EXHIBIT 10.1
STANDBY EQUITY DISTRIBUTION AGREEMENT
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AGREEMENT dated as of the 26th day of August 2004 (the "AGREEMENT")
between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"), and CAPITAL SOLUTIONS I, INC., a corporation organized and existing
under the laws of the State of Delaware (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 Six Million Dollars ($6,000,000) of the Company's common stock,
par value $.0000001 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, 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 an Advance Notice.
Section 1.2. "ADVANCE DATE" shall mean the date the Escrow Agent's
account is in receipt of the funds from the Investor and the Escrow Agent is in
possession of shares of the Company Common Stock free of restrictive legends.
No Advance Date shall be less than six (6) Trading Days after an Advance Notice
Date.
Section 1.3. "ADVANCE NOTICE" shall mean a written notice, in form
substantially similar to Exhibit A, 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.
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.
Section 1.6. "CLOSING" shall mean a closing 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 Six Million Dollars ($6,000,000) which the Investor has agreed to provide to
the Company in consideration for the Company's Common Stock issued to the
Investor pursuant to the terms and subject to the 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 Six Million
Dollars ($6,000,000), (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 $.0000001 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 AGENT" shall mean Xxxxxx Xxxxxxxx LLP.
Section 1.14 "ESCROW AGREEMENT" shall mean the escrow agreement among
the Company, the Investor, and the Escrow Agent dated the date hereof.
Section 1.15 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
Section 1.16 "INVESTOR'S COUNSEL" shall mean Xxxxxx Xxxxxxxx LLP.
Section 1.16 "MATERIAL ADVERSE EFFECT" shall mean any condition,
circumstance, or situation that prohibits or materially interferes 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 1.17 "MARKET PRICE" shall mean the lowest closing bid price of
the Common Stock during the Pricing Period.
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Section 1.18 "MAXIMUM ADVANCE AMOUNT" shall be shall be Eighty Five
Thousand Dollars ($85,000) per Advance Notice.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.20 "PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.21 "PLACEMENT AGENT" shall mean Newbridge Securities
Corporation, a registered broker-dealer.
Section 1.22 "PRICING PERIOD" shall mean the five (5) consecutive
Trading Days after a related Advance Notice Date.
Section 1.23 "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 1.24 "PURCHASE PRICE" shall be set at ninety five percent (95%)
of the Market Price during the Pricing Period.
Section 1.25 "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 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 1.26 "REGISTRATION RIGHTS AGREEMENT" shall mean that certain
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 1.27 "REGISTRATION STATEMENT" shall mean a registration
statement on Form X-0, X-0, X-0 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 for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
Section 1.28 "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "SEC" shall mean the Securities and Exchange Commission.
Section 1.30 "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.
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Section 1.31 "SEC DOCUMENTS" shall mean Annual Reports on Form 10-KSB,
(or 10-K, as applicable), Quarterly Reports on Form 10-QSB, (or 10-Q, as
applicable), Current Reports on Form 8-K and proxy statements (or information
statements, as applicable) of the Company as amended and/or supplemented to the
date hereof, filed by the Company for a period of at least twelve (12) months
immediately preceding the date hereof or an applicable 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 1.32 "TRADING DAY" shall mean any day during which the New York
Stock Exchange shall be open for business.
ARTICLE II.
ADVANCES
Section 2.1. INVESTMENTS.
(a) ADVANCES. Upon the terms and subject to the 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. Any fractional share shall be rounded up to the next whole
number . 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. There will 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) HARDSHIP. In the event the Investor sells the Company's
Common Stock as outlined in this Agreement and the Company fails to perform its
obligations as mandated herein 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 reasonable and identifiable losses, commissions,
fees,
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or financial hardship caused to the Investor in an amount not to exceed two (2)
times the amount of the applicable Advance.
Section 2.3. CLOSINGS. On each Advance Date (i) the Company shall
deliver to the Escrow Agent 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 in accordance with the Escrow Agreement
and (ii) the Investor shall deliver to the Escrow Agent the amount of the
Advance specified in the Advance Notice by wire transfer of immediately
available funds which shall promptly be delivered to the Company, or otherwise
in accordance with the Escrow Agreement. In addition, on or prior to each
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 Common Stock to the Investor shall occur in
accordance with the conditions set forth above and those contained in the Escrow
Agreement. To the extent the Company has not paid the fees, expenses, and
disbursements of the Investor and the Investor's counsel in accordance with
Section 12.3, 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) Escrow Agent shall have received the shares of
Common Stock applicable to the Advance in accordance with Section 2.3 hereof;
(ii) the Registration Statement with respect to the
resale of the Registrable Securities by the Investor in accordance with the
terms of the Registration Rights Agreement shall have been declared effective by
the SEC;
(iii) 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 by the Company to
the Investor shall be legally permitted by all laws and regulations to which the
Company is subject;
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(iv) the Company shall have filed with the Commission
all reports required to be filed by it for the past twelve (12) months under the
Exchange Act and the rules and regulations thereunder;
(v) 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
(vi) the conditions set forth in Section 7.2 shall
have been satisfied;
(vii) The Company's transfer agent shall be DWAC
eligible.
Section 2.6. LOCK UP PERIOD.
(i) During the Commitment Period, the Company shall
not, without five (5) business days prior written notice, issue or sell (i) any
Common Stock or preferred stock without consideration or for a consideration per
share less than the Bid Price on the date of issuance or (ii) 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.
For purposes hereof, the Bid Price of shares of Preferred Stock shall be the Bid
Price of the underlying common stock multiplied by the number of shares of
common stock for which each such share of Preferred Stock may convert.
(ii) 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(b).
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 party
executing on behalf of the Investor has the right, power and authority to
execute and deliver this Agreement and all other instruments related thereto
(including, without limitations, the Registration Rights Agreement),
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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. As of the date hereof and as of any
Closing, the Investor is and shall be an "Accredited Investor" as that term is
defined in Rule 501(a)(3) of Regulation D of the Securities Act. The Investor's
financial condition is such that it is able to bear the risk of holding the
shares of Common Stock issued hereunder for an indefinite period of time, and
the risk of loss of its entire investment. The Investor has been afforded the
opportunity to ask questions of and receive answers from the management of the
Company concerning this investment and has sufficient knowledge and experience
in investing in companies similar to the Company in terms of the Company's stage
of development so as to be able to evaluate the risks and merits of its
investments in the Company.
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
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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 has
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 SEC Documents and (iv) answers to all questions the Investor submitted
to the Company regarding an investment in the Company; and the Investor has
relied on the information contained in the above referenced documents 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 including, but not limited to, the antifraud and
anti-manipulation provisions of the federal securities laws, Section 17(a) of
the Securities Act, Sections 9, 10(b) and 15(c) of the Exchange Act and Rule
10b-5 under the Exchange Act. . Neither the Investor nor its affiliates has an
open short position in the Common Stock of the Company and, 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.
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Section 3.12. SHARES NOT REGISTERED. The Investor understands that the
Investor's Shares have not been registered under the Securities Act and that
such Investor's Shares must continue to be held by such Purchaser unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration. The Purchaser understands that the exemptions
from registration afforded by Rule 144 (the provisions of which are known to it)
promulgated under the Securities Act depend on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts.
Section 3.13. NO CONFLICT. The execution and delivery of this Agreement
and the Registration Rights Agreement by the Investor and the consummation by it
of the transactions contemplated hereby and thereby will not conflict with or
result in any violation of or default by the Investor (with or without notice or
lapse of time, or both) under (i) any provision of the organizational documents
of the Investor or (ii) in any material respect, any judgment, order, statute,
law, ordinance, rule or regulations, applicable to the Investor or its
respective properties or assets.
Section 3.14 BROKERS. The Investor has not retained, utilized or been
represented by any broker or finder in connection with the transactions
contemplated by this Agreement.
Section 3.15 CONSENTS. All consents, approvals, orders and
authorizations required on the part of the Investor in connection with the
execution, delivery or performance of this Agreement and the consummation of the
transactions contemplated herein have been obtained and are effective.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees with, the
Investor that the following are true and correct as of the date hereof, except
as stated on the disclosure schedules or in the SEC Documents:
Section 4.1. INCORPORATION. The Company is duly incorporated and
validly existing in the jurisdiction of its incorporation and has all requisite
corporate power and authority 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
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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 20,000,000,000 shares of Common Stock,
par value $.0000001 per share and 200,000,000 shares of Preferred Stock, par
value $.0000001 per share, of which 251,222,212 shares of Common Stock and
50,000 shares of Preferred Stock are issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. 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. 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 registering
the offer and sale of securities under the Securities Act 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
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in effect on
the date hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto.
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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
Certificate of Incorporation, any certificate of designations of any outstanding
series of preferred stock of the Company or of its 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. Neither the Company nor its
subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation 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 which
would cause a Material Adverse Effect. 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. 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
(with the exception of the Company's annual report on Form 10-K for the fiscal
year ended December 31, 2003, which, as of the date hereof, has not yet been
filed pursuant to Rule 12b-25 under the Exchange Act). The Company has made
available through the SEC's website at xxxx://xxx.xxx.xxx, true and complete
copies of the SEC Documents. As of their respective dates, the financial
statements of the Company disclosed in the SEC Documents (the "Financial
Statements") complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and, fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
11
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 ABSENCE OF EVENTS OF DEFAULT. 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, financial condition or results of operations.
Section 4.8 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 xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. The Company and its subsidiaries do not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, 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 xxxx registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
Section 4.9 EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
Section 4.10 ENVIRONMENTAL LAWS. The Company and its subsidiaries are
(i) in compliance with any and all applicable 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 4.11 TITLE. 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.
12
Section 4.12 INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
Section 4.13 REGULATORY PERMITS. The Company and its subsidiaries
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
Section 4.14 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 4.15 NO MATERIAL ADVERSE BREACHES, ETC. Neither the Company nor
any of its subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
subsidiaries. Neither the Company nor any of its subsidiaries is 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 or results of operations of the
Company or its subsidiaries.
Section 4.16 ABSENCE OF LITIGATION. 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 have a Material Adverse Effect on the business,
properties, financial condition or results of operation of the Company and its
subsidiaries.
13
Section 4.17 SUBSIDIARIES. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.
Section 4.18 TAX STATUS. The Company and each of its subsidiaries has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject 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 4.19 CERTAIN TRANSACTIONS. 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 4.20 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 4.21 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 4.22 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 4.23 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.
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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 executed by the Company, (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 executed by the Company, or (c) any
cause of action, suit or claim brought or made against such 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 not arising out of
any action or inaction of an Investor Indemnitee. 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 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 or the negligent conduct of the Investor or 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
15
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 Principal Market.
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
issued pursuant to an Advance Notice 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
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
16
the Registration Statement or related prospectus or any document incorporated 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
obligations of the Company under this Agreement.
Section 6.10. ISSUANCE OF THE COMPANY'S COMMON STOCK. The Company shall
use its reasonable best efforts to comply with all requirements of it necessary
for the sales of Common Stock to the Investor hereunder to be made in accordance
with the provisions and requirements of Regulation D and any applicable state
securities law.
Section 6.11 OPINION OF COUNSEL. Prior to an Advance hereunder 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.
17
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 consummate any Closing and to issue
and sell the shares of Common Stock to the Investor hereunder 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 contained herein of the Investor shall be
true and correct in all material respects on and as of an applicable Closing
Date with the same force and effect as though made on and as of such Closing
Date.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material 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.
(c) Registration Rights Agreement. The Registration Rights
Agreement shall have been executed and delivered to the Company by the Investor.
(d) No Proceedings. No proceeding or other governmental action
challenging this Agreement or the transactions contemplated hereby, or seeking
to prohibit, alter, prevent or materially delay the transactions contemplated
hereby, shall have been instituted before any court, arbitrator or governmental
body, agency or official and shall be pending.
(e) Sale of Common Stock. The sale of Common Stock to the
Investor pursuant to this Agreement shall not be prohibited by any law or
governmental order or regulation. All necessary consents, approvals, licenses,
permits, orders and authorizations of, or registrations, declarations and
filings with, any governmental or administrative agency or of any other person
with respect to any of the transactions contemplated hereby shall have been duly
obtained or made and shall be in full force and effect.
(f) Underwriter Identification. The Investor shall have been
listed and identified as an underwriter in the Registration Statement, as well
as a selling shareholder.
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:
18
(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. The Registration Statement shall have become
effective and shall be 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.
(b) AUTHORITY. The Company shall have made all necessary "blue
sky" filings required to be made by the Company in connection with the sale of
Common Stock to the Investor pursuant to this Agreement. 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 of Common Stock issuable to the Investor
pursuant to an Advance cause the Investor to own in excess of four and 99/100
percent (4.99%) of the then outstanding Common Stock of the Company.
19
(h) 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, advisors to and representatives of the Investor, any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investor pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky, NASD
or other filing, all financial and other records, all SEC Documents and other
filings with the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such information
reasonably requested by the Investor or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement. Notwithstanding the foregoing or any discovery of the Investor made
pursuant to this Section 8.1, the provisions of this Section 8.1 shall not
constitute a condition of any Closing.
Section 8.2. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose non-public information to
the Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives.
Notwithstanding the foregoing, the Company shall immediately notify the
Investors and, any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the 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.
20
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 Delaware without regard
to the principles of conflict of laws. The parties further agree that any action
between them shall be heard in Xxxxxx County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Xxxxxx 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. This Agreement may be terminated and the
documents, instruments, agreements and transactions contemplated hereunder
abandoned and of no further force and effect at any time only as follows,
provided that there are no Advance Notices pending:
(a) The obligations of the Investor to make Advances under Article
II hereof shall terminate twenty-four (24) months after the Effective Date.
(b) In the event the registration statement filed pursuant to the
Registration Rights Agreement dated the date hereof of is not declared effective
by the SEC within one hundred twenty (120) business days from the date hereof.
In the event of a termination pursuant to this Section 10.2(b), the Company
shall have no obligation to make any additional payments to and shall have no
further liability to the Investor or Xxxxxx Xxxxxxxx LLP or any of their
respective affiliates, pursuant to this Agreement or any of the documents,
instruments or agreements contemplated hereby.
(c) Any termination pursuant to this Section 10 shall be without
liability on the part of any party, unless such termination is the result of a
material breach of this Agreement by a party to this Agreement in which case
such breaching party shall remain liable for such breach notwithstanding any
termination of this Agreement.
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
21
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: Capital Solutions I, Inc.
0000 Xxx Xxxx - Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx, Xxxx & Xxxxxxxx LLP
0000 Xxxxxxxxxxx Xxxxxx X.X.
Xxxxxxxxxx, X.X.
Attention: Xxxxx Xxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investor(s): Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx -Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a Copy to: Xxxxxx Xxxxxxxx LLP
0000 Xxxxxx Xxxxxx - Xxxxx 000
Xxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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.
22
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 FEES AND EXPENSES. The Company hereby agrees to pay the
following fees:
(a) LEGAL FEES. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby, except that upon the execution of this Agreement the
Company will pay the aggregate amount of Fifteen Thousand Dollars ($15,000) to
Xxxxxx Xxxxxxxx LLP for legal, administrative, and escrow fees. Any prior fees
paid to Xxxxxx Xxxxxxxx LLP by the Company in connection with the transactions
contemplated by this Agreement shall be credited against this amount.
Subsequently on each advance date, the Company will pay Xxxxxx Xxxxxxxx LLP, the
sum of Five Hundred Dollars ($500) for legal, administrative and escrow fees
directly out the gross proceeds held in escrow of any Advances hereunder. Any
and all fees for legal expenses paid to the Investor's legal counsel by the
Investor shall be paid directly to such counsel and shall not be shared or
divided in any manner with the Investor. Other than to the extent explicitly
provided for herein, the Company shall be under no obligation to pay any
additional fees to Xxxxxx Xxxxxxxx LLP pursuant to this Agreement or any of the
documents, instruments or agreements contemplated hereby.
(b) COMMITMENT FEES.
(i) On each Advance Date the Company shall pay to the
Investor, directly from the gross proceeds held in escrow pursuant to the Escrow
Agreement dated the date hereof, an amount equal to four percent (4%) 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) Upon the execution of this Agreement the Company
shall issue to the Investor shares of the Company's Common Stock in an amount
equal to Two Hundred Ninety Thousand Dollars ($290,000) divided by the closing
Bid Price of the Company's Common Stock on the date hereof as reported by
Bloomberg, L.P. (the "Investor's Shares"). Upon being issued to the Investor the
Investor's Shares shall bear the following restrictive legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND
ARE
23
"RESTRICTED SECURITIES" AS THAT TERM, IS DEFINED IN RULE 144
UNDER THE ACT. THE SHARES CAN NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY
OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY."
Upon the Investor's Shares being registered pursuant to the
Registration Rights Agreement or the Investor's Shares being eligible for sale
pursuant to Rule 144 under the Act 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 for the Investor to sell the Investor's Shares without
restriction.
(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 registration rights as set forth in the Registration Rights Agreement.
(c) DUE DILIGENCE FEE. Within two (2) business days of the
submission of the due diligence package to the Investor the Company shall pay to
the Investor a due diligence fee of Two Thousand Five Hundred Dollars ($2,500)
to defray the costs of performing due diligence on the Company.
Section 12.4. 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.
24
Section 12.5. CONFIDENTIAL INFORMATION. Each of the Company and the
Investor agrees to keep confidential, and not to disclose to or use for the
benefit of any third party, the existence or terms of this Agreement or any
other information which at any time is communicated by the other party as being
confidential, without the prior written approval of the other party; provided,
however, that this provision shall not apply to information which, at the time
of disclosure, is already part of the public domain (except by breach of this
Agreement) and information which is required to be disclosed by law (including,
without limitation, pursuant to Item 601(b)(10) of Regulation S-K under the
Securities Act and the Exchange Act). In furtherance, and not in limitation of
Section 3.11, Investor agrees that it shall not trade the Company's securities
if it is in possession of material non-public information relating to the
Company.
25
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.
Section 12.7 FURTHER ASSURANCES. The parties agree to cooperate fully
to execute such further instruments, documents and agreements and to give such
further written assurances, as may be reasonably requested by any party to
better evidence and reflect the transactions described herein and contemplated
hereby, and to carry into effect the intents and purposes of this Agreement.
Section 12.8 SEVERABILITY. Should any part or provision of this
Agreement be held unenforceable or in conflict with the applicable laws or
regulations of any jurisdiction, the invalid or unenforceable part or provisions
shall be replaced with a provision which accomplishes, to the extent possible,
the original business purpose of such part or provision in a valid and
enforceable manner, and the remainder of this Agreement shall remain binding
upon the parties hereto.
Section 12.9 WAIVER. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or be construed as, a further or continuing waiver of any
such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
Section 12.10 ASSIGNMENT. The rights and obligations of the parties
hereto shall inure to the benefit of and shall be binding upon the authorized
successors and permitted assigns of each party. The Investor may not assign its
rights or obligations under this Agreement or designate another person to (i)
perform all or part of its obligations under this Agreement or (ii) have all or
part of its rights and benefits under this Agreement, in each case without the
prior written consent of the Company, which consent will not be unreasonably
withheld. In the event of any assignment in accordance with the terms of this
Agreement, the assignee shall specifically assume and be bound by the provisions
of the Agreement by executing and agreeing to an assumption agreement reasonably
acceptable to the other party.
Section 12.12 EXPENSES. Except as otherwise specifically set forth
herein, each party hereto will bear its own costs and expenses in connection
with the execution of this Agreement and the consummation of the transactions
contemplated hereby.
Section 12.13 NO FURTHER INVESTMENT DECISION. The Investor covenants
and agrees that during the Commitment Period it shall not be permitted to
acquire additional shares of Common Stock or other securities of the Company nor
shall it be able to sell shares of Common Stock other than those acquired
pursuant to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of August 26, 2004.
COMPANY:
CAPITAL SOLUTIONS I, INC.
By: /s/ Xxxxxxxxxxx Xxxxxx
Name: Xxxxxxxxxxx Xxxxxx
Title: Chief Executive Officer
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Title: Portfolio Manager
27
EXHIBIT A
---------
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
-------------------------------------
CAPITAL SOLUTIONS I, INC.
-------------------------
The undersigned, _______________________ hereby certifies, with respect
to the sale of shares of Common Stock of Capital Solutions I, 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 _______.
CAPITAL SOLUTIONS I, INC.
By:
--------------------------
Name:
Title:
SCHEDULE 2.6(B)
---------------
CAPITAL SOLUTIONS I, INC.
-------------------------
The undersigned hereby agrees that for a period commencing on the date
hereof and expiring on the termination of the Agreement dated ________________
between Capital Solutions I, Inc. (the "Company"), and Cornell Capital Partners,
LP, (the "Investor") (the "Lock-up Period"), he, she or it will not, directly or
indirectly, without five (5) business days prior written notice to 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 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
