SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 8, 2004 POWER2SHIP, INC.
By: /s/ Richard Hersh
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Richard Hersh
Chief Executive Officer
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4
EXHIBIT 4.1
THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM
REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR
SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION
D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE
MADE EXCEPT IN COMPLIANCE WITH THE ACT.
POWER2SHIP, INC.
SERIES B
5% SECURED CONVERTIBLE DEBENTURE
JUNE 28, 2004
No. CCP-1 $1,000,000
This Secured Debenture (the "Debenture") is issued by POWER2SHIP, INC., a
Nevada corporation (the "Company"), to CORNELL CAPITAL PARTNERS, LP (together
with its permitted successors and assigns, the "Holder") pursuant to exemptions
from registration under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 PRINCIPAL AND INTEREST. For value received, on June 28,
2004 (the "Closing Date"), the Company hereby promises to pay to the order of
the Holder on June 28, 2006 in lawful money of the United States of America and
in immediately available funds the principal sum of One Million Dollars
($1,000,000), together with interest on the unpaid principal of this Debenture
at the rate of five percent (5%) per year (computed on the basis of a 365-day
year and the actual days elapsed) from the date of this Debenture until paid.
At the Company's option, the entire principal amount and all accrued interest
shall be either (a) paid to the Holder on the second (2nd) anniversary from the
date hereof or (b) converted in accordance with Section 1.02 herein provided,
however, that in no event shall the Holder be entitled to convert this Debenture
for a number of shares of Common Stock in excess of that number of shares of
Common Stock which, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by the Holder and
its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such conversion.
Section 1.02 OPTIONAL CONVERSION. The Holder is entitled, at its option,
to convert, and sell on the same day, at any time and from time to time, until
payment in full of this Debenture, all or any part of the principal amount of
the Debenture into shares (the "Conversion Shares") of the Company's common
stock, par value $0.001 per share ("Common Stock"), at the price per share (the
"Conversion Price") equal to the lesser of (a) an amount equal to one hundred
twenty percent (120%) of the closing bid price of the Common Stock as listed on
a Principal Market (as defined herein), as quoted by Bloomberg L.P. (the
"Closing Bid Price") as of the Closing Date, or (b) an amount equal to 100% of
the average of the three lowest Closing Bid Prices (the "Closing Bid Price")
Stock, as quoted by Bloomberg, LP, for the thirty (30) trading days immediately
preceding the Conversion Date (as defined herein). Subparagraphs (a) and (b)
above are individually referred to as a "Conversion Price". As used herein,
"Principal Market" shall mean The National Association of Securities Dealers
Inc.'s Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or American
Stock Exchange. If the Common Stock is not traded on a Principal Market, the
Closing Bid Price shall mean, the reported Closing Bid Price for the Common
Stock, as furnished by the National Association of Securities Dealers, Inc., for
the applicable periods. No fraction of shares or scrip representing fractions
of shares will be issued on conversion, but the number of shares issuable shall
be rounded to the nearest whole share. To convert this Debenture, the Holder
hereof shall deliver written notice thereof, substantially in the form of
Exhibit "A" to this Debenture, with appropriate insertions (the "Conversion
Notice"), to the Company at its address as set forth herein. The date upon
which the conversion shall be effective (the "Conversion Date") shall be deemed
to be the date set forth in the Conversion Notice.
Section 1.03 RESERVATION OF COMMON STOCK. The Company shall reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of this Debenture, such
number of shares of Common Stock as shall from time to time be sufficient to
effect such conversion, based upon the Conversion Price. If at any time the
Company does not have a sufficient number of Conversion Shares authorized and
available, then the Company shall call and hold a special meeting of its
stockholders within sixty (60) days of that time for the sole purpose of
increasing the number of authorized shares of Common Stock.
Section 1.04 RIGHT OF REDEMPTION. The Company at its option shall have
the right to redeem, with three (3) business days advance written notice (the
"Redemption Notice"), a portion, or all, of the outstanding Debenture. The
redemption price shall be one hundred twenty percent (120%) of the amount
redeemed plus accrued interest unless the Redemption is consummated within
thirty (30) days of the Closing Date in which case the redemption price shall be
one hundred ten percent (110%) of the amount redeemed plus accrued interest.
In the event the Company exercises a redemption of either all or a portion
the Debenture, the Holder shall receive a warrant to purchase 35,000 shares of
the Company's Common Stock for every One Hundred Thousand U.S. Dollars
(US$100,000) redeemed, pro rata (the "Warrant"). The Warrant shall be
exercisable on a "cash basis" and have an exercise price of one hundred and
twenty percent (120%) of the Closing Bid Price of the Company's Common Stock on
the Closing Date. The Warrant shall have "piggy-back" and demand registration
rights and shall survive for two (2) years from the Closing Date.
Section 1.05 REGISTRATION RIGHTS. The Company is obligated to register
the resale of the Conversion Shares under the Securities Act of 1933, as
amended, pursuant to the terms of a Registration Rights Agreement, between the
Company and the Holder of even date herewith (the "Investor Registration Rights
Agreement").
Section 1.06 INTEREST PAYMENTS. The interest so payable will be paid at
the time of maturity, redemption or conversion to the person in whose name this
Debenture is registered. At the time such interest is payable, the Company, in
its sole discretion, may elect to pay the interest in cash (via wire transfer or
certified funds) or in the form of Common Stock. In the event of default, as
described in Article III Section 3.01 hereunder, the Holder may elect that the
interest be paid in cash (via wire transfer or certified funds) or in the form
of Common Stock. If paid in the form of Common Stock, the amount of stock to be
issued will be calculated as follows: the value of the stock shall be the
Closing Bid Price on: (i) the date the interest payment is due; or (ii) if the
interest payment is not made when due, the date the interest payment is made. A
number of shares of Common Stock with a value equal to the amount of interest
due shall be issued. No fractional shares will be issued; therefore, in the
event that the value of the Common Stock per share does not equal the total
interest due, the Company will pay the balance in cash.
Section 1.07 PAYING AGENT AND REGISTRAR. Initially, the Company will act
as paying agent and registrar. The Company may change any paying agent,
registrar, or Company-registrar by giving the Holder not less than ten (10)
business days' written notice of its election to do so, specifying the name,
address, telephone number and facsimile number of the paying agent or registrar.
The Company may act in any such capacity.
Section 1.08 SECURED NATURE OF DEBENTURE. This Debenture is secured by
all of the assets and property of the Company and its wholly owned subsidiary,
all as more particularly described in those two Security Agreements of even date
herewith (collectively, the "Security Agreements").
ARTICLE II.
Section 2.01 AMENDMENTS AND WAIVER OF DEFAULT. The Debenture may not
be amended. Notwithstanding the above, without the consent of the Holder, the
Debenture may be amended to cure any ambiguity, defect or inconsistency, or to
provide for assumption of the Company obligations to the Holder.
ARTICLE III.
Section 3.01 EVENTS OF DEFAULT. An Event of Default is defined as
follows: (a) failure by the Company to pay amounts due hereunder within fifteen
(15) days of the date of maturity of this Debenture; (b) failure by the Company
to comply with the terms of the Irrevocable Transfer Agent Instructions attached
to the Securities Purchase Agreement; (c) failure by the Company's transfer
agent to issue freely tradeable Common Stock to the Holder within five (5)
business days of the Company's receipt of the attached Notice of Conversion from
Holder; (d) failure by the Company for ten (10) business days after notice to it
to comply with any of its other agreements in the Debenture; (e) events of
bankruptcy or insolvency; (f) a breach by the Company of its obligations under
the Securities Purchase Agreement or the Investor Registration Rights Agreement
which is not cured by the Company within ten (10) business days after receipt of
written notice thereof. Upon the occurrence of an Event of Default, the Holder
may, in its sole discretion, accelerate full repayment of all Debentures
outstanding and accrued interest thereon or may, notwithstanding any limitations
contained in this Debenture and/or the Securities Purchase Agreement dated the
date hereof between the Company and Cornell Capital Partners, L.P. (the
"Securities Purchase Agreement"), convert all Debentures outstanding and accrued
interest thereon into shares of Common Stock pursuant to Section 1.02 herein.
Section 3.02 FAILURE TO ISSUE UNRESTRICTED COMMON STOCK. As indicated
in Article III Section 3.01, a breach by the Company of its obligations under
the Investor Registration Rights Agreement shall be deemed an Event of Default,
which if not cured within ten (10) business days, shall entitle the Holder to
accelerate full repayment of all Debentures outstanding and accrued interest
thereon or, notwithstanding any limitations contained in this Debenture and/or
the Securities Purchase Agreement, to convert all Debentures outstanding and
accrued interest thereon into shares of Common Stock pursuant to Section 1.02
herein. The Company acknowledges that failure to honor a Notice of Conversion
shall cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 RIGHTS AND TERMS OF CONVERSION. This Debenture, in whole
or in part, may be converted at any time following the Closing Date, into shares
of Common Stock at a price equal to the Conversion Price as described in Section
1.02 above.
Section 4.02 RE-ISSUANCE OF DEBENTURE. When the Holder elects to
convert a part of the Debenture or the Company redeems a portion of the
Debenture, then the Company shall reissue a new Debenture in the same form as
this Debenture to reflect the new principal amount.
Section 4.03 TERMINATION OF CONVERSION RIGHTS. The Holder's right
to convert the Debenture into the Common Stock in accordance with paragraph 4.01
shall terminate on the date that is the second (2nd) anniversary from the date
hereof and this Debenture shall be automatically converted on that date in
accordance with the formula set forth in Section 4.01 hereof, and the
appropriate shares of Common Stock and amount of interest shall be issued to the
Holder.
ARTICLE V.
Section 5.01 ANTI-DILUTION. In the event that the Company shall at any
time subdivide the outstanding shares of Common Stock, or shall issue a stock
dividend on the outstanding Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in the event that the Company shall at any time
combine the outstanding shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination as the case may be.
Section 5.02 CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT
SECURITY INTERESTS. Except for the Standby Equity Distribution Agreement dated
the date hereof between the Company and Cornell Capital Partners, LP, so long as
any of the principal of or interest on this Debenture remains unpaid and
unconverted, the Company shall not, without the prior consent of the Holder,
issue or sell (i) any Common Stock or Preferred Stock without consideration or
for a consideration per share less than its fair market value determined
immediately prior to its issuance, (ii) issue or sell any Preferred Stock,
warrant, option, right, contract, call, or other security or instrument granting
the holder thereof the right to acquire Common Stock without consideration or
for a consideration per share less than such Common Stock's fair market value
determined immediately prior to its issuance, (iii) enter into any security
instrument granting the holder a security interest in any of the assets of the
Company, except that the Company may grant a security interest to a lender that
provides purchase money financing for inventory and equipment and such security
interest relates solely to the inventory and equipment so purchased, or (iv)
file any registration statement on Form S-8.
ARTICLE VI.
Section 6.01 NOTICE. Notices regarding this Debenture shall be sent to
the parties at the following addresses, unless a party notifies the other
parties, in writing, of a change of address:
If to the Company, to: Power2Ship, Inc.
903 Clint Moore Road
Boca Raton, Florida 33487
Attention: Richard Hersh, Chief Executive Officer
Telephone: (561) 998-7557
Facsimile: (561) 998-7821
With a copy to: Schneider Weinberger LLP
2200 Corporate Boulevard, N.W., Suite 210
Boca Raton, Florida 33431
Attention: James M. Schneider, Esquire
Telephone: (561) 362-9595
Facsimile: (561) 362-9612
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Attention: Mark A. Angelo
Portfolio Manager
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a copy to: Cornell Capital Partners, LP
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Attention: Troy J. Rillo
Senior Vice President
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
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Section 6.02 GOVERNING LAW. This Debenture shall be deemed to be made
under and shall be construed in accordance with the laws of the State of New
Jersey without giving effect to the principals of conflict of laws thereof.
Each of the parties consents to the jurisdiction of the U.S. District Court
sitting in the District of the State of New Jersey or the state courts of the
State of New Jersey sitting in Hudson County, New Jersey in connection with any
dispute arising under this Debenture and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens to the bringing of any such proceeding in such jurisdictions.
Section 6.03 SEVERABILITY. The invalidity of any of the provisions of
this Debenture shall not invalidate or otherwise affect any of the other
provisions of this Debenture, which shall remain in full force and effect.
Section 6.04 ENTIRE AGREEMENT AND AMENDMENTS. This Debenture represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and there are no representations, warranties or commitments,
except as set forth herein. This Debenture may be amended only by an instrument
in writing executed by the parties hereto.
Section 6.05 COUNTERPARTS. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company
as executed this Debenture as of the date first written above.
POWER2SHIP, INC.
By: /s/ Richard Hersh
-------------------------
Name: Richard Hersh
Title: Chief Executive Officer
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EXHIBIT "A"
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE)
TO:
The undersigned hereby irrevocably elects to convert US$
of the principal amount of the above Debenture into Shares of Common Stock of
Power2Ship, Inc., according to the conditions stated therein, as of the
Conversion Date written below.
CONVERSION DATE:
-------------------------------------------------
APPLICABLE CONVERSION PRICE:
-------------------------------------------------
SIGNATURE:
-------------------------------------------------
NAME:
-------------------------------------------------
ADDRESS:
-------------------------------------------------
AMOUNT TO BE CONVERTED: US$
-------------------------------------------------
AMOUNT OF DEBENTURE
UNCONVERTED: US$
-------------------------------------------------
CONVERSION PRICE PER SHARE: US$
-------------------------------------------------
NUMBER OF SHARES OF COMMON
STOCK TO BE ISSUED:
-------------------------------------------------
PLEASE ISSUE THE SHARES OF
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COMMON STOCK IN THE FOLLOWING
NAME AND TO THE FOLLOWING
ADDRESS:
ISSUE TO:
AUTHORIZED SIGNATURE:
NAME:
TITLE:
PHONE NUMBER:
BROKER DTC PARTICIPANT CODE:
ACCOUNT NUMBER:
A-1
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of June 28,
2004, by and among POWER2SHIP, INC., a Nevada corporation (the "Company"), and
the Buyers listed on Schedule I attached hereto (individually, a "Buyer" or
collectively "Buyers").
WITNESSETH:
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase up to $2,000,000 of secured
convertible debentures (the "Convertible Debentures"), which shall be
convertible into shares of the Company's common stock, par value $0.001 per
share (the "Common Stock") (as converted, the "Conversion Shares"), of which
$1,000,000 shall be funded within five (5) business days hereof (the "First
Closing") and $1,000,000 shall be funded at the Company's discretion within five
(5) business days after the filing of a registration statement (the
"Registration Statement") pursuant to the Investor Registration Rights Agreement
of even date herewith, with the United States Securities and Exchange Commission
(the "SEC") (the "Second Closing") (collectively referred to as the "Closings"),
for a total purchase price of up to $2,000,000 (the "Purchase Price") in the
respective amounts set forth opposite each Buyer(s) name on Schedule I (the
"Subscription Amount"); 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 as Exhibit A (the "Investor
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 there under, and applicable state securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an escrow
agreement substantially in the form of the Escrow Agreement attached hereto as
Exhibit B.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as Exhibit C (the
"Irrevocable Transfer Agent Instructions").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
substantially in the form attached hereto as Exhibit D (the "Security
Agreement") pursuant to which the Company has agreed to provide the Buyer a
security interest in Pledged Collateral (as this term is defined in the Security
Agreement dated the date hereof) to secure Company's obligations under this
Agreement, the Convertible Debenture, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, the Security Agreement
or any other obligations of the Company to the Buyer; and
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase of Convertible Debentures. Subject to the satisfaction
(or waiver) of the terms and conditions of this Agreement, each Buyer
agrees, severally and not jointly, to purchase at Closing (as defined
herein below) and the Company agrees to sell and issue to each Buyer,
severally and not jointly, at Closing, Convertible Debentures in amounts
corresponding with the Subscription Amount set forth opposite each Buyer's
name on Schedule I hereto. Upon execution hereof by a Buyer, the Buyer
shall wire transfer the Subscription Amount set forth opposite his name on
Schedule I in same-day funds or a check payable to "Butler Gonzalez LLP, as
Escrow Agent for Power2Ship, Inc./Cornell Capital Partners, LP", which
Subscription Amount shall be held in escrow pursuant to the terms of the
Escrow Agreement (as hereinafter defined) and disbursed in accordance
therewith. Notwithstanding the foregoing, a Buyer may withdraw his
Subscription Amount and terminate this Agreement as to such Buyer at any
time after the execution hereof and prior to Closing (as hereinafter
defined).
(b) Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures shall take place on or before the fifth (5th)
business day following the date hereof, subject to notification of
satisfaction of the conditions to the First Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the "First Closing Date") and the Second Closing
of the purchase and sale of the Convertible Debentures shall take place at
the Company's option on or before the fifth (5th) business day after the
Registration Statement is filed with the SEC, subject to notification of
satisfaction of the conditions to the Second Closing set forth herein and
in Sections 6 and 7 below (or such later date as is mutually agreed to by
the Company and the Buyer(s)) (the "Second Closing Date") (collectively
referred to a the "Closing Dates"). The Closing shall occur on the
respective Closing Dates at the offices of Butler Gonzalez, LLP, 1418
Morris Avenue, Suite 207, Union, NJ 07083 (or such other place as is
mutually agreed to by the Company and the Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the Closings, the aggregate proceeds of the sale of
the Convertible Debentures to Buyer(s) pursuant hereto shall be deposited
in a non-interest bearing escrow account with Butler Gonzalez LLP, as
escrow agent (the "Escrow Agent"), pursuant to the terms of an escrow
agreement between the Company, the Buyer(s) and the Escrow Agent in the
form attached hereto as Exhibit B (the "Escrow Agreement"). Subject to the
satisfaction of the terms and conditions of this Agreement, on the Closing
Dates, (i) the Escrow Agent shall deliver to the Company in accordance with
the terms of the Escrow Agreement such aggregate proceeds for the
Convertible Debentures to be issued and sold to such Buyer(s), minus a
structuring fee of $10,000 to the Buyer pursuant to Section 4(g) hereof,
which shall be paid directly from the gross proceeds of the First Closing
held in escrow and $15,000 to the Buyer pursuant to Section 12.4 of the
Standby Equity Distribution Agreement shall be paid directly from the
proceeds of the First Closing, by wire transfer of immediately available
funds in accordance with the Company's written wire instructions, and (ii)
the Company shall deliver to each Buyer, Convertible Debentures which such
Buyer(s) is purchasing in amounts indicated opposite such Buyer's name on
Schedule I, duly executed on behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible
Debentures and, upon conversion of Convertible Debentures, the Buyer will
acquire the Conversion Shares then issuable, for its own account for
investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer reserves the right to dispose
of the Conversion Shares at any time in accordance with or pursuant to an
effective registration statement covering such Conversion Shares or an
available exemption under the 1933 Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited Investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the
Convertible Debentures are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of such Buyer set forth herein in order to determine the availability of
such exemptions and the eligibility of such Buyer to acquire such
securities.
(d) Information. Each Buyer and its advisors (and his or, its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his purchase
of the Convertible Debentures and the Conversion Shares, which have been
requested by such Buyer. Each Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on
the Company's representations and warranties contained in Section 3 below.
Each Buyer understands that its investment in the Convertible Debentures
and the Conversion Shares involves a high degree of risk. Each Buyer is in
a position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Buyer
to obtain information from the Company in order to evaluate the merits and
risks of this investment. Each Buyer has sought such accounting, legal and
tax advice, as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Convertible Debentures and
the Conversion Shares.
(e) No Governmental Review. Each Buyer understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Convertible Debentures or the Conversion Shares, or the fairness or
suitability of the investment in the Convertible Debentures or the
Conversion Shares, nor have such authorities passed upon or endorsed the
merits of the offering of the Convertible Debentures or the Conversion
Shares.
(f) Transfer or Resale. Each Buyer understands that except as provided
in the Investor Registration Rights Agreement: (i) the Convertible
Debentures have not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale, sold, assigned
or transferred unless (A) subsequently registered thereunder, or (B) such
Buyer shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration requirements; (ii) any sale of such
securities made in reliance on Rule 144 under the 1933 Act (or a successor
rule thereto) ("Rule 144") may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of such
securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and
(iii) neither the Company nor any other person is under any obligation to
register such securities under the 1933 Act or any state securities laws or
to comply with the terms and conditions of any exemption thereunder. The
Company reserves the right to place stop transfer instructions against the
shares and certificates for the Conversion Shares.
(g) Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion
Shares shall bear a restrictive legend in substantially the following form
(and a stop -transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN
A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed and the Company within two (2)
business days shall issue a certificate without such legend to the holder
of the Conversion Shares upon which it is stamped, if, unless otherwise
required by state securities laws, (i) in connection with a sale
transaction, provided the Conversion Shares are registered under the 1933
Act or (ii) in connection with a sale transaction, after such holder
provides the Company with an opinion of counsel, which opinion shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale, assignment or transfer of
the Conversion Shares may be made without registration under the 1933 Act.
(h) Authorization, Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with
its terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
(i) Receipt of Documents. Each Buyer and his or its counsel has
received and read in their entirety: (i) this Agreement and each
representation, warranty and covenant set forth herein, the Security
Agreement, the Investor Registration Rights Agreement, the Escrow
Agreement, and the Irrevocable transfer Agent Instructions; (ii) all due
diligence and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants; (iii) the
Company's Form 10-KSB for the fiscal year ended June 30, 2003; (iv) the
Company's Form 10-QSB for the fiscal quarter ended March 31, 2004 and (v)
answers to all questions each Buyer submitted to the Company regarding an
investment in the Company; and each Buyer has relied on the information
contained therein and has not been furnished any other documents,
literature, memorandum or prospectus.
(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized
for the specific purpose of purchasing the Convertible Debentures and is
not prohibited from doing so.
(k) No Legal Advice From the Company. Each Buyer acknowledges, that it
had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and
investment and tax advisors. Each Buyer is relying solely on such counsel
and advisors and not on any statements or representations of the Company or
any of its representatives or agents for legal, tax or investment advice
with respect to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the SEC Documents (as defined herein):
(a) Organization and Qualification. The Company and its subsidiaries
are corporations duly organized and validly existing in good standing under
the laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries taken as a
whole.
(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 Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions, and any related agreements, and to issue the
Convertible Debentures and the Conversion Shares in accordance with the
terms hereof and thereof, (ii) the execution and delivery of this
Agreement, the Security Agreement, the Investor Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Instructions (as defined herein) and any related agreements by the Company
and the consummation by it of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Convertible
Debentures the Conversion Shares and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion or exercise
thereof, have been duly authorized by the Company's Board of Directors and
no further consent or authorization is required by the Company, its Board
of Directors or its stockholders, (iii) this Agreement, the Security
Agreement, the Investor Registration Rights Agreement, the Escrow
Agreement, the Irrevocable Transfer Agent Instructions and any related
agreements have been duly executed and delivered by the Company, (iv) this
Agreement, the Security Agreement, the Investor Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Instructions and any related agreements constitute the valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing this Agreement, the Security
Agreement, the Investor Registration Rights Agreement, the Escrow
Agreement, the Irrevocable Transfer Agent Instructions and any related
agreements knows of no reason why the Company cannot file the registration
statement as required under the Investor Registration Rights Agreement or
perform any of the Company's other obligations under such documents.
(c) Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 100,000,000 shares of Common Stock, par
value $0.001 per share and 1,000,000 shares of Preferred Stock, of which
200,000 shares were designated Series B Preferred Stock, 20,000 shares were
designated Series C Preferred Stock and 87,000 shares were designated
Series Y Preferred Stock. As of the date hereof, there were 37,092,525
shares of Common Stock, 198,000 shares of Series B Preferred Stock, 10,832
shares of Series C Preferred Stock and 87,000 shares of Series Y Preferred
Stock issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as disclosed in
the SEC Documents (as defined in Section 3(f)), no shares of Common Stock
are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company. Except as disclosed
in the SEC Documents, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or any
of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may
become bound to issue additional shares of capital stock of the Company or
any of its subsidiaries or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which
the Company or any of its subsidiaries is obligated to register the sale of
any of their securities under the 1933 Act (except pursuant to the
Registration Rights Agreement) and (iv) there are no outstanding
registration statements and there are no outstanding comment letters from
the SEC or any other regulatory agency. There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Convertible Debentures as described in
this Agreement. The Company has furnished to the Buyer true and correct
copies of the Company's Articles of Incorporation, as amended and as in
effect on the date hereof (the "Articles of Incorporation"), and the
Company's By-laws, as in effect on the date hereof (the "By-laws"), and the
terms of all securities convertible into or exercisable for Common Stock
and the material rights of the holders thereof in respect thereto other
than stock options issued to employees and consultants.
(d) Issuance of Securities. The Convertible Debentures are duly
authorized and, upon issuance in accordance with the terms hereof, shall be
duly issued, fully paid and nonassessable, are free from all taxes, liens
and charges with respect to the issue thereof. The Conversion Shares
issuable upon conversion of the Convertible Debentures have been duly
authorized and reserved for issuance. Upon conversion or exercise in
accordance with the Convertible Debentures the Conversion Shares will be
duly issued, fully paid and nonassessable.
(e) No Conflicts. Except as disclosed in the SEC Documents, the
execution, delivery and performance of this Agreement, the Security
Agreement, the Investor Registration Rights Agreement, the Escrow Agreement
and the Irrevocable Transfer Agent Instructions by the Company and the
consummation by the Company of the transactions contemplated hereby will
not (i) result in a violation of the Articles of Incorporation, any
certificate of designations of any outstanding series of preferred stock of
the Company or the By-laws or (ii) conflict with or constitute a default
(or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which the Company or any of its subsidiaries is a party, or result in a
violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules
and regulations of The National Association of Securities Dealers Inc.'s
OTC Bulletin Board on which the Common Stock is quoted) applicable to the
Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected. Except as
disclosed in the SEC Documents, neither the Company nor its subsidiaries is
in violation of any term of or in default under its Articles of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of
the Company and its subsidiaries is not being conducted, and shall not be
conducted in violation of any material law, ordinance, or regulation of any
governmental entity. Except as specifically contemplated by this Agreement
and as required under the 1933 Act and any applicable state securities
laws, the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. Except as
disclosed in the SEC Documents, all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant
to the preceding sentence have been obtained or effected on or prior to the
date hereof. The Company and its subsidiaries are unaware of any facts or
circumstance, which might give rise to any of the foregoing.
(f) SEC Documents: Financial Statements. Since January 1, 2003, the
Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing
filed prior to the date hereof or amended after the date hereof and all
exhibits included therein and financial statements and schedules thereto
and documents incorporated by reference therein, being hereinafter referred
to as the "SEC Documents"). The Company has delivered to the Buyers or
their representatives, or made available through the SEC's website at
http://www.sec.gov., true and complete copies of the SEC Documents. As of
their respective dates, the financial statements of the Company disclosed
in the SEC Documents (the "Financial Statements") complied as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such Financial
Statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and, fairly present in all material respects the
financial position of the Company as of the dates thereof and the results
of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). No
other information provided by or on behalf of the Company to the Buyer
which is not included in the SEC Documents, including, without limitation,
information referred to in this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(g) 10(b)-5. The SEC Documents do not include any untrue statements of
material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
(h) Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by
any court, public board, government agency, self-regulatory organization or
body pending against or affecting the Company, the Common Stock or any of
the Company's subsidiaries, wherein an unfavorable decision, ruling or
finding would (i) have a material adverse effect on the transactions
contemplated hereby (ii) adversely affect the validity or enforceability
of, or the authority or ability of the Company to perform its obligations
under, this Agreement or any of the documents contemplated herein, or (iii)
except as expressly disclosed in the SEC Documents, have a material adverse
effect on the business, operations, properties, financial condition or
results of operations of the Company and its subsidiaries taken as a whole.
(i) Acknowledgment Regarding Buyer's Purchase of the Convertible
Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by
the Buyer(s) or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to such Buyer's purchase of the Convertible Debentures or
the Conversion Shares. The Company further represents to the Buyer that the
Company's decision to enter into this Agreement has been based solely on
the independent evaluation by the Company and its representatives.
(j) No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning
of Regulation D under the 1933 Act) in connection with the offer or sale of
the Convertible Debentures or the Conversion Shares.
(k) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would require
registration of the Convertible Debentures or the Conversion Shares under
the 1933 Act or cause this offering of the Convertible Debentures or the
Conversion Shares to be integrated with prior offerings by the Company for
purposes of the 1933 Act.
(l) Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of
the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their
employees are good.
(m) 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. 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, and, to
the knowledge of the Company there is no claim, action or proceeding being
made or brought against, or to the Company's knowledge, being threatened
against, the Company or its subsidiaries regarding trademark, trade name,
patents, patent rights, invention, copyright, license, service names,
service marks, service 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 any of the foregoing.
(n) Environmental Laws. The Company and its subsidiaries are (i) in
compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance
with all terms and conditions of any such permit, license or approval.
(o) Title. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
(p) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(q) Regulatory Permits. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
(r) Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain asset accountability, and (iii) the recorded amounts for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(s) No Material Adverse Breaches, etc. Except as set forth in the SEC
Documents, neither the Company nor any of its subsidiaries is subject to
any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers
has or is expected in the future to have a material adverse effect on the
business, properties, operations, financial condition, results of
operations or prospects of the Company or its subsidiaries. Except as set
forth in the SEC Documents, neither the Company nor any of its subsidiaries
is in breach of any contract or agreement which breach, in the judgment of
the Company's officers, has or is expected to have a material adverse
effect on the business, properties, operations, financial condition,
results of operations or prospects of the Company or its subsidiaries.
(t) Tax Status. Except as set forth in the SEC Documents, the Company
and each of its subsidiaries has made and filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that
the Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and
has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and
the officers of the Company know of no basis for any such claim.
(u) Certain Transactions. Except as set forth in the SEC Documents,
and except for arm's 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 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 (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
(v) Fees and Rights of First Refusal. The Company is not obligated to
offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or
former shareholders of the Company, underwriters, brokers, agents or other
third parties.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Conversion Shares, or obtain an
exemption for the Conversion Shares for sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "Blue Sky" laws
of the states of the United States, and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date.
(c) Reporting Status. Until the earlier of (i) the date as of which
the Buyer(s) may sell all of the Conversion Shares without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Buyer(s) shall have sold all
the Conversion Shares and (B) none of the Convertible Debentures are
outstanding (the "Registration Period"), the Company shall file in a timely
manner all reports required to be filed with the SEC pursuant to the 1934
Act and the regulations of the SEC thereunder, and the Company shall not
terminate its status as an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale
of the Convertible Debentures for general corporate and working capital
purposes.
(e) Reservation of Shares. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, such number of shares of Common Stock as shall be
necessary to effect the issuance of the Conversion Shares. If at any time
the Company does not have available such shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all of the
Conversion Shares of the Company shall call and hold a special meeting of
the shareholders within sixty (60) days of such occurrence, for the sole
purpose of increasing the number of shares authorized. The Company's
management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management
shall also vote all of its shares in favor of increasing the number of
authorized shares of Common Stock.
(f) Listings or Quotation. The Company shall promptly secure the
listing or quotation of the Conversion Shares upon each national securities
exchange, automated quotation system or The National Association of
Securities Dealers Inc.'s Over-The-Counter Bulletin Board ("OTCBB") or
other market, if any, upon which shares of Common Stock are then listed or
quoted (subject to official notice of issuance) and shall use its best
efforts to maintain, so long as any other shares of Common Stock shall be
so listed, such listing of all Conversion Shares from time to time issuable
under the terms of this Agreement. The Company shall maintain the Common
Stock's authorization for quotation on the OTCBB.
(g) Fees and Expenses. Each of the Company and the Buyer(s) shall pay
all costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution and delivery of this
Agreement, the Escrow Agreement, the Investor Registration Rights
Agreement, the Security Agreement and the Irrevocable Transfer Agent
Instructions. The Buyer(s) shall be entitled to a ten percent (10%)
discount on the Purchase Price.
On the First Closing Date, the Company shall pay to the Buyer a
structuring fee of $10,000 (the "Structuring Fee"). The Structuring Fee
shall be paid directly from the gross proceeds of the First Closing and
shall be deemed fully earned on the date hereof.
(h) Corporate Existence. So long as any of the Convertible Debentures
remain outstanding, the Company shall not directly or indirectly consummate
any merger, reorganization, restructuring, reverse stock split
consolidation, sale of all or substantially all of the Company's assets or
any similar transaction or related transactions (each such transaction, an
"Organizational Change") unless, prior to the consummation an
Organizational Change, the Company obtains the written consent of each
Buyer. In any such case, the Company will make appropriate provision with
respect to such holders' rights and interests to insure that the provisions
of this Section 4(h) will thereafter be applicable to the Convertible
Debentures.
(i) Transactions With Affiliates. So long as any Convertible
Debentures are outstanding, 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 subsidiary's
officers, directors, person who were officers or directors at any time
during the previous two (2) years, stockholders who beneficially own five
percent (5%) or more of the Common Stock, or Affiliates (as defined below)
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
five percent (5%) or more beneficial interest (each a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any investment in an Affiliate of the Company, (c)
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 person other than such Related Party, (d) 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 ten percent (10%) or more
equity interest in that person or entity, (ii) has ten percent (10%) or
more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) shares common control with that person or entity.
"Control" or "controls" for purposes hereof means that a person or entity
has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
(j) Transfer Agent. The Company covenants and agrees that, in the
event that the Company's agency relationship with the transfer agent should
be terminated for any reason prior to a date which is two (2) years after
the Closing Date, the Company shall immediately appoint a new transfer
agent and shall require that the new transfer agent execute and agree to be
bound by the terms of the Irrevocable Transfer Agent Instructions (as
defined herein).
(k) Restriction on Issuance of the Capital Stock. So long as any
Convertible Debentures are outstanding, the Company shall not, without the
prior written consent of the Buyer(s), issue or sell shares of Common Stock
or Preferred Stock (i) without consideration or for a consideration per
share less than the Bid Price of the Common Stock determined immediately
prior to its issuance, (ii) any warrant, option, right, contract, call, or
other security instrument granting the holder thereof, the right to acquire
Common Stock without consideration or for a consideration less than such
Common Stock's Bid Price value determined immediately prior to it's
issuance, (iii) enter into any security instrument granting the holder a
security interest in any and all assets of the Company, except that the
Company may grant a security interest to a lender that provides purchase
money financing for inventory and equipment and such security interest
relates solely to the inventory and equipment so purchased, or (iv) file
any registration statement on Form S-8.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Butler Gonzalez LLP as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s) or
its respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debentures as specified from time to time by the Buyer(s) to the
Company upon conversion of the Convertible Debentures, for interest owed
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement). Butler
Gonzalez LLP shall be paid a cash fee of Fifty Dollars ($50) for every occasion
they act pursuant to the Irrevocable Transfer Agent Instructions. The Company
shall not change its transfer agent without the express written consent of the
Buyer(s), which may be withheld by the Buyer(s) in its sole discretion. Prior
to registration of the Conversion Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(g) hereof (in the case of the
Conversion Shares prior to registration of such shares under the 1933 Act) will
be given by the Company to its transfer agent and that the Conversion Shares
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement and the Investor Registration
Rights Agreement. Nothing in this Section 5 shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of Conversion Shares. If the Buyer(s) provides the Company with an
opinion of counsel, in form, scope and substance customary for opinions of
counsel in comparable transactions to the effect that registration of a resale
by the Buyer(s) of any of the Conversion Shares is not required under the 1933
Act, the Company shall within two (2) business days instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by the Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyer by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5, that the
Buyer(s) shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) Each Buyer shall have executed this Agreement, the Security
Agreement, the Escrow Agreement and the Investor Registration Rights
Agreement and the Irrevocable Transfer Agent Instructions and delivered the
same to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to
each Buyer as outlined on Schedule I attached hereto and the Escrow Agent
shall have delivered the net proceeds to the Company by wire transfer of
immediately available U.S. funds pursuant to the wire instructions provided
by the Company.
(c) The representations and warranties of the Buyer(s) shall be true
and correct in all material respects as of the date when made and as of the
Closing Dates as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer(s) shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Buyer(s) at or prior to the
Closing Dates.
(d) The Company shall have filed a form UCC-1 with regard to the
Pledged Property and Pledged Collateral as detailed in the Security
Agreement dated the date hereof and provided proof of such filing to the
Buyer(s).
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer(s) hereunder to purchase the Convertible
Debentures at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions:
(a) The Company shall have executed this Agreement, the Security
Agreement, the Convertible Debenture, the Escrow Agreement, the Irrevocable
Transfer Instructions and the Investor Registration Rights Agreement, and
delivered the same to the Buyer(s).
(b) The Common Stock shall be authorized for quotation on the OTCBB,
trading in the Common Stock shall not have been suspended for any reason
and all of the Conversion Shares issuable upon conversion of the
Convertible Debentures shall be approved the OTCBB.
(c) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall
be true and correct without further qualification) as of the date when made
and as of the Closing Dates as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or
prior to the Closing Dates. If requested by the Buyer, the Buyer shall have
received a certificate, executed by the President of the Company, dated as
of the Closing Dates, to the foregoing effect and as to such other matters
as may be reasonably requested by the Buyer including, without limitation
an update as of the Closing Dates regarding the representation contained in
Section 3(c) above.
(d) The Company shall have executed and delivered to the Buyer(s) the
Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto.
(e) The Buyer(s) shall have received an opinion of counsel from the
Company's counsel in a form satisfactory to the Buyer(s).
(f) The Company shall have provided to the Buyer(s) a certificate of
good standing from the secretary of state from the state in which the
company is incorporated.
(g) As of the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Convertible Debentures, shares of Common Stock to
effect the conversion of all of the Conversion Shares then outstanding.
(h) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Buyer, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(i) The Company shall have provided to the Buyer an acknowledgement,
to the satisfaction of the Buyer from Sherb & Co., LLP as to its ability to
provide all consents required in order to file a registration statement in
connection with this transaction.
(j) The Company shall have filed a form UCC-1 or such other forms as
may be required to perfect the Buyer's interest in the Pledged Property and
Pledged Collateral as detailed in the Security Agreement dated the date
hereof and provided proof of such filing to the Buyer(s).
(k) With respect to the Second Closing, the Company shall have
increased its authorized Common Stock to at least 250,000,000 shares, of
which there shall be at least 15,000,000 shares available for issuance upon
conversion of the Convertible Debenture to be issued in connection with the
Second Closing.
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion
Shares hereunder, and in addition to all of the Company's other obligations
under this Agreement, the Company shall defend, protect, indemnify and hold
harmless the Buyer(s) and each other holder of the Convertible Debentures
and the Conversion Shares, and all of their officers, directors, employees
and agents (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Buyer Indemnitees") from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any
such Buyer Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and
disbursements (the "Indemnified Liabilities"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating
to (a) any misrepresentation or breach of any representation or warranty
made by the Company in this Agreement, the Convertible Debentures or the
Investor Registration Rights Agreement or any other certificate, instrument
or document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement, or the
Investor Registration Rights Agreement or any other certificate, instrument
or document contemplated hereby or thereby, or (c) any cause of action,
suit or claim brought or made against such Indemnitee and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Indemnities, any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Convertible Debentures or the status of the Buyer or
holder of the Convertible Debentures the Conversion Shares, as a Buyer of
Convertible Debentures in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities, which is permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under
this Agreement, the Buyer shall defend, protect, indemnify and hold
harmless the Company and all of its officers, directors, employees and
agents (including, without limitation, those retained in connection with
the transactions contemplated by this Agreement) (collectively, the
"Company Indemnitees") from and against any and all Indemnified Liabilities
incurred by the Indemnitees or any of them as a result of, or arising out
of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Buyer(s) in this Agreement, ,
instrument or document contemplated hereby or thereby executed by the
Buyer, (b) any breach of any covenant, agreement or obligation of the
Buyer(s) contained in this Agreement, the Investor Registration Rights
Agreement or any other certificate, instrument or document contemplated
hereby or thereby executed by the Buyer, or (c) any cause of action, suit
or claim brought or made against such Company Indemnitee based on material
misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Investor Registration Rights Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Company Indemnities. To the extent that the foregoing undertaking by each
Buyer may be unenforceable for any reason, each Buyer shall make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities, which is permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New Jersey without regard to
the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Hudson County, New Jersey, and
expressly consent to the jurisdiction and venue of the Superior Court of
New Jersey, sitting in Hudson County and the United States District Court
for the District of New Jersey sitting in Newark, New Jersey for the
adjudication of any civil action asserted pursuant to this Paragraph.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature
page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages
to be physically delivered to the other party within five (5) days of the
execution and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) 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.
(e) Entire Agreement, Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by
facsimile; (iii) three (3) days after being sent by U.S. certified mail,
return receipt requested, or (iv) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company, to: Power2Ship, Inc.
903 Clint Moore Road
Boca Raton, Florida 33487
Attention: Richard Hersh, Chief Executive Officer
Telephone: (561) 998-7557
Facsimile: (561) 998-7821
With a copy to: Schneider Weinberger LLP
2200 Corporate Boulevard, N.W., Suite 210
Boca Raton, Florida 33431
Attention: James M. Schneider, Esquire
Telephone: (561) 362-9595
Facsimile: (561) 362-9612
If to the Transfer Agent, to: Madison Stock Transfer
1688 E. 16th Street
Brooklyn, New York 11229
Attention: Michael Ajzenman
Telephone: 718-627-4453
Facsimile: 718-627-6341
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If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement or
any rights or obligations hereunder without the prior written consent of
the other party hereto.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
(i) Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyer(s)
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closing for a period of two (2) years
following the date on which the Convertible Debentures are converted in
full. The Buyer(s) shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
(j) Publicity. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement
with respect to the transactions contemplated hereby made by any party;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyer(s), to issue any press release or other public
disclosure with respect to such transactions required under applicable
securities or other laws or regulations (the Company shall use its best
efforts to consult the Buyer(s) in connection with any such press release
or other public disclosure prior to its release and Buyer(s) shall be
provided with a copy thereof upon release thereof).
(k) 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.
(l) Termination. In the event that the Closing shall not have occurred
with respect to the Buyers on or before five (5) business days from the
date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the non-breaching
party's failure to waive such unsatisfied condition(s)), the non-breaching
party shall have the option to terminate this Agreement with respect to
such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated by the Company pursuant to this Section 9(l), the
Company shall remain obligated to reimburse the Buyer(s) for the fees and
expenses of Butler Gonzalez described in Section 4(g) above.
(m) 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.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
POWER2SHIP, INC.
By: /s/ Richard Hersh
-----------------------------
Name Richard Hersh
Title: Chief Executive Officer
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EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
EXHIBIT B
FORM OF ESCROW AGREEMENT
EXHIBIT C
TRANSFER AGENT INSTRUCTIONS
SCHEDULE I
SCHEDULE OF BUYERS
NAME SIGNATURE ADDRESS/FACSIMILE AMOUNT OF SUBSCRIPTION
NUMBER OF BUYER
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 101 Hudson Street - Suite 3700 $ 1,000,000
Its: General Partner Jersey City, NJ 07302
Facsimile: (201) 985-8266
By: With a copy to:
----------------------
Name: Mark A. Angelo Troy J. Rillo
Its: Portfolio Manager 101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Facsimile: (201) 985-8266
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EXHIBIT 10.2
INVESTOR REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of June 28,
2004, by and among POWER2SHIP, INC., a Nevada corporation (the "Company"), and
the undersigned investors (each, an "Investor" and collectively, the
"Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Investors secured
convertible debentures (the "Convertible Debentures") which shall be convertible
into that number of shares of the Company's common stock, par value $0.001 per
share (the "Common Stock"), pursuant to the terms of the Securities Purchase
Agreement for an aggregate purchase price of up $2,000,000. Capitalized terms
not defined herein shall have the meaning ascribed to them in the Securities
Purchase Agreement.
B. To induce the Investors to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations there
under, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investors
hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "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.
(b) "Register," "registered," and "registration" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) 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 or
delayed basis ("Rule 415"), and the declaration or ordering of effectiveness of
such Registration Statement(s) by the United States Securities and Exchange SEC
(the "SEC").
(c) "Registrable Securities" means the shares of Common Stock issuable to
Investors upon conversion of the Convertible Debentures pursuant to the
Securities Purchase Agreement and the Investor's Shares, as this term is defined
in the Standby Equity Distribution Agreement dated the date hereof.
(d) "Registration Statement" means a registration statement under the 1933
Act which covers the Registrable Securities.
2. REGISTRATION.
(a) Subject to the terms and conditions of this Agreement, the Company
shall prepare and file, no later than forty-five (45) days from the date hereof
(the "Scheduled Filing Deadline"), with the SEC a registration statement on Form
S-1 or SB-2 (or, if the Company is then eligible, on Form S-3) under the 1933
Act (the "Initial Registration Statement") for the registration for the resale
by all Investors who purchased Convertible Debentures pursuant to the Securities
Purchase Agreement _________ shares of Common Stock to be issued upon conversion
of the Convertible Debentures issued pursuant to the Securities Purchase
Agreement and the Investor's Shares. The Company shall cause the Registration
Statement to remain effective until all of the Registrable Securities have been
sold. Prior to the filing of the Registration Statement with the SEC, the
Company shall furnish a copy of the Initial Registration Statement to the
Investors and Butler Gonzalez LLP for their review and comment. The Investors
and Butler Gonzalez LLP shall furnish comments on the Initial Registration
Statement to the Company within twenty-four (24) hours of the receipt thereof
from the Company.
(b) Effectiveness of the Initial Registration Statement. The Company shall
use its best efforts (i) to have the Initial Registration Statement declared
effective by the SEC no later than 120 days after the date hereof (the
"Scheduled Effective Deadline") and (ii) to insure that the Initial Registration
Statement and any subsequent Registration Statement remains in effect until all
of the Registrable Securities have been sold, subject to the terms and
conditions of this Agreement.
(c) Failure to File or Obtain Effectiveness of the Registration Statement.
In the event the Registration Statement is not filed by the Scheduled Filing
Deadline or is not declared effective by the SEC on or before the Scheduled
Effective Date, or if after the Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to the Registration
Statement (whether because of a failure to keep the Registration Statement
effective, failure to disclose such information as is necessary for sales to be
made pursuant to the Registration Statement, failure to register sufficient
shares of Common Stock or otherwise then as partial relief for the damages to
any holder of Registrable Securities by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy shall
not be exclusive of any other remedies at law or in equity), the Company will
pay as liquidated damages (the "Liquidated Damages") to the holder, at the
holder's option, either a cash amount or shares of the Company's Common Stock
within three (3) business days, after demand therefore, equal to two percent
(2%) of the liquidated value of the Convertible Debentures outstanding as
Liquidated Damages for each thirty (30) day period after the Scheduled Filing
Deadline or the Scheduled Effective Date as the case may be.
(d) Liquidated Damages. The Company and the Investor hereto acknowledge and
agree that the sums payable under subsection 2(c) above shall constitute
liquidated damages and not penalties and are in addition to all other rights of
the Investor, including the right to call a default. The parties further
acknowledge that (i) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (ii) the amounts specified in
such subsections bear a reasonable relationship to, and are not plainly or
grossly disproportionate to, the probable loss likely to be incurred in
connection with any failure by the Company to obtain or maintain the
effectiveness of a Registration Statement, (iii) one of the reasons for the
Company and the Investor reaching an agreement as to such amounts was the
uncertainty and cost of litigation regarding the question of actual damages, and
(iv) the Company and the Investor are sophisticated business parties and have
been represented by sophisticated and able legal counsel and negotiated this
Agreement at arm's length.
3. RELATED OBLIGATIONS.
(a) The Company shall keep the Registration Statement effective
pursuant to Rule 415 at all times until the date on which the Investor shall
have sold all the Registrable Securities covered by such Registration Statement
(the "Registration Period"), which 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.
(b) The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a 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 at all times 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 seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company's filing a report on Form 10-KSB, Form 10-QSB or Form 8-K
or any analogous report under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), the Company shall incorporate such report by reference into
the Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement the
Registration Statement.
(c) The Company shall furnish to each Investor whose Registrable Securities
are included in any Registration Statement, without charge, (i) at least one (1)
copy of such Registration Statement as declared effective by the SEC and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, all exhibits and each preliminary
prospectus, (ii) ten (10) copies of the final prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents as such Investor may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities owned by such Investor.
(d) The Company shall use its best efforts to (i) register and qualify the
Registrable Securities covered by a Registration Statement under such other
securities or "blue sky" laws of such jurisdictions in the United States as any
Investor reasonably requests, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and 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 (w) make any
change to its certificate of incorporation or by-laws, (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify each 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 threat of any proceeding for such purpose.
(e) As promptly as practicable after becoming aware of such event or
development, the Company shall notify each Investor in writing of the happening
of any event as a result of which the prospectus included in a 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 (provided that in no event shall such notice contain any
material, nonpublic information), and promptly prepare a supplement or amendment
to such Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such supplement or amendment to each Investor. The
Company shall also promptly notify each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to each
Investor by facsimile on the same day of such effectiveness), (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.
(f) The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement, or
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction within the United States of America 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 each Investor who holds
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 for such purpose.
(g) At the reasonable request of any Investor, the Company shall furnish to
such Investor, on the date of the effectiveness of the Registration Statement
and thereafter from time to time on such dates as an Investor may reasonably
request (i) a letter, dated such date, from the Company's independent certified
public accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
and (ii) an opinion, dated as of such date, of counsel representing the Company
for purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
Investors.
(h) The Company shall make available for inspection by (i) any Investor and
(ii) one (1) firm of accountants or other agents retained by the Investors
(collectively, the "Inspectors") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably deemed necessary by each Inspector, and cause
the Company's officers, directors and employees to supply all information which
any Inspector may reasonably request; provided, however, that each Inspector
shall agree, and each Investor hereby agrees, to hold in strict confidence and
shall not make any disclosure (except to an Investor) or use any Record or
other information which the Company determines in good faith to be confidential,
and of which determination the Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement or is otherwise required under the 1933
Act, (b) the release of such Records is ordered pursuant to a final,
non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement of which the Inspector and the Investor has knowledge. Each
Investor agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.
(i) The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company 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
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
(j) The Company shall use its best efforts either to cause all the
Registrable Securities covered by a Registration Statement (i) to be listed on
each securities exchange 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 (ii) the
inclusion for quotation on the National Association of Securities Dealers, Inc.
OTC Bulletin Board for such Registrable Securities. 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 Investors who hold Registrable
Securities being offered and, to the extent applicable, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.
(l) The Company shall use its best 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 consummate the disposition of such Registrable Securities.
(m) The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve (12) month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
(n) The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.
(o) Within two (2) business days after a Registration Statement which
covers Registrable Securities is declared effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.
(p) The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
Each Investor agrees that, upon receipt of any 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), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or receipt of
notice that no supplement or amendment is required. Notwithstanding anything to
the contrary, the Company shall cause its transfer agent to deliver unlegended
certificates for shares of Common Stock to a transferee of an Investor in
accordance with the terms of the Securities Purchase Agreement in connection
with any sale of Registrable Securities with respect to which an Investor has
entered into a contract for sale prior to the Investor's receipt of a 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) and for which the Investor has not yet
settled.
5. EXPENSES OF REGISTRATION.
All expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.
6. INDEMNIFICATION.
With respect to Registrable Securities which are included in a Registration
Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the 1934
Act (each, an "Indemnified Person"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable 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 a
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 Registrable Securities are
offered ("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 not misleading; (ii) any untrue statement or alleged untrue statement of
a material fact contained in any 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 there under relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). The Company shall
reimburse the Investors and each such controlling person promptly as such
expenses are incurred and are due and payable, for any legal fees or
disbursements 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): (x) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; (y) shall not be
available to the extent such Claim is based on a failure of the Investor to
deliver or to cause to be delivered the prospectus made available by the
Company, if such prospectus was timely made available by the Company pursuant to
Section 3(c); and (z) shall not apply to 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 transfer of the Registrable
Securities by the Investors pursuant to Section 9 hereof.
(b) In connection with a Registration Statement, each Investor agrees to
severally and not 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, employees, representatives, or agents
and each Person, if any, who controls the Company within the meaning of the 1933
Act or the 1934 Act (each 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 is based upon any Violation, in each case to the extent, and only to
the extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and, subject to Section 6(d),
such 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 such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only 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 force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the prospectus was corrected and such new
prospectus was delivered to each Investor prior to such Investor's use of the
prospectus to which the Claim relates.
(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 of not more than one (1) counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such 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 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 prior written consent; provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written 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 or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect 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 indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
(e) 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.
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
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 (ii) 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.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any similar rule or regulation of the SEC that
may at any time permit the Investors to sell securities of the Company to the
public without registration ("Rule 144") 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 Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents as are required by the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, 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 Investors to
sell such securities pursuant to Rule 144 without registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and Investors
who then hold at least two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 9 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to fewer than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
10. MISCELLANEOUS.
(a) A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two (2)
or more Persons with respect to the same Registrable Securities, the Company
shall act upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.
(b) Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company, to: Power2Ship, Inc.
903 Clint Moore Road
Boca Raton, Florida 33487
Attention: Richard Hersh, President
Telephone: (561) 998-7557
Facsimile: (561) 998-7821
Schneider Weinberger LLP
2200 Corporate Boulevard, N.W., Suite 210
Boca Raton, Florida 33431
Attention: James M. Schneider, Esquire
Telephone: (561) 362-9595
Facsimile: (561) 362-9612
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If to an Investor, to its address and facsimile number on the Schedule of
Investors attached hereto, with copies to such Investor's representatives as set
forth on the Schedule of Investors or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
(c) 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.
(d) All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New Jersey, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New Jersey or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New Jersey. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the Superior Courts of the State of New Jersey,
sitting in Hudson County, New Jersey and federal courts for the District of New
Jersey sitting Newark, New Jersey, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
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. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
(e) This Agreement, the Irrevocable Transfer Agent Instructions, the
Securities Purchase Agreement and related documents including the Convertible
Debenture and the Escrow Agreement dated the date hereof by and among the
Company, the Investors set forth on the Schedule of Investors attached hereto,
and Butler Gonzalez LLP (the "Escrow Agreement") and the Security Agreement
dated the date hereof (the "Security Agreement") 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. This Agreement, the
Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and
related documents including the Convertible Debenture, the Escrow Agreement and
the Security Agreement supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.
(f) This Agreement shall inure to the benefit of and be binding upon the
permitted successors and assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in 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.
(i) 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.
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.
(j) This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties have caused this Investor Registration
Rights Agreement to be duly executed as of day and year first above written.
COMPANY:
POWER2SHIP, INC.
By: /s/ Richard Hersh
----------------------
Name: Richard Hersh
Title: President
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SCHEDULE I
SCHEDULE OF INVESTORS
NAME SIGNATURE ADDRESS/FACSIMILE
NUMBER OF BUYER
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 101 Hudson Street - Suite 3700
Its: General Partner Jersey City, NJ 07303
Facsimile: (201) 985-8266
By: With a copy to:
----------------------
Name: Mark A. Angelo Troy J. Rillo
Its: Portfolio Manager 101 Hudson Street - Suite 3700
Jersey City, NJ 07303
Facsimile: (201) 985-8266
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EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Madison Stock Transfer, Inc.
1688 E. 16th Street, Suite 7
Brooklyn, New York 11229
Attention:
Re: POWER2SHIP, INC.
Ladies and Gentlemen:
We are counsel to Power2Ship, Inc., a Nevada corporation (the "Company"),
and have represented the Company in connection with that certain Securities
Purchase Agreement (the "Securities Purchase Agreement") entered into by and
among the Company and the investors named therein (collectively, the
"Investors") pursuant to which the Company issued to the Investors shares of its
Common Stock, par value $0.001 per share (the "Common Stock"). Pursuant to the
Purchase Agreement, the Company also has entered into a Registration Rights
Agreement with the Investors (the "Investor Registration Rights Agreement")
pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Registration Rights Agreement, on
, the Company filed a Registration Statement on Form (File No.
---- --------
333- ) (the "Registration Statement") with the Securities and
----------- -----------------------
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Exchange SEC (the "SEC") relating to the Registrable Securities which names each
of the Investors as a selling stockholder there under.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any 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.
Very truly yours,
[SECURITIES LAW FIRM]
By:
cc: [LIST NAMES OF INVESTORS]
EXHIBIT 10.3
STANDBY EQUITY DISTRIBUTION AGREEMENT
THIS STANDBY EQUITY DISTRIBUTION AGREEMENT (the "Agreement") dated as of
June 28, 2004 by and between CORNELL CAPITAL PARTNERS, LP, a Delaware limited
partnership (the "Investor"), and POWER2SHIP, INC., a Nevada corporation (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase from the
Company up to $10,000,000 of the Company's common stock, par value $0.001 per
share (the "Common Stock"); and
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
WHEREAS, the Company has engaged Newbridge Securities Corporation (the
"Placement Agent"), to act as the Company's exclusive placement agent in
connection with the sale of the Company's Common Stock to the Investor hereunder
pursuant to the Placement Agent Agreement dated the date hereof by and among the
Company, the Placement Agent and the Investor (the "Placement Agent Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.2 "Advance Date" shall mean the date Butler Gonzalez LLP Escrow
Account is in receipt of the funds from the Investor and Butler Gonzalez LLP, as
the Investor's Counsel, is in possession of free trading shares from the Company
and therefore an Advance by the Investor to the Company can be made and Butler
Gonzalez LLP can release the free trading shares to the Investor. No Advance
Date shall be more than one (1) Trading Day after expiration of the Pricing
Period for the applicable Advance.
Section 1.3 "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date.
Section 1.4 "Advance Notice Date" shall mean each date the Company delivers
to the Investor an Advance Notice requiring the Investor to advance funds to the
Company, subject to the terms of this Agreement. No Advance Notice Date shall be
less than seven (7) Trading Days after the prior Advance Notice Date.
Section 1.5 "Bid Price" shall mean, on any date, the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if
the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.6 "Closing" shall mean one of the closings of a purchase and sale
of Common Stock pursuant to Section 2.3.
Section 1.7 "Commitment Amount" shall mean the aggregate amount of up to
$10,000,000 that the Investor has agreed to provide to the Company in order to
purchase the Company's Common Stock pursuant to the terms and conditions of this
Agreement.
Section 1.8 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of $10,000,000,
(y) the date this Agreement is terminated pursuant to Section 2.5, or (z) the
date occurring twenty-four (24) months after the Effective Date.
Section 1.9 "Common Stock" shall mean the Company's common stock, par value
$0.001 per share.
Section 1.10 "Condition Satisfaction Date" shall have the meaning set forth
in Section 7.2.
Section 1.11 "Damages" shall mean any loss, claim, damage, liability, costs
and expenses (including, without limitation, reasonable attorney's fees and
disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13 "Escrow Agreement" shall mean the escrow agreement among the
Company, the Investor, and Butler Gonzalez LLP, dated the date hereof.
Section 1.14 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
Section 1.15 "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement in any material
respect.
Section 1.16 "Market Price" shall mean the lowest VWAP of the Common Stock
during the Pricing Period.
Section 1.17 "Maximum Advance Amount" shall be $500,000 per Advance Notice.
Section 1.18 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.20 "Placement Agent" shall mean Newbridge Securities Corporation,
a registered broker-dealer.
Section 1.21 "Pricing Period" shall mean the five (5) consecutive Trading
Days after the Advance Notice Date.
Section 1.22 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.23 "Purchase Price" shall be set at ninety eight percent (98%) of
the Market Price during the Pricing Period.
Section 1.24 "Registrable Securities" shall mean the shares of Common Stock
to be issued hereunder (i) in respect of which the Registration Statement has
not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") or (iii)
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
Section 1.25 "Registration Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.
Section 1.26 "Registration Statement" shall mean a registration statement
on Form S-1 or SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.27 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.28 "SEC" shall mean the Securities and Exchange Commission.
Section 1.29 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.30 "SEC Documents" shall mean Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.31 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.32 "VWAP" shall mean the volume weighted average price of the
Company's Common Stock, as quoted by Bloomberg, LP.
ARTICLE II
ADVANCES
Section 2.1 Investments.
(a) Advances. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Advance Notice
Date the Company may request an Advance by the Investor by the delivery of an
Advance Notice. The number of shares of Common Stock that the Investor shall
receive for each Advance shall be determined by dividing the amount of the
Advance by the Purchase Price. No fractional shares shall be issued. Fractional
shares shall be rounded to the next higher whole number of shares. The
aggregate maximum amount of all Advances that the Investor shall be obligated to
make under this Agreement shall not exceed the Commitment Amount.
Section 2.2 Mechanics.
(a) Advance Notice. At any time during the Commitment Period, the Company
may deliver an Advance Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, the amount for each Advance as
designated by the Company in the applicable Advance Notice, shall not be more
than the Maximum Advance Amount. The aggregate amount of the Advances pursuant
to this Agreement shall not exceed the Commitment Amount. The Company
acknowledges that the Investor may sell shares of the Company's Common Stock
corresponding with a particular Advance Notice on the day the Advance Notice is
received by the Investor. There shall be a minimum of seven (7) Trading Days
between each Advance Notice Date.
(b) Date of Delivery of Advance Notice. An Advance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Advance Notice may be deemed delivered on a day
that is not a Trading Day.
(c) Pre-Closing Share Credit. Within two (2) business days after the
Advance Notice Date, the Company shall credit shares of the Company's Common
Stock to the Investor's counsel's balance account with The Depository Trust
Company through its Deposit Withdrawal At Custodian system, in an amount equal
to the amount of the requested Advance divided by the closing Bid Price of the
Company's Common Stock as of the Advance Notice Date multiplied by one point one
(1.1). Any adjustments to the number of shares to be delivered to the Investor
at the Closing as a result of fluctuations in the closing Bid Price of the
Company's Common Stock shall be made as of the date of the Closing. Any excess
shares shall be credited to the next Advance. In no event shall the number of
shares issuable to the Investor pursuant to an Advance cause the Investor to own
in excess of nine and 9/10 percent (9.9%) of the then outstanding Common Stock
of the Company.
(d) Hardship. In the event the Investor sells the Company's Common Stock
pursuant to subsection (c) above and the Company fails to perform its
obligations as mandated in Section 2.5 and 2.2 (c), and specifically fails to
provide the Investor with the shares of Common Stock for the applicable Advance,
the Company acknowledges that the Investor shall suffer financial hardship and
therefore shall be liable for any and all losses, commissions, fees, or
financial hardship caused to the Investor.
Section 2.3 Closings. On each Advance Date, which shall be the first
Trading Day after expiration of the Pricing Period of an applicable Advance, (i)
the Company shall deliver to the Investor's Counsel, as defined pursuant to the
Escrow Agreement, shares of the Company's Common Stock, representing the amount
of the Advance by the Investor pursuant to Section 2.1 herein, registered in the
name of the Investor which shall be delivered to the Investor, or otherwise in
accordance with the Escrow Agreement and (ii) the Investor shall deliver to
Butler Gonzalez LLP (the "Escrow Agent") the amount of the Advance specified in
the Advance Notice by wire transfer of immediately available funds which shall
be delivered to the Company, or otherwise in accordance with the Escrow
Agreement. In addition, on or prior to the Advance Date, each of the Company
and the Investor shall deliver to the other through the Investor's Counsel, all
documents, instruments and writings required to be delivered by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. Payment of funds to the Company and delivery of the
Company's Common Stock to the Investor shall occur in accordance with the
conditions set forth above and those contained in the Escrow Agreement;
provided, however, that to the extent the Company has not paid the fees,
expenses, and disbursements of the Investor or the Investor's counsel in
accordance with Section 12.4 hereof, the amount of such fees, expenses, and
disbursements may be deducted by the Investor (and shall be paid to the relevant
party) from the amount of the Advance with no reduction in the amount of shares
of the Company's Common Stock to be delivered on such Advance Date.
Section 2.4 Termination of Investment. The obligation of the Investor to
make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of fifty
(50) Trading Days, other than due to the acts of the Investor, during the
Commitment Period, and (ii) the Company shall at any time fail materially to
comply with the requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written notice from the Investor, provided,
however, that this termination provision shall not apply to any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is
declared effective by the SEC.
Section 2.5 Agreement to Advance Funds.
(a) The Investor agrees to advance the amount specified in the Advance
Notice to the Company after the completion of each of the following conditions
and the other conditions set forth in this Agreement:
(i) the execution and delivery by the Company, and the Investor, of
this Agreement and the Exhibits hereto;
(ii) Investor's Counsel shall have received the shares of Common Stock
applicable to the Advance in accordance with Section 2.2(c) hereof;
(iii) the Company's Registration Statement with respect to the resale
of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement shall have been declared effective by the
SEC;
(iv) the Company shall have obtained all material permits and
qualifications required by any applicable state for the offer and sale of
the Registrable Securities, or shall have the availability of exemptions
therefrom. The sale and issuance of the Registrable Securities shall be
legally permitted by all laws and regulations to which the Company is
subject;
(v) the Company shall have filed with the Commission in a timely
manner all reports, notices and other documents required of a "reporting
company" under the Exchange Act and applicable Commission regulations;
(vi) the fees as set forth in Section 12.4 below shall have been paid
or can be withheld as provided in Section 2.3; and
(vii) the conditions set forth in Section 7.2 shall have been
satisfied.
(viii) The Company shall have provided to the Investor an
acknowledgement, from Sherb & Co., LLP as to its ability to provide all
consents required in order to file a registration statement in connection
with this transaction;
(ix) The Company's transfer agent shall be DWAC eligible.
Section 2.6 Lock Up Period. During the Commitment Period, the Company
hereby grants to Investor the right of first refusal (the "Right of First
Refusal") to purchase New Securities (as defined in the next paragraph) that the
Company may, from time to time and in one or more transactions, propose to sell
and issue. In connection with such right, the Company covenants and agrees to
give Investor written notice (an "Offering Notice") specifying, in detail, the
terms and conditions of any bona fide proposed sale of New Securities and the
names and addresses of such persons and entities prepared to purchase such New
Securities, and any representatives, brokers or dealers proposing to effectuate
such sale, together with all compensation terms. The Investor shall have the
right, for a period expiring at 11:59 PM (Eastern Time) on the fifth (5th)
business day after the giving of the Offering Notice (the "Exercise Period"), to
purchase or place the New Securities for the price and on the general terms and
conditions specified in the Offering Notice. Such exercise shall be affected by
the Investor giving written notice of such exercise to the Company prior to the
expiration of the Exercise Period. The Investor's failure to exercise such right
shall not result in the cancellation of Investor's right of first refusal on any
other proposed financing by the Company thereafter.
The term "New Securities" as used in the preceding paragraph shall mean any
offering and issuance by the Company of Common Stock or securities convertible
into, and/or other rights exercisable for the issuance of, Common Stock to or
with any third party without consideration or for a consideration per share less
than the Bid Price on the date of issuance of the New Securities with the
exception of New Securities issued in conjunction with the closing of a
contract, sub-contract, teaming arrangement, joint venture or strategic
partnership but only to the extent that such New Securities do not exceed 10% of
the Company's outstanding Common Stock on the date of issuance. Except as may
otherwise be permitted pursuant to the forgoing, during the Commitment Period,
the Company shall not issue or sell any warrant, option, right, contract, call,
or other security or instrument granting the holder thereof the right to acquire
Common Stock without consideration or for a consideration per share less than
the Bid Price on the date of issuance.
(i) On the date hereof, the Company shall obtain from each officer and
director a lock-up agreement, as defined below, in the form annexed hereto
as Schedule 2.6 agreeing to only sell in compliance with the volume
limitation of Rule 144.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby represents and warrants to, and agrees with, the Company
that the following are true and as of the date hereof and as of each Advance
Date:
Section 3.1 Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed
and delivered by the Investor and, assuming the execution and delivery hereof
and acceptance thereof by the Company, will constitute the legal, valid and
binding obligations of the Investor, enforceable against the Investor in
accordance with its terms.
Section 3.2 Evaluation of Risks. The Investor has such knowledge and
experience in financial tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
Section 3.3 No Legal Advice From the Company. The Investor acknowledges
that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors. The Investor is relying solely on such counsel and advisors
and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
Section 3.4 Investment Purpose. The securities are being purchased by the
Investor for its own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part. The Investor agrees not to assign or in any way transfer the Investor's
rights to the securities or any interest therein and acknowledges that the
Company will not recognize any purported assignment or transfer except in
accordance with applicable Federal and state securities laws. No other person
has or will have a direct or indirect beneficial interest in the securities. The
Investor agrees not to sell, hypothecate or otherwise transfer the Investor's
securities unless the securities are registered under Federal and applicable
state securities laws or unless, in the opinion of counsel satisfactory to the
Company, an exemption from such laws is available.
Section 3.5 Accredited Investor. The Investor is an "Accredited Investor"
as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.
Section 3.6 Information. The Investor and its advisors (and its counsel),
if any, have been furnished with all materials relating to the business,
finances and operations of the Company and information it deemed material to
making an informed investment decision. The Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in this Agreement. The Investor
understands that its investment involves a high degree of risk. The Investor is
in a position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Investor to
obtain information from the Company in order to evaluate the merits and risks of
this investment. The Investor has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to this transaction.
Section 3.7 Receipt of Documents. The Investor and its counsel have
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-KSB for the year ended year ended June 30, 2003 and
Form 10-QSB for the period ended March 31, 2004; and (iv) answers to all
questions the Investor submitted to the Company regarding an investment in the
Company; and the Investor has relied on the information contained therein and
has not been furnished any other documents, literature, memorandum or
prospectus.
Section 3.8 Registration Rights Agreement and Escrow Agreement. The parties
have entered into the Registration Rights Agreement and the Escrow Agreement,
each dated the date hereof.
Section 3.9 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the shares of Common Stock offered hereby.
Section 3.10 Not an Affiliate. The Investor is not an officer, director or
a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company or any
"Affiliate" of the Company (as that term is defined in Rule 405 of the
Securities Act). Neither the Investor nor its Affiliates has an open short
position in the Common Stock of the Company, and the Investor agrees that it
will not, and that it will cause its Affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock, provided that
the Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor will sell the Shares to be issued to the Investor pursuant to the
Advance Notice, even if the Shares have not been delivered to the Investor.
Section 3.11 Trading Activities. The Investor's trading activities with
respect to the Company's Common Stock shall be in compliance with all applicable
federal and state securities laws, rules and regulations and the rules and
regulations of the Principal Market on which the Company's Common Stock is
listed or traded. Neither the Investor nor its affiliates has an open short
position in the Common Stock of the Company and, except as set forth below, the
Investor shall not and will cause its affiliates not to engage in any short sale
as defined in any applicable SEC or National Association of Securities Dealers
rules on any hedging transactions with respect to the Common Stock. Without
limiting the foregoing, the Investor agrees not to engage in any naked short
transactions in excess of the amount of shares owned (or an offsetting long
position) during the Commitment Period. The Investor shall be entitled to sell
Common Stock during the applicable Pricing Period.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below, on the disclosure schedules attached hereto or in
the SEC Documents (as defined herein), the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
Section 4.1 Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
Section 4.2 Authorization, Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Placement Agent Agreement and any related agreements, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements have
been duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Placement Agent
Agreement and assuming the execution and delivery thereof and acceptance by the
Investor and any related agreements constitute the valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
Section 4.3 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 100,000,000 shares of Common Stock, par value
$0.001 per share and 1,000,000 shares of Preferred Stock, of which 200,000
shares were designated Series B Preferred Stock, 20,000 shares were designated
Series C Preferred Stock and 87,000 shares were designated Series Y Preferred
Stock. As of the date hereof, there were 36,682,525_shares of Common Stock,
198,000 shares of Series B Preferred Stock, 10,832 shares of Series C Preferred
Stock and 87,000 shares of Series Y Preferred Stock issued and outstanding.
Except as disclosed in the SEC Documents, no shares of Common Stock are subject
to preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. Except as disclosed in the SEC Documents,
as of the date hereof, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities (iii) there are no outstanding registration statements other than on
Form S-8 and (iv) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement). There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by this Agreement or
any related agreement or the consummation of the transactions described herein
or therein. The Company has furnished to the Investor true and correct copies
of the Company's Articles of Incorporation, as amended and as in effect on the
date hereof (the "Articles of Incorporation"), and the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
Section 4.4 No Conflict. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Articles of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which would cause a
Material Adverse Effect. Except as disclosed in the SEC Documents, neither the
Company nor its subsidiaries is in violation of any term of or in default under
its Articles of Incorporation or By-laws or their organizational charter or
by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries. The business
of the Company and its subsidiaries is not being conducted in violation of any
material law, ordinance, regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any fact or circumstance which might
give rise to any of the foregoing.
Section 4.5 SEC Documents; Financial Statements. Since January 1, 2003, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under of the Exchange Act. The Company
has delivered to the Investor or its representatives, or made available through
the SEC's website at http://www.sec.gov, true and complete copies of the SEC
Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "Financial Statements") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Investor which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 4.6 10b-5. The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 4.7 No Default. Except as disclosed in the SEC Documents, the
Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its property is bound and neither the execution,
nor the delivery by the Company, nor the performance by the Company of its
obligations under this Agreement or any of the exhibits or attachments hereto
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under its
Articles of Incorporation, By-Laws, any material indenture, mortgage, deed of
trust or other material agreement applicable to the Company or instrument to
which the Company is a party or by which it is bound, or any statute, or any
decree, judgment, order, rules or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, in each case
which default, lien or charge is likely to cause a Material Adverse Effect on
the Company's business or financial condition.
Section 4.8 Absence of Events of Default. Except for matters described in
the SEC Documents and/or this Agreement, no Event of Default, as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (as so defined), has occurred and is continuing, which would have a
Material Adverse Effect on the Company's business, properties, prospects,
financial condition or results of operations.
Section 4.9 Intellectual Property Rights. The Company and its subsidiaries
own or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service 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. 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, and, to the knowledge of the Company, there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service 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 any of the foregoing.
Section 4.10 Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
Section 4.11 Environmental Laws. The Company and its subsidiaries are (i)
in compliance with any and all applicable material foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.
Section 4.12 Title. Except as set forth in the SEC Documents, the Company
has good and marketable title to its properties and material assets owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company. Any real property and facilities held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
Section 4.13 Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
Section 4.14 Regulatory Permits. The Company and its subsidiaries possess
all material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
Section 4.15 Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 4.16 No Material Adverse Breaches, etc. Except as set forth in the
SEC Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers has or is
expected in the future to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
Section 4.17 Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a Material Adverse Effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
Section 4.18 Subsidiaries. Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
Section 4.19 Tax Status. Except as disclosed in the SEC Documents, the
Company and each of its subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
Section 4.20 Certain Transactions. Except as set forth in the SEC Documents
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
Section 4.21 Fees and Rights of First Refusal. The Company is not obligated
to offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
Section 4.22 Use of Proceeds. The Company represents that the net proceeds
from this offering will be used for general corporate purposes. However, in no
event shall the net proceeds from this offering be used by the Company for the
payment (or loaned to any such person for the payment) of any judgment, or other
liability, incurred by any executive officer, officer, director or employee of
the Company, except for any liability owed to such person for services rendered,
or if any judgment or other liability is incurred by such person originating
from services rendered to the Company, or the Company has indemnified such
person from liability.
Section 4.23 Further Representation and Warranties of the Company. For so
long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will maintain the listing of its Common Stock on the Principal Market.
Section 4.24 Opinion of Counsel. Investor shall receive an opinion letter
from counsel to the Company on the date hereof.
Section 4.25 Opinion of Counsel. The Company will obtain for the Investor,
at the Company's expense, any and all opinions of counsel which may be
reasonably required in order to sell the securities issuable hereunder without
restriction.
Section 4.26 Dilution. The Company is aware and acknowledges that issuance
of shares of the Company's Common Stock could cause dilution to existing
shareholders and could significantly increase the outstanding number of shares
of Common Stock.
ARTICLE V
INDEMNIFICATION
The Investor and the Company represent to the other the following with
respect to itself:
Section 5.1 Indemnification.
(a) In consideration of the Investor's execution and delivery of this
Agreement, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Investor, and all of its officers, directors, partners, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Investor
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Investor Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by the Investor Indemnitees or any of them as a result
of, or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Investor Indemnitee not arising out of any action or inaction of an
Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Investor's other obligations under this
Agreement, the Investor shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, shareholders, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Company
Indemnitees") from and against any and all Indemnified Liabilities incurred by
the Company Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Investor in this Agreement, the Registration Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant, agreement or obligation of the
Investor(s) contained in this Agreement, the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor, or (c) any cause of action, suit or claim brought or
made against such Company Indemnitee based on misrepresentations or due to a
breach by the Investor and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(c) The obligations of the parties to indemnify or make contribution under
this Section 5.1 shall survive termination.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2 Listing of Common Stock. The Company shall maintain the Common
Stock's authorization for quotation on the National Association of Securities
Dealers Inc.'s Over the Counter Bulletin Board.
Section 6.3 Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
file in a timely manner all reports and other documents required of it as a
reporting company under the Exchange Act and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Exchange Act.
Section 6.4 Transfer Agent Instructions. Not later than two (2) business
days after each Advance Notice Date and prior to each Closing and the
effectiveness of the Registration Statement and resale of the Common Stock by
the Investor, the Company will deliver instructions to its transfer agent to
issue shares of Common Stock free of restrictive legends.
Section 6.5 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.6 Notice of Certain Events Affecting Registration; Suspension of
Right to Make an Advance. The Company will immediately notify the Investor upon
its becoming aware of the occurrence of any of the following events in respect
of a registration statement or related prospectus relating to an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other Federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the registration statement or related prospectus; (ii) the issuance by the SEC
or any other Federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus of any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Advance Notice during the
continuation of any of the foregoing events.
Section 6.7 Expectations Regarding Advance Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Advance
Notices. Such notification shall constitute only the Company's good faith
estimate and shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Advance Notices. The failure
by the Company to comply with this provision can be cured by the Company's
notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
Section 6.8 Restriction on Sale of Capital Stock. During the Commitment
Period, the Company shall not issue or sell (i) any Common Stock or Preferred
Stock without consideration or for a consideration per share less than the bid
price of the Common Stock determined immediately prior to its issuance, (ii)
issue or sell any Preferred Stock warrant, option, right, contract, call, or
other security or instrument granting the holder thereof the right to acquire
Common Stock without consideration or for a consideration per share less than
such Common Stock's Bid Price determined immediately prior to its issuance, or
(iii) file any registration statement on Form S-8.
Section 6.9 Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially all the assets of the Company to another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument the obligation to
deliver to the Investor such shares of stock and/or securities as the Investor
is entitled to receive pursuant to this Agreement.
Section 6.10 Issuance of the Company's Common Stock. The sale of the shares
of Common Stock shall be made in accordance with the provisions and requirements
of Regulation D and any applicable state securities law.
ARTICLE VII
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligations of the Company. The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.
(a) Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement and the Registration Rights Agreement to
be performed, satisfied or complied with by the Investor at or prior to such
Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver an
Advance Notice and the Obligation of the Investor to Purchase Shares of Common
Stock. The right of the Company to deliver an Advance Notice and the obligation
of the Investor hereunder to acquire and pay for shares of the Company's Common
Stock incident to a Closing is subject to the fulfillment by the Company, on (i)
the date of delivery of such Advance Notice and (ii) the applicable Advance Date
(each a "Condition Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. The Company shall have
filed with the SEC a Registration Statement with respect to the resale of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement. As set forth in the Registration Rights Agreement, the Registration
Statement shall have previously become effective and shall remain effective on
each Condition Satisfaction Date and (i) neither the Company nor the Investor
shall have received notice that the SEC has issued or intends to issue a stop
order with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investor is reasonably satisfied that
the SEC no longer is considering or intends to take such action), and (ii) no
other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first
Advance Notice Date.
(b) Authority. The Company shall have obtained all permits and
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(c) Fundamental Changes. There shall not exist any fundamental changes to
the information set forth in the Registration Statement which would require the
Company to file a post-effective amendment to the Registration Statement.
(d) Performance by the Company. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement (including, without limitation, the
conditions specified in Section 2.5 hereof) and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
or directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
(f) No Suspension of Trading in or Delisting of Common Stock. The trading
of the Common Stock is not suspended by the SEC or the Principal Market (if the
Common Stock is traded on a Principal Market). The issuance of shares of Common
Stock with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market (if the Common Stock
is traded on a Principal Market). The Company shall not have received any notice
threatening the continued listing of the Common Stock on the Principal Market
(if the Common Stock is traded on a Principal Market).
(g) Maximum Advance Amount. The amount of an Advance requested by the
Company shall not exceed the Maximum Advance Amount. In addition, in no event
shall the number of shares issuable to the Investor pursuant to an Advance cause
the Investor to own in excess of nine and 9/10 percent (9.9%) of the then
outstanding Common Stock of the Company.
(h) No Knowledge. The Company has no knowledge of any event which would be
more likely than not to have the effect of causing such Registration Statement
to be suspended or otherwise ineffective.
(i) Other. On each Condition Satisfaction Date, the Investor shall have
received the certificate executed by an officer of the Company in the form of
Exhibit A attached hereto.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. Prior to the filing of the Registration
Statement the Company shall make available for inspection and review by the
Investor, its advisors and representatives, and any underwriter participating in
any disposition of the Registrable Securities on behalf of the Investor pursuant
to the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the Investor,
its advisors, or its representatives, unless prior to disclosure of such
information the Company identifies such information as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investor.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE IX
CHOICE OF LAW/JURISDICTION
Section 9.1 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New Jersey without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Hudson County, New Jersey, and expressly
consent to the jurisdiction and venue of the Superior Court of New Jersey,
sitting in Hudson County, New Jersey and the United States District Court of New
Jersey, sitting in Newark, New Jersey, for the adjudication of any civil action
asserted pursuant to this paragraph.
ARTICLE X
ASSIGNMENT; TERMINATION
Section 10.1 Assignment. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.
Section 10.2 Termination. The obligations of the Investor to make Advances
under Article II hereof shall terminate twenty-four (24) months after the
Effective Date. The Company may terminate this Agreement upon three days' prior
written notice, provided that there is no outstanding balance owed to the
Investor by the Company under the Securities Purchase Agreement of even date
herewith and there are no pending Advance notices submitted by the Company to
the Investor. Any earlier termination of this Agreement shall have no effect,
and shall not terminate, the Company's obligations under the Registration Rights
Agreement of even date herewith to register the Investor's Stock issued pursuant
to Section 12.4 hereof.
ARTICLE XI
NOTICES
Section 11.1 Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: Power2Ship, Inc.
903 Clint Moore Road
Boca Raton, Florida 33487
Attention: Richard Hersh, Chief Executive Officer
Telephone: (561) 998-7557
Facsimile: (561) 998-7821
With a copy to: Schneider Weinberger LLP
2200 Corporate Boulevard, N.W., Suite 210
Boca Raton, Florida 33431
Attention: James M. Schneider, Esquire
Telephone: (561) 362-9595
Facsimile: (561) 362-9612
If to the Investor(s): Cornell Capital Partners, LP
101 Hudson Street -Suite 3700
Jersey City, NJ 07302
Attention: Mark Angelo
Portfolio Manager
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a Copy to: Cornell Capital Partners, LP
101 Hudson Street -Suite 3700
Jersey City, NJ 07302
Attention: Troy J. Rillo
Senior Vice President
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
|
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof, though failure to deliver such copies shall not affect the
validity of this Agreement.
Section 12.2 Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
Section 12.3 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 12.4 Fees and Expenses. The Company hereby agrees to pay the
following fees:
(a) Structuring Fee. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby, except that the Company will pay to Yorkville Advisors
Management, LLC, the Investor's investment manager, a structuring fee of
$15,000, which shall be deducted from the gross proceeds of the First Closing of
the Convertible Debenture of even date herewith. In addition, on each advance
date, the Company will pay Butler Gonzalez LLP, the escrow agent hereunder, the
sum of $500 for legal, administrative and escrow fees.
(b) Commitment Fees.
(i) On each Advance Date the Company shall pay to the Investor,
directly from the gross proceeds held in escrow, an amount equal to five
percent (5%) of the amount of each Advance. The Company hereby agrees that
if such payment, as is described above, is not made by the Company on the
Advance Date, such payment will be made at the direction of the Investor as
outlined and mandated by Section 2.3 of this Agreement.
(ii) On the Closing Date, the Company shall issue to the Investor
shares of the Company's Common Stock in an amount equal to $275,000 divided
by the VWAP of the Company's Common Stock, as quoted by Bloomberg, LP, on
the Closing Date (the "Investor's Shares").
(iii) Fully Earned. The Investor's Shares shall be deemed fully earned
as of the date hereof.
(iv) Registration Rights. The Investor's Shares will have "piggy-back"
registration rights.
(v) Due Diligence Fee. The Company has previously remitted to the
Investor a due diligence fee of $2,500.
Section 12.5 Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 12.6 Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
COMPANY:
POWER2SHIP, INC.
By: /s/ Richard Hersh
---------------------------
Name: Richard Hersh
Title: Chief Executive Officer
|
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: /s/ Mark Angelo
---------------------------
Name: Mark Angelo
Title: Portfolio Manager
|
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
POWER2SHIP, INC.
The undersigned, hereby certifies, with respect to
the sale of shares of Common Stock of Power2Ship, Inc., (the "Company"),
issuable in connection with this Advance Notice and Compliance Certificate dated
(the "Notice"), delivered pursuant to the Standby Equity
Distribution Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected President of the Company.
2. There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants
and agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The Advance requested is .
---------------------------
The undersigned has executed this Certificate this day of .
----- -----------
POWER2SHIP, INC.
By: /s/ Richard Hersh
-----------------------------
Name: Richard Hersh
Title: Chief Executive Officer
|
SCHEDULED 2.6
POWER2SHIP, INC.
The undersigned hereby agrees that for a period commencing on the date
hereof and expiring on the termination of the Standby Equity Distribution
Agreement dated as of June , 2004 between Power2Ship, Inc., (the "Company"),
and Cornell Capital Partners, LP, (the "Investor") (the "Lock-up Period"), he,
she or it will not, directly or indirectly, without the prior written consent of
the Investor, issue, offer, agree or offer to sell, sell, grant an option for
the purchase or sale of, transfer, pledge, assign, hypothecate, distribute or
otherwise encumber or dispose of except pursuant to Rule 144 of the General
Rules and Regulations under the Securities Act of 1933, any securities of the
Company, including common stock or options, rights, warrants or other securities
underlying, convertible into, exchangeable or exercisable for or evidencing any
right to purchase or subscribe for any common stock (whether or not beneficially
owned by the undersigned), or any beneficial interest therein (collectively, the
"Securities").
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Company's securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned's investment in
the Company.
Dated: , 2004
-----------------
Signature
-----------------------------
Address:
-----------------------------
|
City, State, Zip Code:
Print Social Security Number
or Taxpayer I.D. Number
EXHIBIT 10.4
POWER2SHIP, INC.
PLACEMENT AGENT AGREEMENT
Dated as of: June 28, 2004
Newbridge Securities Corporation
1451 Cypress Creek Road, Suite 204
Fort Lauderdale, Florida 33309
Ladies and Gentlemen:
The undersigned, Power2Ship, Inc., a Nevada corporation (the "Company"),
hereby agrees with Newbridge Securities Corporation (the "Placement Agent") and
Cornell Capital Partners, LP, a Delaware Limited Partnership (the "Investor"),
as follows:
1. Offering. The Company hereby engages the Placement Agent to act as
its exclusive placement agent in connection with the Standby Equity Distribution
Agreement of even date herewith (the "Standby Equity Distribution Agreement"),
pursuant to which the Company shall issue and sell to the Investor, from time to
time, and the Investor shall purchase from the Company (the "Offering") up to
$10,000,000 of the Company's common stock (the "Commitment Amount"), par value
$0.001 per share (the "Common Stock"), at price per share equal to the Purchase
Price, as that term is defined in the Standby Equity Distribution Agreement.
The Placement Agent services shall consist of reviewing the terms of the Standby
Equity Distribution Agreement and advising the Company with respect to those
terms.
All capitalized terms used herein and not otherwise defined herein shall
have the same meaning ascribed to them as in the Standby Equity Distribution
Agreement. The Investor will be granted certain registration rights with
respect to the Common Stock as more fully set forth in the Registration Rights
Agreement of even date herewith between the Company and the Investor (the
"Registration Rights Agreement"). The documents to be executed and delivered in
connection with the Offering, including, but not limited to, this Agreement, the
Standby Equity Distribution Agreement, the Registration Rights Agreement, and
the Escrow Agreement of even date herewith (the "Escrow Agreement"), are
referred to sometimes hereinafter collectively as the "Offering Materials." The
Company's Common Stock purchased by the Investor hereunder or to be issued in
connection with the conversion of any debentures are sometimes referred to
hereinafter as the "Securities." The Placement Agent shall not be obligated to
sell any Securities.
2. Compensation.
A. Upon the execution of this Agreement, the Company shall issue to the
Placement Agent shares of Common Stock in an amount equal to $10,000 divided by
the volume weighted average price of the Company's Common Stock, as quoted by
Bloomberg, LP, on the date hereof (the "Placement Agent's Shares"). The
Placement Agent shall be entitled to "piggy-back" registration rights, which
shall be triggered upon registration of any shares of Common Stock by the
Investor with respect to the Placement Agent's Shares pursuant to the
Registration Rights Agreement.
3. Representations, Warranties and Covenants of the Placement Agent.
A. The Placement Agent represents, warrants and covenants as follows:
(i) The Placement Agent has the necessary power to enter into this
Agreement and to consummate the transactions contemplated hereby.
(ii) The execution and delivery by the Placement Agent of this
Agreement and the consummation of the transactions contemplated herein will
not result in any violation of, or be in conflict with, or constitute a
default under, any agreement or instrument to which the Placement Agent is
a party or by which the Placement Agent or its properties are bound, or any
judgment, decree, order or, to the Placement Agent's knowledge, any
statute, rule or regulation applicable to the Placement Agent. This
Agreement when executed and delivered by the Placement Agent, will
constitute the legal, valid and binding obligations of the Placement Agent,
enforceable in accordance with their respective terms, except to the extent
that (a) the enforceability hereof or thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, (b) the
enforceability hereof or thereof is subject to general principles of
equity, or (c) the indemnification provisions hereof or thereof may be held
to be in violation of public policy.
(iii) Upon receipt and execution of this Agreement, the Placement
Agent will promptly forward copies of this Agreement to the Company or its
counsel and the Investor or its counsel.
(iv) The Placement Agent will not intentionally take any action that
it reasonably believes would cause the Offering to violate the provisions
of the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934 (the "1934 Act"), the respective rules and regulations
promulgated thereunder (the "Rules and Regulations") or applicable "Blue
Sky" laws of any state or jurisdiction.
(v) The Placement Agent is a member of the National Association of
Securities Dealers, Inc., and is a broker-dealer registered as such under
the 1934 Act and under the securities laws of the states in which the
Securities will be offered or sold by the Placement Agent unless an
exemption for such state registration is available to the Placement Agent.
The Placement Agent is in material compliance with the rules and
regulations applicable to the Placement Agent generally and applicable to
the Placement Agent's participation in the Offering.
4. Representations and Warranties of the Company.
A. The Company represents and warrants as follows:
(i) The execution, delivery and performance of each of this Agreement,
the Standby Equity Distribution Agreement, the Escrow Agreement, and the
Registration Rights Agreement has been or will be duly and validly
authorized by the Company and is, or with respect to this Agreement, the
Standby Equity Distribution Agreement, the Escrow Agreement, and the
Registration Rights Agreement will be, a valid and binding agreement of the
Company, enforceable in accordance with its respective terms, except to the
extent that (a) the enforceability hereof or thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws from
time to time in effect and affecting the rights of creditors generally, (b)
the enforceability hereof or thereof is subject to general principles of
equity or (c) the indemnification provisions hereof or thereof may be held
to be in violation of public policy. The Securities to be issued pursuant
to the transactions contemplated by this Agreement and the Standby Equity
Distribution Agreement have been duly authorized and, when issued and paid
for in accordance with this Agreement, the Standby Equity Distribution
Agreement and the certificates/instruments representing such Securities,
will be valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except to the extent that (1) the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect and
affecting the rights of creditors generally, and (2) the enforceability
thereof is subject to general principles of equity. All corporate action
required to be taken for the authorization, issuance and sale of the
Securities has been duly and validly taken by the Company.
(ii) The Company has a duly authorized, issued and outstanding
capitalization as set forth herein and in the Standby Equity Distribution
Agreement. The Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement,
the agreements described herein and as described in the Standby Equity
Distribution Agreement and the agreements described therein. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no
rights of rescission or preemptive rights with respect thereto and are not
subject to personal liability solely by reason of being security holders;
and none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company. As of the date
hereof, the authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, par value $0.001 per share and 1,000,000 shares of
Preferred Stock, of which 200,000 shares were designated Series B Preferred
Stock, 20,000 shares were designated Series C Preferred Stock and 87,000
shares were designated Series Y Preferred Stock. As of the date hereof,
there were 36,702,525_shares of Common Stock, 198,000 shares of Series B
Preferred Stock, 10,832 shares of Series C Preferred Stock and 87,000
shares of Series Y Preferred Stock issued and outstanding.
(iii) The Common Stock to be issued in accordance with this Agreement
and the Standby Equity Distribution Agreement have been duly authorized
and, when issued and paid for in accordance with this Agreement, the
Standby Equity Distribution Agreement and the certificates/instruments
representing such Common Stock will be validly issued, fully-paid and
non-assessable; the holders thereof will not be subject to personal
liability solely by reason of being such holders; such Securities are not
and will not be subject to the preemptive rights of any holder of any
security of the Company.
(iv) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
necessary to conduct its business (including, without limitation, any real
or personal property stated in the Offering Materials to be owned or leased
by the Company), free and clear of all liens, encumbrances, claims,
security interests and defects of any material nature whatsoever, other
than those set forth in the Offering Materials and liens for taxes not yet
due and payable.
(v) There is no litigation or governmental proceeding pending or, to
the best of the Company's knowledge, threatened against, or involving the
properties or business of the Company, except as set forth in the Offering
Materials.
(vi) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
Except as set forth in the Offering Materials, the Company does not own or
control, directly or indirectly, an interest in any other corporation,
partnership, trust, joint venture or other business entity. The Company is
duly qualified or licensed and in good standing as a foreign corporation in
each jurisdiction in which the character of its operations requires such
qualification or licensing and where failure to so qualify would have a
material adverse effect on the Company. The Company has all requisite
corporate power and authority, and all material and necessary
authorizations, approvals, orders, licenses, certificates and permits of
and from all governmental regulatory officials and bodies (domestic and
foreign) to conduct its businesses (and proposed business) as described in
the Offering Materials. Any disclosures in the Offering Materials
concerning the effects of foreign, federal, state and local regulation on
the Company's businesses as currently conducted and as contemplated are
correct in all material respects and do not omit to state a material fact.
The Company has all corporate power and authority to enter into this
Agreement, the Standby Equity Distribution Agreement, the Registration
Rights Agreement, and the Escrow Agreement, to carry out the provisions and
conditions hereof and thereof, and all consents, authorizations, approvals
and orders required in connection herewith and therewith have been
obtained. No consent, authorization or order of, and no filing with, any
court, government agency or other body is required by the Company for the
issuance of the Securities or execution and delivery of the Offering
Materials except for applicable federal and state securities laws. The
Company, since its inception, has not incurred any liability arising under
or as a result of the application of any of the provisions of the 1933 Act,
the 1934 Act or the Rules and Regulations.
(vii) There has been no material adverse change in the condition or
prospects of the Company, financial or otherwise, from the latest dates as
of which such condition or prospects, respectively, are set forth in the
Offering Materials, and the outstanding debt, the property and the business
of the Company conform in all material respects to the descriptions thereof
contained in the Offering Materials.
(viii) Except as set forth in the Offering Materials, the Company is
not in breach of, or in default under, any term or provision of any
material indenture, mortgage, deed of trust, lease, note, loan or Standby
Equity Distribution Agreement or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other material
agreement or instrument to which it is a party or by which it or any of its
properties may be bound or affected. The Company is not in violation of any
provision of its charter or by-laws or in violation of any franchise,
license, permit, judgment, decree or order, or in violation of any material
statute, rule or regulation. Neither the execution and delivery of the
Offering Materials nor the issuance and sale or delivery of the Securities,
nor the consummation of any of the transactions contemplated in the
Offering Materials nor the compliance by the Company with the terms and
provisions hereof or thereof, has conflicted with or will conflict with, or
has resulted in or will result in a breach of, any of the terms and
provisions of, or has constituted or will constitute a default under, or
has resulted in or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or
pursuant to the terms of any indenture, mortgage, deed of trust, note, loan
or any other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company may be
bound or to which any of the property or assets of the Company is subject
except (a) where such default, lien, charge or encumbrance would not have a
material adverse effect on the Company and (b) as described in the Offering
Materials; nor will such action result in any violation of the provisions
of the charter or the by-laws of the Company or, assuming the due
performance by the Placement Agent of its obligations hereunder, any
material statute or any material order, rule or regulation applicable to
the Company of any court or of any foreign, federal, state or other
regulatory authority or other government body having jurisdiction over the
Company.
(ix) Subsequent to the dates as of which information is given in the
Offering Materials, and except as may otherwise be indicated or
contemplated herein or therein and the securities offered pursuant to the
Securities Purchase Agreement the Company has not (a) issued any securities
or incurred any liability or obligation, direct or contingent, for borrowed
money, or (b) entered into any transaction other than in the ordinary
course of business, or (c) declared or paid any dividend or made any other
distribution on or in respect of its capital stock. Except as described in
the Offering Materials, the Company has no outstanding obligations to any
officer or director of the Company.
(x) There are no claims for services in the nature of a finder's or
origination fee with respect to the sale of the Common Stock or any other
arrangements, agreements or understandings that may affect the Placement
Agent's compensation, as determined by the National Association of
Securities Dealers, Inc.
(xi) The Company owns or possesses, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses
necessary to conduct its business (including, without limitation, any such
licenses or rights described in the Offering Materials as being owned or
possessed by the Company) and, except as set forth in the Offering
Materials, there is no claim or action by any person pertaining to, or
proceeding, pending or threatened, which challenges the exclusive rights of
the Company with respect to any trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses used
in the conduct of the Company's businesses (including, without limitation,
any such licenses or rights described in the Offering Materials as being
owned or possessed by the Company) except any claim or action that would
not have a material adverse effect on the Company; the Company's current
products, services or processes do not infringe or will not infringe on the
patents currently held by any third party.
(xii) Except as described in the Offering Materials, the Company is
not under any obligation to pay royalties or fees of any kind whatsoever to
any third party with respect to any trademarks, service marks, copyrights,
service names, trade names, patents, patent applications, licenses or
technology it has developed, uses, employs or intends to use or employ,
other than to their respective licensors.
(xiii) Subject to the performance by the Placement Agent of its
obligations hereunder, the offer and sale of the Securities complies, and
will continue to comply, in all material respects with the requirements of
Rule 506 of Regulation D promulgated by the SEC pursuant to the 1933 Act
and any other applicable federal and state laws, rules, regulations and
executive orders. Neither the Offering Materials nor any amendment or
supplement thereto nor any documents prepared by the Company in connection
with the Offering will 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 light of the circumstances under which
they were made, not misleading. All statements of material facts in the
Offering Materials are true and correct as of the date of the Offering
Materials.
(xiv) All material taxes which are due and payable from the Company
have been paid in full or adequate provision has been made for such taxes
on the books of the Company, except for those taxes disputed in good faith
by the Company.
(xv) None of the Company nor any of its officers, directors, employees
or agents, nor any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political
party or candidate for office (domestic or foreign) or other person who is
or may be in a position to help or hinder the business of the Company (or
assist it in connection with any actual or proposed transaction) which (A)
might subject the Company to any damage or penalty in any civil, criminal
or governmental litigation or proceeding, or (B) if not given in the past,
might have had a materially adverse effect on the assets, business or
operations of the Company as reflected in any of the financial statements
contained in the Offering Materials, or (C) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company in the future.
5. Representations, Warranties and Covenants of the Investor.
A. The Investor represents, warrants and covenants as follows:
(i) The Investor has the necessary power to enter into this Agreement
and to consummate the transactions contemplated hereby.
(ii) The execution and delivery by the Investor of this Agreement and
the consummation of the transactions contemplated herein will not result in
any violation of, or be in conflict with, or constitute a default under,
any agreement or instrument to which the Investor is a party or by which
the Investor or its properties are bound, or any judgment, decree, order
or, to the Investor's knowledge, any statute, rule or regulation applicable
to the Investor. This Agreement when executed and delivered by the
Investor, will constitute the legal, valid and binding obligations of the
Investor, enforceable in accordance with their respective terms, except to
the extent that (a) the enforceability hereof or thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws from
time to time in effect and affecting the rights of creditors generally, (b)
the enforceability hereof or thereof is subject to general principles of
equity, or (c) the indemnification provisions hereof or thereof may be held
to be in violation of public policy.
(iii) The Investor will promptly, upon request by the Placement Agent,
forward copies of any and all due diligence questionnaires compiled by the
Investor to the Placement Agent.
(iv) The Investor is an Accredited Investor (as defined under the 1933
Act).
(v) The Investor is acquiring the Securities for the Inventor's own
account as principal, not as a nominee or agent, for investment purposes
only, and not with a view to, or for, resale, distribution or
fractionalization thereof in whole or in part and no other person has a
direct or indirect beneficial interest in such Securities. Further, the
Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or
to any third person, with respect to any of the Securities.
(vi) The Investor acknowledges the Investor's understanding that the
offering and sale of the Securities is intended to be exempt from
registration under the 1933 Act by virtue of Section 3(b) of the 1933 Act
and the provisions of Regulation D promulgated thereunder ("Regulation D").
In furtherance thereof, the Investor represents and warrants as follows:
(a) The Investor has the financial ability to bear the economic
risk of the Investor's investment, has adequate means for providing
for the Inventor's current needs and personal contingencies and has no
need for liquidity with respect to the Investor's investment in the
Company; and
(b) The Investor has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and
risks of the prospective investment. The Inventor also represents it
has not been organized for the purpose of acquiring the Securities.
(vii) The Investor has been given the opportunity for a reasonable
time prior to the date hereof to ask questions of, and receive answers
from, the Company or its representatives concerning the terms and
conditions of the Offering, and other matters pertaining to this
investment, and has been given the opportunity for a reasonable time prior
to the date hereof to obtain such additional information in connection with
the Company in order for the Investor to evaluate the merits and risks of
purchase of the Securities, to the extent the Company possesses such
information or can acquire it without unreasonable effort or expense. The
Investor is not relying on the Placement Agent or any of its affiliates
with respect to the accuracy or completeness of the Offering Materials or
for any economic considerations involved in this investment.
6. Certain Covenants and Agreements of the Company.
The Company covenants and agrees at its expense and without any expense to
the Placement Agent as follows:
A. To advise the Placement Agent and the Investor of any material
adverse change in the Company's financial condition, prospects or business or of
any development materially affecting the Company or rendering untrue or
misleading any material statement in the Offering Materials occurring at any
time as soon as the Company is either informed or becomes aware thereof.
B. To use its commercially reasonable efforts to cause the Common Stock
issuable in connection with the Standby Equity Distribution Agreement to be
qualified or registered for sale on terms consistent with those stated in the
Registration Rights Agreement and under the securities laws of such
jurisdictions as the Placement Agent and the Investor shall reasonably request.
Qualification, registration and exemption charges and fees shall be at the sole
cost and expense of the Company.
C. Upon written request, to provide and continue to provide the Placement
Agent and the Investor copies of all quarterly financial statements and audited
annual financial statements prepared by or on behalf of the Company, other
reports prepared by or on behalf of the Company for public disclosure and all
documents delivered to the Company's stockholders.
D. To deliver, during the registration period of the Standby Equity
Distribution Agreement, to the Investor upon the Investor's request, within
forty five (45) days, a statement of its income for each such quarterly period,
and its balance sheet and a statement of changes in stockholders' equity as of
the end of such quarterly period, all in reasonable detail, certified by its
principal financial or accounting officer; (ii) within ninety (90) days after
the close of each fiscal year, its balance sheet as of the close of such fiscal
year, together with a statement of income, a statement of changes in
stockholders' equity and a statement of cash flow for such fiscal year, such
balance sheet, statement of income, statement of changes in stockholders' equity
and statement of cash flow to be in reasonable detail and accompanied by a copy
of the certificate or report thereon of independent auditors if audited
financial statements are prepared; and (iii) a copy of all documents, reports
and information furnished to its stockholders at the time that such documents,
reports and information are furnished to its stockholders.
E. To comply with the terms of the Offering Materials.
F. To ensure that any transactions between or among the Company, or any of
its officers, directors and affiliates be on terms and conditions that are no
less favorable to the Company, than the terms and conditions that would be
available in an "arm's length" transaction with an independent third party.
7. Indemnification and Limitation of Liability.
A. The Company hereby agrees that it will indemnify and hold the
Placement Agent and each officer, director, shareholder, employee or
representative of the Placement Agent and each person controlling, controlled by
or under common control with the Placement Agent within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act or the SEC's Rules and
Regulations promulgated thereunder (the "Rules and Regulations"), harmless from
and against any and all loss, claim, damage, liability, cost or expense
whatsoever (including, but not limited to, any and all reasonable legal fees and
other expenses and disbursements incurred in connection with investigating,
preparing to defend or defending any action, suit or proceeding, including any
inquiry or investigation, commenced or threatened, or any claim whatsoever or in
appearing or preparing for appearance as a witness in any action, suit or
proceeding, including any inquiry, investigation or pretrial proceeding such as
a deposition) to which the Placement Agent or such indemnified person of the
Placement Agent may become subject under the 1933 Act, the 1934 Act, the Rules
and Regulations, or any other federal or state law or regulation, common law or
otherwise, arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in (a) Section 4 of this
Agreement, (b) the Offering Materials (except those written statements relating
to the Placement Agent given by the Placement Agent for inclusion therein), (c)
any application or other document or written communication executed by the
Company or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Common Stock under the securities laws
thereof, or any state securities commission or agency; (ii) the omission or
alleged omission from documents described in clauses (a), (b) or (c) above of a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (iii) the breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement. The Company
further agrees that upon demand by an indemnified person, at any time or from
time to time, it will promptly reimburse such indemnified person for any loss,
claim, damage, liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Company has indemnified such person pursuant
hereto. Notwithstanding the foregoing provisions of this Paragraph 7(A), any
such payment or reimbursement by the Company of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final judgment by
a court of competent jurisdiction (after all appeals or the expiration of time
to appeal) is entered against the Placement Agent or such indemnified person
based upon specific finding of fact that the Placement Agent or such indemnified
person's gross negligence or willful misfeasance will be promptly repaid to the
Company.
B. The Placement Agent hereby agrees that it will indemnify and hold the
Company and each officer, director, shareholder, employee or representative of
the Company, and each person controlling, controlled by or under common control
with the Company within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act or the Rules and Regulations, harmless from and against any and
all loss, claim, damage, liability, cost or expense whatsoever (including, but
not limited to, any and all reasonable legal fees and other expenses and
disbursements incurred in connection with investigating, preparing to defend or
defending any action, suit or proceeding, including any inquiry or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which the Company or such indemnified person of the Company may
become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or
any other federal or state law or regulation, common law or otherwise, arising
out of or based upon (i) the material breach of any representation, warranty,
covenant or agreement made by the Placement Agent in this Agreement, or (ii) any
false or misleading information provided to the Company in writing by one of the
Placement Agent's indemnified persons specifically for inclusion in the Offering
Materials.
C. The Investor hereby agrees that it will indemnify and hold the Placement
Agent and each officer, director, shareholder, employee or representative of the
Placement Agent, and each person controlling, controlled by or under common
control with the Placement Agent within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act or the Rules and Regulations, harmless from
and against any and all loss, claim, damage, liability, cost or expense
whatsoever (including, but not limited to, any and all reasonable legal fees and
other expenses and disbursements incurred in connection with investigating,
preparing to defend or defending any action, suit or proceeding, including any
inquiry or investigation, commenced or threatened, or any claim whatsoever or in
appearing or preparing for appearance as a witness in any action, suit or
proceeding, including any inquiry, investigation or pretrial proceeding such as
a deposition) to which the Placement Agent or such indemnified person of the
Placement Agent may become subject under the 1933 Act, the 1934 Act, the Rules
and Regulations, or any other federal or state law or regulation, common law or
otherwise, arising out of or based upon (i) the conduct of the Investor or its
officers, employees or representatives in its acting as the Investor for the
Offering, (ii) the material breach of any representation, warranty, covenant or
agreement made by the Investor in the Offering Materials, or (iii) any false or
misleading information provided to the Placement Agent by one of the Investor's
indemnified persons.
D. The Placement Agent hereby agrees that it will indemnify and hold the
Investor and each officer, director, shareholder, employee or representative of
the Investor, and each person controlling, controlled by or under common control
with the Investor within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act or the Rules and Regulations, harmless from and against any and
all loss, claim, damage, liability, cost or expense whatsoever (including, but
not limited to, any and all reasonable legal fees and other expenses and
disbursements incurred in connection with investigating, preparing to defend or
defending any action, suit or proceeding, including any inquiry or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which the Investor or such indemnified person of the Investor may
become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or
any other federal or state law or regulation, common law or otherwise, arising
out of or based upon the material breach of any representation, warranty,
covenant or agreement made by the Placement Agent in this Agreement.
E. Promptly after receipt by an indemnified party of notice of commencement
of any action covered by Section 7(A), (B), (C) or (D), the party to be
indemnified shall, within five (5) business days, notify the indemnifying party
of the commencement thereof; the omission by one (1) indemnified party to so
notify the indemnifying party shall not relieve the indemnifying party of its
obligation to indemnify any other indemnified party that has given such notice
and shall not relieve the indemnifying party of any liability outside of this
indemnification if not materially prejudiced thereby. In the event that any
action is brought against the indemnified party, the indemnifying party will be
entitled to participate therein and, to the extent it may desire, to assume and
control the defense thereof with counsel chosen by it which is reasonably
acceptable to the indemnified party. After notice from the indemnifying party to
such indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under such
Section 7(A), (B), (C), or (D) for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof, but
the indemnified party may, at its own expense, participate in such defense by
counsel chosen by it, without, however, impairing the indemnifying party's
control of the defense. Subject to the proviso of this sentence and
notwithstanding any other statement to the contrary contained herein, the
indemnified party or parties shall have the right to choose its or their own
counsel and control the defense of any action, all at the expense of the
indemnifying party if (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action at the expense of the indemnifying party, or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying party; provided, however, that the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstance, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for all such indemnified parties. No
settlement of any action or proceeding against an indemnified party shall be
made without the consent of the indemnifying party.
F. In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in Section 7(A) or 7(B) is due in
accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the Company and the Placement
Agent shall contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with the
investigation or defense of same) which the other may incur in such proportion
so that the Placement Agent shall be responsible for such percent of the
aggregate of such losses, claims, damages and liabilities as shall equal the
percentage of the gross proceeds paid to the Placement Agent and the Company
shall be responsible for the balance; provided, however, that no person guilty
of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933
Act shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7(F), any person
controlling, controlled by or under common control with the Placement Agent, or
any partner, director, officer, employee, representative or any agent of any
thereof, shall have the same rights to contribution as the Placement Agent and
each person controlling, controlled by or under common control with the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
and each officer of the Company and each director of the Company shall have the
same rights to contribution as the Company. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against the other party under this Section 7(D), notify such party from
whom contribution may be sought, but the omission to so notify such party shall
not relieve the party from whom contribution may be sought from any obligation
they may have hereunder or otherwise if the party from whom contribution may be
sought is not materially prejudiced thereby.
G. The indemnity and contribution agreements contained in this Section 7
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified person or any termination
of this Agreement.
H. The Company hereby waives, to the fullest extent permitted by law, any
right to or claim of any punitive, exemplary, incidental, indirect, special,
consequential or other damages (including, without limitation, loss of profits)
against the Placement Agent and each officer, director, shareholder, employee or
representative of the placement agent and each person controlling, controlled by
or under common control with the Placement Agent within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations
arising out of any cause whatsoever (whether such cause be based in contract,
negligence, strict liability, other tort or otherwise). Notwithstanding anything
to the contrary contained herein, the aggregate liability of the Placement Agent
and each officer, director, shareholder, employee or representative of the
Placement Agent and each person controlling, controlled by or under common
control with the Placement Agent within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act or the Rules and Regulations shall not exceed
the compensation received by the Placement Agent pursuant to Section 2 hereof.
This limitation of liability shall apply regardless of the cause of action,
whether contract, tort (including, without limitation, negligence) or breach of
statute or any other legal or equitable obligation.
8. Payment of Expenses.
The Company hereby agrees to bear all of the expenses in connection with
the Offering, including, but not limited to the following: filing fees, printing
and duplicating costs, advertisements, postage and mailing expenses with respect
to the transmission of Offering Materials, registrar and transfer agent fees,
escrow agent fees and expenses, fees of the Company's counsel and accountants,
issue and transfer taxes, if any.
9. Conditions of Closing.
The Closing shall be held at the offices of the Investor or its counsel.
The obligations of the Placement Agent hereunder shall be subject to the
continuing accuracy of the representations and warranties of the Company and the
Investor herein as of the date hereof and as of the Date of Closing (the
"Closing Date") with respect to the Company or the Investor, as the case may be,
as if it had been made on and as of such Closing Date; the accuracy on and as of
the Closing Date of the statements of the officers of the Company made pursuant
to the provisions hereof; and the performance by the Company and the Investor on
and as of the Closing Date of its covenants and obligations hereunder and to the
following further conditions:
A. Upon the effectiveness of a registration statement covering the Standby
Equity Distribution Agreement, the Investor and the Placement Agent shall
receive the opinion of Counsel to the Company, dated as of the date thereof,
which opinion shall be in form and substance reasonably satisfactory to the
Investor, their counsel and the Placement Agent.
B. At or prior to the Closing, the Investor and the Placement Agent shall
have been furnished such documents, certificates and opinions as it may
reasonably require for the purpose of enabling them to review or pass upon the
matters referred to in this Agreement and the Offering Materials, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
C. At and prior to the Closing, (i) there shall have been no material
adverse change nor development involving a prospective change in the condition
or prospects or the business activities, financial or otherwise, of the Company
from the latest dates as of which such condition is set forth in the Offering
Materials; (ii) there shall have been no transaction, not in the ordinary course
of business, except for the transactions pursuant to the Securities Purchase
Agreement entered into by the Company on the date hereof which has not been
disclosed in the Offering Materials or to the Placement Agent in writing; (iii)
except as set forth in the Offering Materials, the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness for which a waiver or extension has not been otherwise received;
(iv) except as set forth in the Offering Materials, the Company shall not have
issued any securities (other than those to be issued as provided in the Offering
Materials) or declared or paid any dividend or made any distribution of its
capital stock of any class and there shall not have been any change in the
indebtedness (long or short term) or liabilities or obligations of the Company
(contingent or otherwise) and trade payable debt; (v) no material amount of the
assets of the Company shall have been pledged or mortgaged, except as indicated
in the Offering Materials; and (v) no action, suit or proceeding, at law or in
equity, against the Company or affecting any of its properties or businesses
shall be pending or threatened before or by any court or federal or state
commission, board or other administrative agency, domestic or foreign, wherein
an unfavorable decision, ruling or finding could materially adversely affect the
businesses, prospects or financial condition or income of the Company, except as
set forth in the Offering Materials.
D. If requested at Closing the Investor and the Placement Agent shall
receive a certificate of the Company signed by an executive officer and chief
financial officer, dated as of the applicable Closing, to the effect that the
conditions set forth in subparagraph (C) above have been satisfied and that, as
of the applicable closing, the representations and warranties of the Company set
forth herein are true and correct.
E. The Placement Agent shall have no obligation to insure that (x) any
check, note, draft or other means of payment for the Common Stock will be
honored, paid or enforceable against the Investor in accordance with its terms,
or (y) subject to the performance of the Placement Agent's obligations and the
accuracy of the Placement Agent's representations and warranties hereunder, (1)
the Offering is exempt from the registration requirements of the 1933 Act or any
applicable state "Blue Sky" law or (2) the Investor is an Accredited Investor.
10. Termination.
This Agreement shall be co-terminus with, and terminate upon the same terms
and conditions as those set forth in, the Standby Equity Distribution Agreement.
The rights of the Investor and the obligations of the Company under the
Registration Rights Agreement, and the rights of the Placement Agent and the
obligations of the Company shall survive the termination of this Agreement
unabridged.
11. Miscellaneous.
A. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all which shall be deemed to be
one and the same instrument.
B. Any notice required or permitted to be given hereunder shall be
given in writing and shall be deemed effective when deposited in the United
States mail, postage prepaid, or when received if personally delivered or faxed
(upon confirmation of receipt received by the sending party), addressed as
follows to such other address of which written notice is given to the others):
If to Placement Agent, to: Newbridge Securities Corporation
1451 Cypress Creek Road, Suite 204
Fort Lauderdale, Florida 33309
Attention: Doug Aguililla
Telephone: (954) 334-3450
Facsimile: (954) 229-9937
If to the Company, to: Power2Ship, Inc.
903 Clint Moore Road
Boca Raton, Florida 33487
Attention: Richard Hersh, Chief Executive Officer
Telephone: (561) 998-7557
Facsimile: (561) 998-7821
With a copy to: Schneider Weinberger LLP
2200 Corporate Boulevard, N.W., Suite 210
Boca Raton, Florida 33431
Attention: James M. Schneider, Esquire
Telephone: (561) 362-9595
Facsimile: (561) 362-9612
If to the Investor: Cornell Capital Partners, LP
101 Hudson Street - Suite 3700
Jersey City, New Jersey 07302
Attention: Mark A. Angelo
Portfolio Manager
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With copies to: Cornell Capital Partners, LP
101 Hudson Street - Suite 3700
Jersey City, New Jersey 07302
Attention: Troy J. Rillo, Esq.
Senior Vice President
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
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C. This Agreement shall be governed by and construed in all respects
under the laws of the State of New Jersey, without reference to its conflict of
laws rules or principles. Any suit, action, proceeding or litigation arising
out of or relating to this Agreement shall be brought and prosecuted exclusively
in such federal or state court or courts located in Hudson County, New Jersey.
The parties hereby irrevocably and unconditionally consent to the jurisdiction
and venue of the Superior Court of New Jersey, sitting in Hudson County, New
Jersey, and the United States District Court of New Jersey, sitting in Newark,
New Jersey, and to service of process by registered or certified mail, return
receipt requested, or by any other manner provided by applicable law, and hereby
irrevocably and unconditionally waive any right to claim that any suit, action,
proceeding or litigation so commenced has been commenced in an inconvenient
forum.
D. This Agreement and the other agreements referenced herein contain
the entire understanding between the parties hereto and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
E. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
POWER2SHIP, INC.
By: /s/ Richard Hersh
----------------------------
Name: Richard Hersh
Title: Chief Executive Officer
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PLACEMENT AGENT:
NEWBRIDGE SECURITIES CORPORATION
By: /s/ Guy S. Amico
----------------------------
Name: Guy S. Amico
Title: President
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INVESTOR:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: /s/ Mark A. Angelo
----------------------------
Name: Mark A. Angelo
Title: Portfolio Manager
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