STANDBY EQUITY DISTRIBUTION AGREEMENT
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THIS AGREEMENT dated as of the 8th day of December 2005 (the "Agreement")
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between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"), and ZANN CORP., a corporation organized and existing under the laws
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of the State of Nevada (the "Company").
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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 Five Million Dollars ($5,000,000) of the Company's common stock,
par value $0.001 per share (the "Common Stock"); and
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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
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regulations promulgated thereunder (the "Securities Act"), and or upon such
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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 Monitor Capital, Inc. (the "Placement
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Agent"), to act as the Company's exclusive placement agent in connection with
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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").
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NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
Section 1.1. "Advance" shall mean the portion of the Commitment Amount
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that the Company shall sell to the Investor.
Section 1.2. "Advance Date" shall mean the first (1st) Trading Day
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after expiration of the applicable Pricing Period for each Advance.
Section 1.3. "Advance Notice" shall mean a written notice in the form
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of Exhibit A attached hereto to the Investor executed by an officer of the
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Company and setting forth the Advance amount that the Company requests from the
Investor.
Section 1.4. "Advance Notice Date" shall mean each date the Company
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delivers (in accordance with Section 2.2(b) of this Agreement) to the Investor
an Advance Notice requiring the Investor to advance funds to the Company,
subject to the terms of this Agreement.
Section 1.5. "Bid Price" shall mean, on any date, the closing bid price
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(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
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sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate amount of up
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to Five Million Dollars ($5,000,000) which 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
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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 Five Million
Dollars ($5,000,000), (y) the date this Agreement is terminated pursuant to
Section 2.4, 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
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value $0.001 per share.
Section 1.10. "Condition Satisfaction Date" shall have the meaning set
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forth in Section 7.2.
Section 1.11. "Damages" shall mean any loss, claim, damage, liability,
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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
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first declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
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1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Knowledge" shall mean the actual knowledge of the
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Chairman - Chief Executive Officer and the Chief Financial Officer of the
Company.
Section 1.13. "Losses" shall mean any and all actions, causes of
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action, suits, claims, losses, costs and expenses (including reasonable
attorneys' fees and disbursements), penalties, fees, liabilities and damages.
Section 1.14. "Material Adverse Effect" means any continuing effect on
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the business, operations, properties or financial condition of the Company and
its consolidated subsidiaries that is material and adverse to the Company and
such subsidiaries, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to perform any of its obligations under this Agreement, the Registration
Rights Agreement or the Warrant in any material respect; provided, that none of
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the following shall
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constitute a "Material Adverse Effect": (i) any changes or effects resulting
from the announcement or consummation of the transactions contemplated by this
Agreement, including, without limitation, any changes or effects associated with
any particular Advance, and (ii) changes in the market price of the Common
Stock.
Section 1.15. "Market Price" shall mean the lowest closing Bid Price of
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the Common Stock during the Pricing Period.
Section 1.16. "Maximum Advance Amount" shall be Two Hundred Fifty
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Thousand Dollars ($250,000) per Advance Notice.
Section 1.17. "NASD" shall mean the National Association of Securities
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Dealers, Inc.
Section 1.18. "Person" shall mean an individual, a corporation, a
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partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.19. "Placement Agent" shall mean Monitor Capital, Inc., a
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registered broker-dealer.
Section 1.20. "Pricing Period" shall mean the five (5) consecutive
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Trading Days after the Advance Notice Date.
Section 1.21. "Principal Market" shall mean the Nasdaq National Market,
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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 1.22. "Purchase Price" shall be set at ninety five percent
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(95%) of the Market Price during the Pricing Period.
Section 1.23. "Register," "registered," and "registration" refer to a
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registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and pursuant
to Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous or delayed basis ("Rule 415"), and the
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declaration or ordering of effectiveness of such Registration Statement(s) by
the SEC.
Section 1.24. "Registrable Securities" means (i) the shares of Common
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Stock issued to the Investor pursuant to this Agreement, (ii) the Warrant
Shares, and (iii) any securities issued or issuable with respect to any of the
foregoing by way of exchange, stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (w) the
Registration Statement has been declared effective by the SEC and such
Registrable Securities have been disposed of pursuant to the Registration
Statement, (x) such Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 (or any similar
provision then in force) under the Securities Act ("Rule 144") are met, (y) such
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time as such Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the
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Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(z) such Registrable Securities may be sold without registration and without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.25. "Registration Rights Agreement" shall mean the
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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
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statement on Form 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
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recitals of this Agreement.
Section 1.28. "SEC" shall mean the Securities and Exchange Commission.
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Section 1.29. "Securities Act" shall have the meaning set forth in the
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recitals of this Agreement.
Section 1.30. "SEC Documents" shall mean Annual Reports on Form 10-KSB,
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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 since December 1, 2004.
Section 1.31. "Trading Day" shall mean any day during which the New
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York Stock Exchange shall be open for business.
Section 1.32. "Transaction Documents" shall mean, collectively, this
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Agreement, the Warrant, the Registration Rights Agreement, the Placement Agent
Agreement and the exhibits and schedules annexed thereto. .
Section 1.33. "Warrant" shall mean the Warrant to Purchase 4,000,000
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shares of Company Common Stock, dated as of even date herewith, which shall,
inter alia, be for a term of four (4) years, and have an exercise price equal to
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$0.0388.
Section 1.34. "Warrant Shares" shall mean the 4,000,000 shares of
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Common Stock underlying the Warrant.
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ARTICLE II.
ADVANCES
Section 2.1. Advances.
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Upon the terms and conditions set forth herein (including, without
limitation, the provisions of Article VII hereof), 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 purchase pursuant to 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.
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(a) Advance Notice. At any time during the Commitment Period, the
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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 after the Advance Notice is
received by the Investor. There shall be a minimum of five (5) Trading Days
between each Advance Notice Date.
(b) Date of Delivery of Advance Notice. An Advance Notice shall
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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 5:00 pm Eastern
Time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day or at any
time on a day which is not a Trading Day. No Advance Notice may be deemed
delivered on a day that is not a Trading Day.
Section 2.3. Closings. On each Advance Date (i) the Company shall
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deliver to the Investor such number of shares of the Company's Common Stock
registered in the name of the Investor as shall equal (x) the amount of the
Advance specified in such Advance Notice pursuant to Section 2.1 herein divided
by (y) the Purchase Price and (ii) the Investor shall deliver to the Company the
amount of the Advance specified in the Advance Notice by wire transfer of
immediately available funds. In addition, on or prior to the Advance Date, each
of the Company and the Investor shall deliver to the other 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. The extent the Company has not paid the fees, expenses, and
disbursements of the Investor in accordance with Section 12.4, the amount of
such fees, expenses, and disbursements may be deducted by the Investor (and
shall be paid to the relevant party) directly out of the proceeds of the Advance
with no reduction in the amount of shares of the Company's Common Stock to be
delivered on such Advance Date.
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Section 2.4. Termination of Investment. The obligation of the Investor
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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, Yorkville
Advisors, LLC, or any of their respective affiliates, agents or reprenetatives,
during the Commitment Period, or (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 thereof from the
Investor, provided, however, that this termination provision shall not apply to
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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. The Investor agrees to
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advance the amount specified in the Advance Notice to the Company on the Advance
Date provided that the following conditions shall have been satisfied or waived
by the Investor:
(a) the execution and delivery by the Company, and the Investor,
of this Agreement and the Exhibits hereto;
(b) The Company shall have delivered to the Investor the shares of
Common Stock and certificates representing such shares of Common Stock, which
shall be free of all restrictive legends, applicable to the Advance, as
determined pursuant to Section 2.3;
(c) 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;
(d) 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,
and the sale and issuance of the Registrable Securities shall be to the
Company's Knowledge legally permitted by all laws and regulations to which the
Company is subject;
(e) 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;
(f) the fees as set forth in Section 12.4 a(i), b, and c(ii) of
this Agreement shall have been paid or shall be deemed paid if withheld as
provided in Section 2.3; and
(g) the conditions set forth in Section 7.2 shall have been
satisfied.
(h) the Company shall have provided to the Investor an
acknowledgement, from the Company's independent certified public accountants as
to its ability to provide all consents required in order to file a registration
statement in connection with this transaction;
(i) The Company's transfer agent shall be DWAC eligible.
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Section 2.6. Lock Up Period. On the date hereof, the Company shall
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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.
Section 2.7. Hardship. In the event the Investor sells shares of the
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Company's Common Stock after receipt of an Advance Notice and the Company fails
to deliver to the Investor on the Advance Date the shares of Common Stock
corresponding to the applicable Advance, the Company acknowledges that the
Investor shall suffer financial hardship and therefore the Company shall be
liable to the Investor for the lesser of (x) the amount of any and all Losses
incurred by Investor as a result of the Company's failure to deliver the shares
of Common Stock, and (y) $5,000,000. The parties acknowledge and agree that
this Section 2.7 shall not expand the Company's indemnification and contribution
obligations set forth in Section 5.1 below.
ARTICLE III.
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF INVESTOR
Investor hereby represents and warrants to, and agrees with, the Company
that the following are true and correct as of the date hereof and as of each
Advance Date:
Section 3.1. Organization and Authorization. The Investor is duly
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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, constitutes a valid and binding
obligation of the Investor enforceable against the Investor in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, securities, insolvency, or similar laws relating to, or affecting
generally the enforcement of creditors' rights and remedies, or indemnification
or by other equitable principles of general application.
Section 3.2. Evaluation of Risks. The Investor has such knowledge and
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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 and can withstand the effects of a loss of its entire
investment in the Company.
Section 3.3. No Legal Advice From the Company. The Investor
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acknowledges that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal counsel and
investment and tax advisors. The Investor is relying
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solely on such counsel and advisors and not on any statements or representations
of the Company, its legal counsel, 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 shares of Common Stock, Warrant
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and Warrant Shares being purchased in the transactions contemplated herein are
being purchased by the Investor for its own account, and solely for investment
purposes. The Investor hereby agrees not to assign or in any way transfer the
Investor's rights to such shares of Common Stock, Warrant and Warrant Shares or
any interest therein and acknowledges that the Company will not recognize any
purported assignment or transfer except in accordance with applicable Federal,
state and foreign 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
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Investor" as that term is defined in Rule 501(a)(3) of Regulation D of the
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Securities Act.
Section 3.6. Information. The Company has made available to the
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Investor and its advisors (including its legal counsel), if any, the materials
relating to the business, finances and operations of the Company requested by
them. The Investor and its advisors, if any, have been afforded the opportunity
to ask questions of the Company and its management. The Investor has reviewed
all information it has deemed material to making an informed investment decision
with respect to the Investor's investment in the shares of Common Stock, Warrant
and Warrant Shares contemplated herein. Neither such inquiries nor any other
due diligence investigations conducted by such Investor or its advisors or its
representatives, if any, shall modify, amend or affect the Investor's right to
rely on the Company's representations and warranties contained in this
Agreement. 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 legal counsel
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have reviewed in their entirety: (i) each of the Transaction Documents to which
it is a party; (ii) all due diligence and other information the Investor has
deemed necessary in order to make an informed investment decision with respect
to Investor's investment in the shares of Common Stock, Warrant and Warrant
Shares contemplated herein; (iii) the Company's Form 10-KSB for the year ended
December 31, 2004 and Form 10-QSB for the period ended June 30, 2005; 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. The parties have entered
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into the Registration Rights Agreement dated the date hereof.
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Section 3.9. No General Solicitation. Neither the Company, nor any of
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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 securities contemplated herein.
Section 3.10. Not an Affiliate. The Investor is not an officer,
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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
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405 of the Securities Act).
Section 3.11. Trading Activities and Restrictions. The Investor
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covenants that neither the Investor, nor any entity managed or controlled by the
Investor, nor any of their respective affiliates, will, or cause or assist any
Person to enter into or execute any "short sale" (including, without limitation,
as such term is defined in Rule 200 of Regulation SHO promulgated by the SEC
under the Securities Exchange Act of 1934, as amended) with respect to any
securities of the Company or any similar transaction with similar effect. The
Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor has the right to sell the shares to be issued to the Investor pursuant
to the Advance Notice during the applicable Pricing Period.
Section 3.12. Warrant. The Company has issued the Warrant to the
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Investor as of the date hereof.
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
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incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite 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
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Instruments. (i) The Company has the requisite corporate power and authority to
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enter into and perform each of the Transaction Documents to which it is a party,
in accordance with the terms thereof, (ii) the execution and delivery of each
such Transaction Document by the Company and the consummation by it of the
transactions contemplated therein, 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) each such Transaction
Document has been duly executed and delivered by the Company, (iv) assuming the
execution and delivery thereof and acceptance by the Investor each such
Transaction Document and any related
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agreements constitute a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, securities insolvency, or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies or indemnification or by other equitable principles of general
application.
Section 4.3. Capitalization. The authorized capital stock of the
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Company consists of (a) 4,000,000,000 shares of Common Stock, of which
31,645,359 shares are issued and outstanding as of December 2, 2005, and (b)
350,000,000 shares of Preferred Stock, $0.001 par value per share ("Preferred
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Stock"), of which (i) 2,447,700 are issued and outstanding as Series A Preferred
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Stock as of December 2, 2005, (ii) 293,501 are issued and outstanding as Series
B Preferred Stock as of December 2, 2005, and (iii) 10,000,000 are issued and
outstanding as Series C Preferred Stock as of December 2, 2005. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. Except as contemplated in the Transaction Documents or disclosed
in the SEC Documents, as of the date hereof, 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 contemplated in
the Transaction Documents or 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. There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by any of the Transaction Documents or the
consummation of the transactions described herein or therein. The Company has
made available to the Investor true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in effect on
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the date hereof (the "By-laws"), and the terms of all securities convertible
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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
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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 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
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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, except to the extent such violation or default would not
constitute a Material Adverse Effect, 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. To
the Company's Knowledge, 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 except where the failure to do so
would not constitute a Material Adverse Effect. 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.
Section 4.5. SEC Documents; Financial Statements. Since January 1,
--------------------------------------
2003, the Company has filed all reports required to be filed by it with the SEC
under the Exchange Act. The Company has made available to the Investor and its
representatives through the SEC's website at xxxx://xxx.xxx.xxx, true and
complete copies of the SEC Documents. As of their respective dates, to the
Company's Knowledge 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. To the Company's Knowledge 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.
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
11
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 Certificate 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 xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. Except as set forth in Schedule 4.9,
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 4.10. 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. To the Company's Knowledge, the
-------------------
Company and its subsidiaries are (i) in compliance in all material respects 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 in all material respects
with all terms and conditions of any such permit, license or approval except
where the failure to do so would not constitute a Material Adverse Effect.
12
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 and in light of the Company's current liquidity
constaints. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for.
Section 4.14. Regulatory Permits. To the Company's Knowledge, 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.
13
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
have a Material Adverse Effect
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 shall use the net proceeds
---------------
from this offering for general corporate purposes, including, without
limitation, the payment of loans incurred by the Company. However, in no event
shall the Company use the net proceeds from this offering for the payment (or
loan 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
14
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 use commercially
--------------------
reasonable efforts to obtain for the Investor, at the Company's expense,
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
the Transaction Documents to which the Investor is a party, and in addition to
all of the Company's other obligations under the Transaction Documents to which
the Investor is a party, 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 material misrepresentation or
breach of any material representation or warranty made by the Company in the
Transaction Documents, (b) any material breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents other than any
breach resulting from any action or inaction on the part of any Investor
Indemnitee, (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 the Transaction Documents by any of the Investor
Indemnitees, or (d) any fraud by the Company; provided, that 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
the Transaction Documents to which the Company is a party, and in addition to
all of the Investor's other obligations under the Transaction Documents to which
the Company is a party, the
15
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 any Transaction Documents to which any Investor Indemnitee is a
party, (b) any breach of any covenant, agreement or obligation of the
Investor(s) contained in any Transaction Documents to which any Investor
Indemnitee is a party, (c) any cause of action, suit or claim brought or made
against such Company Indemnitee based on omissions or misrepresentations made or
caused by any Investor Indemnitee or due to a breach by any Investor Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents to which the Company is a party or (d)
any fraud by the Investor(s); provided that 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 under this
Section 5.1 shall survive termination.
ARTICLE VI.
COVENANTS OF THE COMPANY
Until the expiration of the Commitment Period, the Company agrees as
follows:
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. Upon effectiveness of the
-----------------------------
Registration Statement the Company shall deliver instructions to its transfer
agent to issue shares of Common Stock to the Investor free of restrictive
legends on or before each Advance Date.
Section 6.5. Corporate Existence. The Company will take all steps
--------------------
necessary to preserve and continue the corporate existence of the Company.
16
Section 6.6. Notice of Certain Events Affecting Registration;
-----------------------------------------------------
Suspension of Right to Make an Advance. The Company will promptly 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 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 material 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. Restriction on Sale of Capital Stock. During the
-----------------------------------------
Commitment Period, the Company shall not, without the prior written consent of
the Investor, which consent shall not be unreasonably withheld, conditioned or
delayed, (i) issue or sell 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; provided however, (a) the Company's
obligations pursuant to this Section 6.7 shall terminate in the event the
Investor breaches any provision of Article II of this Agreement, and (b) the
prior written consent of the Investor shall not be required pursuant to (i) the
Company's issuance of shares of capital stock to investors at an aggregate
purchase price not to exceed $5,000,000, (ii) the Company's issuance of an
aggregate of up to 30,000,000 shares of Common Stock issued or issuable pursuant
to the acquisition of another corporation or entity by the Company by merger,
purchase of substantially all of the assets or other reorganization, or to a
joint venture agreement provided the Company is not in a Pricing Period; and
(iii) the Company's issuance of shares of Common Stock or grant of options to
purchase shares of Common Stock, each as approved by the Company's board of
directors, pursuant to stock option plans authorized as of the date hereof.
17
Section 6.8. 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 either (i) 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 or (ii) the
Investor agrees in writing to release the Company from such obligations.
Section 6.9. 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.
Section 6.10. Review of Public Disclosures. All SEC filings
-------------------------------
(including, without limitation, all filings required under the Exchange Act,
which include Forms 10-Q and 10-QSB, 10-K and 10K-SB, 8-K, etc) and other public
disclosures made by the Company, including, without limitation, all press
releases, investor relations materials, and scripts of analysts meetings and
calls, shall be reviewed and approved for release by the Company's attorneys
and, in the case of such filings under the Exchange Act, if containing
historical financial information, the Company's independent certified public
accountants.
Section 6.11. Market Activities. The Company will not, directly or
-----------------
indirectly, (i) take any action designed to cause or result in, or that
constitutes or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Stock or (ii) sell, bid for or purchase the Common
Stock, or pay anyone any compensation for soliciting purchases of the Common
Stock.
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 the Transaction Documents 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
18
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 be declared effective
by the SEC prior to the first Advance Notice Date.
(b) Authority. To the Knowledge of 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.
(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. To the Knowledge of the Company 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 materially and
adversely affects any of the transactions contemplated by this Agreement, and to
the Knowledge of the Company, no proceeding shall have been commenced that may
have the effect of prohibiting or materially and 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).
19
(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 aggregate number of shares of Common Stock beneficially owned by the
Investor and its affiliates to exceed nine and 9/10 percent (9.9%) of the then
outstanding Common Stock of the Company. For the purposes of this section
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act.
(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) Executed Advance Notice. The Investor shall have received the
-----------------------
Advance Notice executed by an officer of the Company and the representations
contained in such Advance Notice shall be true and correct as of each Condition
Satisfaction Date.
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, 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 material 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
material non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such material
non-public information for review. The Company may, as a condition precedent to
disclosing any material non-public information hereunder, require the Investor
and its advisors and representatives to enter into a trading standstill,
non-disclosure and/or confidentiality agreement in form reasonably satisfactory
to the Company, and the Company may refuse to disclose such information if the
Investor and/or its advisors and representatives refuse to execute such
agreement.
20
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate material 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 material 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 material 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 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. The obligations of the Investor to make
-----------
Advances under Article II hereof shall terminate twenty-four (24) months after
the Effective Date.
21
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: Zann Corp.
0000 X. Xxxxx Xxxxxx, Xxxxx X-000
Xxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
00000 Xx Xxxxxx Xxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Xxxxxx X. Xxxxxx, 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: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
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.
22
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. The Transaction Documents
----------------------------
supersede 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 the Transaction Documents 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 the Transaction Documents 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 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 (i) the Company shall pay a
structuring fee of Twelve Thousand Five Hundred Dollars ($12,500) to Yorkville
Advisors, LLC, of which Two Thousand Five Hundred Dollars ($2,500) has been
paid, and the remaining balance shall be paid on the date hereof, and (ii) On
each Advance Date, the Company shall pay Yorkville Advisors Management, LLC a
structuring fee of Five Hundred Dollars ($500) directly out the gross proceeds
of each Advance.
(b) Due Diligence Fee. Company shall pay the Investor a
-------------------
non-refundable due diligence fee of Five Thousand Dollars ($5,000) which has
previously been paid.
(c) Commitment Fees.
----------------
(i) On each Advance Date the Company shall pay to the
Investor, directly out of the gross proceeds of each Advance, an amount equal to
five percent (5%) of the amount of each Advance. The Company hereby agrees that
if such payment, as is described
23
above, is not made by the Company on the Advance Date, such payment shall be
made 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 (y) 1,142,857 shares of Common Stock (an amount equal to
Forty Thousand Dollars ($40,000) divided by $0.035) (the "Investor's Shares")
-----------------
and (z) the Warrant.
(iii) Fully Earned. The Investor's Shares and the warrant
-------------
shall be deemed fully earned as of the date hereof.
(iv) Registration Rights. The Investor's Shares and the
--------------------
Warrant Shares shall have "piggy-back" registration rights.
Section 12.5. Brokerage. Except as contemplated in the Placement Agent
---------
Agreement, 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
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:
ZANN CORP.
By:
-------------------------------------
Name: Xxxxxx Xxxxxxx
Title: President
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By:
-------------------------------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
25
EXHIBIT A
---------
ADVANCE NOTICE
ZANN CORP.
The undersigned, _______________________ hereby certifies, with respect to
the sale of shares of Common Stock of ZANN CORP. (the "Company") issuable in
-------
connection with this Advance Notice, delivered pursuant to the Standby Equity
Distribution Agreement (the "Agreement"), as follows:
---------
1. The undersigned is the duly elected ______________ 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 and has complied in all material
respects with all obligations and conditions contained in the Agreement on or
prior to the Advance Notice Date, and shall continue to perform in all material
respects all covenants and agreements to be performed by the Company through the
applicable Advance Date.
4. The undersigned hereby represents, warrants and covenants that it
has made all filings ("SEC Filings") required to be made by it pursuant to
------------
applicable securities laws (including, without limitation, all filings required
under the Securities Exchange Act of 1934, which include Forms 10-Q or 10-QSB,
00-X xx 00-XXX, 0-X, xxx.). All SEC Filings and other public disclosures made
by the Company, including, without limitation, all press releases, investor
relation materials, and scripts of analyst meetings and calls, etc.
(collectively, the "Public Disclosures"), have been reviewed and approved for
-------------------
release by the Company's attorneys and, if containing historical financial
information, the Company's independent certified public accountants. None of
the Company's Public Disclosures 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.
5. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of
_________________.
ZANN CORP.
By:
-------------------------------------
Name:
Title:
If Returning This Advance Notice via Facsimile Please Send To: (000) 000-0000
If by Mail, via Federal Express To: Cornell Capital Partners, LP 000 Xxxxxx
Xxxxxx, Xxxxx 0000, Xxxxxx Xxxx, XX 00000
SCHEDULE 2.6
------------
ZANN CORP.
----------
The undersigned hereby agrees that for a period commencing on December 8,
2005 and expiring on the termination of the Standby Equity Distribution
Agreement dated December 8, 2005 between the Company and 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 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") except in accordance with the volume
----------
limitations set forth in Rule 144(e) of the General Rules and Regulations under
the Securities Act of 1933, as amended.
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: _______________, 2005
Signature
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Name:
---------------------------------------------
Address:
------------------------------------------
City, State, Zip Code:
----------------------------
--------------------------------------------------
Print Social Security Number
or Taxpayer I.D. Number
