreement.
(i)
The Company shall hold in confidence and not make any disclosure of information concerning
the Investor unless
(i)
disclosure of such information is necessary to comply with federal or state
securities laws,
(ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement,
(iii)
the release of such information is
ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental
body of competent jurisdiction, or
(iv)
such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
6
agreement. The Company agrees that it shall, upon learning that disclosure of such
information concerning the Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to the Investor and allow the
Investor, at the Investors expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order covering such information.
(j)
The Company shall use commercially reasonable efforts to maintain designation and
quotation of all the Registrable Securities covered by any Registration Statement on the Principal
Market. If, despite the Companys commercially reasonable efforts, the Company is unsuccessful in
satisfying the preceding sentence, it shall use commercially reasonable efforts to cause all the
Registrable Securities covered by any Registration Statement to be listed on each other national
securities exchange and automated quotation system, if any, on which securities of the same class
or series issued by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or system. The Company shall pay all
fees and expenses in connection with satisfying its obligation under
this Section 3(j).
(k)
The Company shall cooperate with the Investor to facilitate the prompt preparation and
delivery of certificates representing the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such denominations or amounts, as the
case may be, as the Investor may reasonably request (and after any sales of such Registrable
Securities by the Investor, such certificates not bearing any restrictive legend).
(l)
The Company shall provide a transfer agent for all the Registrable Securities not later
than the effective date of the first Registration Statement filed pursuant hereto.
(m)
If requested by the Investor, the Company shall
(i)
as soon as reasonably practical
incorporate in a prospectus supplement or post-effective amendment such information as the
Investor reasonably determines should be included therein relating to the sale and distribution of
Registrable Securities, including, without limitation, information with respect to the offering of
the Registrable Securities to be sold in such offering;
(ii)
make all required filings of such
prospectus supplement or post-effective amendment as soon as reasonably possible after being
notified of the matters to be incorporated in such prospectus supplement or post-effective
amendment; and
(iii)
supplement or make amendments to any Registration Statement if reasonably
requested by the Investor.
(n)
The Company shall use commercially reasonable efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to facilitate the disposition of such
Registrable Securities.
(o)
The Company shall otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC in connection with any
7
registration hereunder.
(p)
Within one (1) business day after the Registration Statement which includes Registrable
Securities is declared effective by the SEC, the Company shall deliver to the transfer agent for
such Registrable Securities, with copies to the Investor, confirmation that such Registration
Statement has been declared effective by the SEC.
(q)
The Company shall take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of Registrable Securities pursuant to the Registration Statement.
Section 4.
OBLIGATIONS OF THE INVESTOR
.
(a)
At least five (5) calendar days prior to the first anticipated filing date of the
Registration Statement the Company shall notify the Investor in writing of the
information the Company requires from the Investor for the Registration Statement. It
shall be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable Securities and
the Investor agrees to furnish to the Company that information regarding itself, the
Registrable Securities and the intended method of disposition of the Registrable
Securities as shall reasonably be required to effect the registration of such Registrable
Securities and the Investor shall execute such documents in connection with such
registration as the Company may reasonably request. The Investor covenants and
agrees that, in connection with any sale of Registrable Securities by it pursuant to the
Registration Statement, it shall comply with the Plan of Distribution section of the then
current prospectus relating to such Registration Statement.
(b)
The Investor, by its acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of any Registration Statement hereunder, unless the
Investor has notified the Company in writing of an election to exclude all of the
Investors Registrable Securities from such Registration Statement.
(c)
The Investor agrees that, upon receipt of written notice from the Company of
the happening of any event of the kind described in Section 3(f) or the first sentence of
3(e), the Investor will immediately discontinue disposition of Registrable Securities
pursuant to any Registration Statement(s) covering such Registrable Securities until the
Investors receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) or the first sentence of 3(e).
8
Section 5.
EXPENSES OF REGISTRATION
.
All expenses, other than underwriting discounts and commissions and other than as set forth
in the Investment Agreement, incurred in connection with registrations including comments, filings
or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration,
listing and qualifications fees, printing and accounting fees, and fees and disbursements of
counsel for the Company or for the Investor shall be paid by the Company.
Section 6.
INDEMNIFICATION
.
In the event any Registrable Securities are included in the Registration Statement under this
Agreement:
(a)
To the fullest extent permitted by law, the Company, under this Agreement, will, and
hereby does, indemnify, hold harmless and defend the Investor who holds Registrable Securities, the
directors, officers, partners, employees, counsel, agents, representatives of, and each Person, if
any, who controls, any Investor within the meaning of the 1933 Act or the Securities Exchange Act
of 1934, as amended (the
1934 Act
) (each, an
Indemnified Person
), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, attorneys fees, amounts paid in
settlement or expenses, joint or several (collectively,
Claims
), incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken
from the foregoing by or before any court or governmental, administrative or other regulatory
agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (
Indemnified Damages
), to which any of them may become subject insofar as
such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon:
(i)
any untrue statement or alleged untrue statement of a material fact
in the Registration Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other blue sky laws of
any jurisdiction in which the Investor has requested in writing that the Company register or
qualify the Shares (
Blue Sky Filing
), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which the statements therein were made, not misleading,
(ii)
any untrue
statement or alleged untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or supplement thereto with the
SEC) or the omission or alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the statements therein were
made, not misleading, or
(iii)
any violation or alleged violation by the Company of the 1933 Act,
the 1934 Act, any other law, including, without limitation, any state securities law, or any rule
or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to
the Registration Statement (the matters in the foregoing clauses (i) through (iii) being,
collectively,
Violations
). Subject to the
9
restrictions set forth in Section 6(c) the Company shall reimburse the Investor and each
such controlling person, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a):
(i)
shall not apply to a
Claim arising out of or based upon a Violation which is due to the inclusion in the Registration
Statement of the information furnished to the Company by any Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such amendment thereof or
supplement thereto;
(ii)
shall not be available to the extent
such Claim is based on
(a)
a failure
of the Investor to deliver or to cause to be delivered the prospectus made available by the Company
or
(b)
the Indemnified Persons use of an incorrect prospectus despite being promptly advised in
advance by the Company in writing not to use such incorrect prospectus;
(iii)
any claims based on
the manner of sale of the Registrable Securities by the Investor or of the Investors failure to
register as a dealer under applicable securities laws;
(iv)
any omission of the Investor to notify
the Company of any material fact that should be stated in the Registration Statement or prospectus
relating to the Investor or the manner of sale; and
(v)
any amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company, which consent
shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall survive the resale of
the Registrable Securities by the Investor pursuant to the Registration Statement.
(b)
In connection with any Registration Statement in which Investor is participating, the
Investor agrees to severally and jointly indemnify, hold harmless and defend, to the same extent
and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act and the Companys agents (collectively
and together with an Indemnified Person, an
Indemnified
Party
), against any Claim or Indemnified
Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each
case to the extent, and only to the extent, that such Violation is due to the inclusion in the
Registration Statement of the written information furnished to the Company by the Investor
expressly for use in connection with such Registration Statement; and, subject to Section 6(c),
the Investor will reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim;
provided, however,
that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution contained in Section
7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall only be liable under this Section
6(b) for that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full
10
force and effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the resale of the Registrable Securities by the Investor pursuant to the
Registration Statement. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus were corrected on a timely basis
in the prospectus, as then amended or supplemented. This indemnification provision shall apply
separately to each Investor and liability hereunder shall not be joint and several.
(c)
Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the defense thereof with
counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the
Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the Indemnified Person or
Indemnified Party, the representation by counsel of the Indemnified Person or Indemnified Party and
the indemnifying party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one (1) separate legal
counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such counsel
shall be selected by the Investor, if the Investor are entitled to indemnification hereunder, or
the Company, if the Company is entitled to indemnification hereunder, as applicable. The
Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or Claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably available to the Indemnified
Party or Indemnified Person which relates to such action or Claim. The indemnifying party shall
keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of
the defense or any settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without its written consent,
provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition
its consent. No indemnifying party shall, without the consent of the Indemnified Party or
Indemnified Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim. Following indemnification as provided for hereunder, the indemnifying party
shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect
11
to all third parties, firms or corporations relating to the matter for which indemnification has
been made. The failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such action.
(d)
The
indemnity agreements contained herein shall be in addition to
(i)
any cause of action
or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or
others, and
(ii)
any liabilities the indemnifying party may be subject to pursuant to the law.
Section 7.
CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or limited by law,
the indemnifying party agrees to make the maximum contribution with respect to any amounts for
which it would otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however,
that:
(i)
no contribution shall be made under circumstances where the maker
would not have been liable for indemnification under the fault standards set forth in Section 6;
(ii)
no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of fraudulent misrepresentation; and
(iii)
contribution by any seller
of Registrable Securities shall be limited in amount to the net amount of proceeds received by such
seller from the sale of such Registrable Securities.
Section 8.
REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investor the benefits of Rule 144 promulgated under
the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the
Investor to sell securities of the Company to the public without
registration (
Rule 144
).
provided that the Investor holds any Registrable Securities are eligible for resale under Rule 144
(k), the Company agrees to:
(a)
make and keep public information available, as those terms are
understood and defined in Rule 144;
(b)
file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the Company
remains subject to such requirements (it being understood that nothing herein shall limit
the Companys obligations under Section 5(c) of the Investment Agreement) and the
filing of such reports and other documents is required for the applicable provisions of
Rule 144; and
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(c)
furnish
to the Investor, promptly upon request,
(i)
a written statement by the Company
that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act,
(ii)
a copy of the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and
(iii)
such other information as may be reasonably
requested to permit the Investor to sell such securities pursuant to Rule 144 without
registration.
Section 9.
NO ASSIGNMENT OF REGISTRATION RIGHTS.
The rights and obligations under this Agreement shall not be assignable.
Section 10.
AMENDMENT OF REGISTRATION RIGHTS.
The provisions of this Agreement may be amended only with the written consent of the Company
and Investor.
Section 11.
MISCELLANEOUS.
(a)
Any notices or other communications required or permitted to be given under the terms of
this Agreement that must be in writing will be deemed to have been
delivered
(i)
upon receipt, when
delivered personally;
(ii)
upon receipt, when sent by facsimile (provided a confirmation of
transmission is mechanically or electronically generated and kept on file by the sending party); or
(iii)
one (1) day after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and facsimile numbers for
such communications shall be:
If to the Company:
Save the World Air, Inc.
5125
Lankershim Blvd.
North
Hollywood, CA 91601
Telephone:
(818) 487-8000
Facsimile: (818)
487-8003
with a copy to:
Lance Jon Kimmel, Esq.
SEC Law Firm
11693 San Vicente Boulevard, Suite 357
Los Angeles, CA 90049
Telephone: (310) 557-3059
Facsimile: (310) 388-1320
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If to the Investor:
Dutchess Private Equities Fund, LP
50 Commonwealth Ave, Suite 2
Boston, MA 02116
Telephone: (617) 301-4700
Facsimile: (617) 249-0947
Each party shall provide five (5) business days prior notice to the other party of any change
in address, phone number or facsimile number.
(b)
Failure of any party to exercise any right or remedy under this Agreement or
otherwise, or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.
(c)
This Agreement and the Transaction Documents constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein.
(d)
This Agreement and the Transaction Documents supersede all prior
agreements and understandings among the parties hereto with respect to the subject
matter hereof and thereof.
(e)
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. Whenever required by the context
of this Agreement, the singular shall include the plural and masculine shall include the
feminine. This Agreement shall not be construed as if it had been prepared by one of
the parties, but rather as if all the parties had prepared the same.
(f)
This Agreement may be executed in two or more identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the other
party hereto by facsimile transmission of a copy of this Agreement bearing the signature
of the party so delivering this Agreement.
(g)
Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
(h) In case any provision of this Agreement is held by a court of competent jurisdiction to
be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the
14
maximum extent possible, and the validity and enforceability of the remaining provisions of this
Agreement will not in any way be affected or impaired thereby.
Section 12.
DISPUTES SUBJECT TO ARBITRATION GOVERNED BY MASSACHUSETTS LAW
All disputes arising under this agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of
conflict of laws. The parties to this agreement will submit all disputes arising under this
agreement to arbitration in Boston, Massachusetts before a single arbitrator of the American
Arbitration Association (AAA). The arbitrator shall be selected by application of the rules of
the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney
admitted to practice law in the Commonwealth of Massachusetts. No party to this agreement will
challenge the jurisdiction or venue provisions as provided in this section. Nothing contained
herein shall prevent the party from obtaining an injunction.
[remainder of page intentionally left blank]
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SIGNATURE PAGE OF REGISTRATION RIGHTS AGREEMENT
Your signature on this Signature Page evidences your agreement to be bound by the terms and
conditions of the Investment Agreement and the Registration Rights Agreement as of the date first
written above.
The undersigned signatory hereby certifies that he has read and understands the Registration
Rights Agreement, and the representations made by the undersigned in this Registration Rights
Agreement are true and accurate, and agrees to be bound by its terms.
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DUTCHESS PRIVATE EQUITIES FUND, L.P.,
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BY ITS GENERAL PARTNER,
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DUTCHESS CAPITAL MANAGEMENT, LLC
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By:
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Douglas H. Leighton, Managing Member
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SAVE THE WORLD AIR, INC.
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By
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Eugene E. Eichler, Chief Executive Officer
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