EXHIBIT 10.11
STANDBY EQUITY DISTRIBUTION AGREEMENT
-------------------------------------
THIS AGREEMENT dated as of the 19th day of May 2004 (the "Agreement")
---------
between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"), and NS8 CORPORATION, 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 Twenty Million Dollars ($20,000,000) of the Company's common
stock, par value $.0001 per share (the "Common Stock"); and
-------------
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the
------------
regulations promulgated thereunder (the "Securities Act"), and or upon such
---------------
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
WHEREAS, the Company has engaged Newbridge Securities Corporation (the
"Placement Agent"), to act as the Company's exclusive placement agent in
--------
connection with the sale of the Company's Common Stock to the Investor hereunder
pursuant to the Placement Agent Agreement dated the date hereof by and among the
Company, the Placement Agent and the Investor (the "Placement Agent Agreement").
-------------------------
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE
CERTAIN DEFINITIONS
Section "Advance" shall mean the portion of the Commitment Amount
-------
requested by the Company in the Advance Notice.
Section "Advance Date" shall mean the date Xxxxxx Xxxxxxxx LLP Escrow
-------------
Account is in receipt of the funds from the Investor and Xxxxxx Xxxxxxxx LLP, as
the Investor's Counsel, is in possession of free trading shares from the Company
and therefore an Advance by the Investor to the Company can be made and Xxxxxx
Xxxxxxxx LLP can release the free trading shares to the Investor. No Advance
Date shall be less than six (6) Trading Days after an Advance Notice Date.
Section "Advance Notice" shall mean a written notice to the Investor setting
--------------
forth the Advance amount that the Company requests from the Investor and the
Advance Date.
Section "Advance Notice Date" shall mean each date the Company delivers to
---------------------
the Investor an Advance Notice requiring the Investor to advance funds to the
E-2
Company, subject to the terms of this Agreement. No Advance Notice Date shall
be less than seven (7) Trading Days after the prior Advance Notice Date.
Section "Bid Price" shall mean, on any date, the closing bid price (as
----------
reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if
the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section "Closing" shall mean one of the closings of a purchase and sale of
-------
Common Stock pursuant to Section 2.3.
Section "Commitment Amount" shall mean the aggregate amount of up to Twenty
------------------
Million Dollars ($20,000,000) 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 "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 Twenty Million Dollars
($20,000,000), (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 "Common Stock" shall mean the Company's common stock, par value
-------------
$.001 per share.
Section "Condition Satisfaction Date" shall have the meaning set forth in
-----------------------------
Section 7.2.
Section "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 "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 "Escrow Agreement" shall mean the escrow agreement among the
-----------------
Company, the Investor, and Xxxxxx Xxxxxxxx LLP, dated the date hereof.
Section "Exchange Act" shall mean the Securities Exchange Act of 1934, as
-------------
amended, and the rules and regulations promulgated thereunder.
Section "Material Adverse Effect" shall mean any condition, circumstance, or
-----------------------
situation that would prohibit or otherwise materially interfere with the ability
of the Company to enter into and perform any of its obligations under this
Agreement or the Registration Rights Agreement in any material respect.
E-3
Section "Market Price" shall mean the lowest VWAP of the Common Stock during
------------
the Pricing Period.
Section "Maximum Advance Amount" shall be Seven Hundred Fifty Thousand
------------------------
Dollars ($750,000) per Advance Notice .
Section 1.18 "NASD" shall mean the National Association of Securities
----
Dealers, Inc.
Section 1.19 "Person" shall mean an individual, a corporation, a
------
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.20 "Placement Agent" shall mean Newbridge Securities Corporation,
---------------
a registered broker-dealer.
Section 1.21 "Pricing Period" shall mean the five (5) consecutive Trading
---------------
Days after the Advance Notice Date.
Section 1.22 "Principal Market" shall mean the Nasdaq National Market, the
-----------------
Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.23 "Purchase Price" shall be set at one hundred percent (100%) of
--------------
the Market Price during the Pricing Period.
Section 1.24 "Registrable Securities" shall mean the shares of Common Stock
----------------------
to be issued hereunder (i) in respect of which the Registration Statement has
not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") or (iii)
--------
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
Section 1.25 "Registration Rights Agreement" shall mean the Registration
-------------------------------
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.
Section 1.26 "Registration Statement" shall mean a registration statement on
----------------------
Form S-1 or SB-2 (if use of such form is then available to the Company pursuant
to the rules of the SEC and, if not, on such other form promulgated by the SEC
for which the Company then qualifies and which counsel for the Company shall
deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
E-4
Section 1.27 "Regulation D" shall have the meaning set forth in the recitals
------------
of this Agreement.
Section 1.28 "SEC" shall mean the Securities and Exchange Commission.
---
Section 1.29 "Securities Act" shall have the meaning set forth in the
---------------
recitals of this Agreement.
Section 1.30 "SEC Documents" shall mean Annual Reports on Form 10-KSB,
--------------
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.31 "Trading Day" shall mean any day during which the New York
------------
Stock Exchange shall be open for business.
Section 1.32 "VWAP" shall mean the volume weighted average price of the
----
Company's Common Stock as reported by Bloomberg, LP.
ARTICLE
ADVANCES
Section Investments.
-----------
Advances. Upon the terms and conditions set forth herein (including,
--------
without limitation, the provisions of Article VII hereof), on any Advance Notice
Date the Company may request an Advance by the Investor by the delivery of an
Advance Notice. The number of shares of Common Stock that the Investor shall
receive for each Advance shall be determined by dividing the amount of the
Advance by the Purchase Price. No fractional shares shall be issued. Fractional
shares shall be rounded to the next higher whole number of shares. The
aggregate maximum amount of all Advances that the Investor shall be obligated to
make under this Agreement shall not exceed the Commitment Amount.
Section Mechanics.
---------
Advance Notice. At any time during the Commitment Period, the Company
--------------
may deliver an Advance Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, the amount for each Advance as
designated by the Company in the applicable Advance Notice, shall not be more
than the Maximum Advance Amount. The aggregate amount of the Advances pursuant
to this Agreement shall not exceed the Commitment Amount. The Company
acknowledges that the Investor may sell shares of the Company's Common Stock
corresponding with a particular Advance Notice on the day the Advance Notice is
received by the Investor. There shall be a minimum of seven (7) Trading Days
between each Advance Notice Date.
E-5
(b) Date of Delivery of Advance Notice. An Advance Notice shall be deemed
------------------------------------
delivered on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii)
the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Advance Notice may be deemed delivered on a day
that is not a Trading Day.
(c) Pre-Closing Share Credit. Within two (2) business days after the
--------------------------
Advance Notice Date, the Company shall credit shares of the Company's Common
Stock to the Investor's counsel's balance account with The Depository Trust
Company through its Deposit Withdrawal At Custodian system, in an amount equal
to the amount of the requested Advance divided by the closing Bid Price of the
Company's Common Stock as of the Advance Notice Date multiplied by one point one
(1.1). Any adjustments to the number of shares to be delivered to the Investor
at the Closing as a result of fluctuations in the closing Bid Price of the
Company's Common Stock shall be made as of the date of the Closing. Any excess
shares shall be credited to the next Advance. In no event shall the number of
shares issuable to the Investor pursuant to an Advance cause the Investor to own
in excess of nine and 9/10 percent (9.9%) of the then outstanding Common Stock
of the Company.
(d) Hardship. In the event the Investor sells the Company's Common Stock
--------
pursuant to subsection (c) above and the Company fails to perform its
obligations as mandated in Section 2.5 and 2.2 (c), and specifically fails to
provide the Investor with the shares of Common Stock for the applicable Advance,
the Company acknowledges that the Investor shall suffer financial hardship and
therefore shall be liable for any and all losses, commissions, fees, or
financial hardship caused to the Investor.
Section Closings. On each Advance Date, which shall be six (6) Trading
--------
Days after an Advance Notice Date, (i) the Company shall deliver to the
Investor's Counsel, as defined pursuant to the Escrow Agreement, shares of the
Company's Common Stock, representing the amount of the Advance by the Investor
pursuant to Section 2.1 herein, registered in the name of the Investor which
shall be delivered to the Investor, or otherwise in accordance with the Escrow
Agreement and (ii) the Investor shall deliver to Xxxxxx Xxxxxxxx LLP (the
"Escrow Agent") the amount of the Advance specified in the Advance Notice by
--------------
wire transfer of immediately available funds which shall be delivered to the
Company, or otherwise in accordance with the Escrow Agreement. In addition, on
or prior to the Advance Date, each of the Company and the Investor shall deliver
to the other through the Investor's Counsel, all documents, instruments and
writings required to be delivered by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. Payment
of funds to the Company and delivery of the Company's Common Stock to the
Investor shall occur in accordance with the conditions set forth above and those
contained in the Escrow Agreement; provided, however, that to the extent the
-------- -------
Company has not paid the fees, expenses, and disbursements of the Investor and
the Investor's counsel 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) 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.
E-6
Section 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 Agreement to Advance Funds.
-----------------------------
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:
the execution and delivery by the Company, and the Investor, of this
Agreement and the Exhibits hereto;
Investor's Counsel shall have received the shares of Common Stock
applicable to the Advance in accordance with Section 2.2(c) hereof;
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;
the Company shall have obtained all material permits and qualifications
required by any applicable state for the offer and sale of the Registrable
Securities, or shall have the availability of exemptions therefrom. The sale
and issuance of the Registrable Securities shall be legally permitted by all
laws and regulations to which the Company is subject;
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;
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
the conditions set forth in Section 7.2 shall have been satisfied.
The Company shall have provided to the Investor an acknowledgement, from
Singer Lewak Xxxxxxxxx & Xxxxxxxxx LLP as to its ability to provide all consents
required in order to file a registration statement in connection with this
transaction;
The Company's transfer agent shall be DWAC eligible.
E-7
Section Lock Up Period.
-----------------
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 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. Notwithstanding the foregoing the Company may upon fifteen
(15) business days prior written notice to the Buyer(s) file a registration
statement on Form S-8 for the issuance of shares of common stock and/or options
for consultants and/or attorneys for bona fide services rendered or pursuant to
bona fide employee stock option plans..
On the date hereof, the Company shall obtain from each officer and director
a lock-up agreement, as defined below, in the form annexed hereto as Schedule
2.6 agreeing to only sell in compliance with the volume limitation of Rule 144.
ARTICLE
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 Organization and Authorization. The Investor is duly
--------------------------------
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed
and delivered by the Investor and, assuming the execution and delivery hereof
and acceptance thereof by the Company, will constitute the legal, valid and
binding obligations of the Investor, enforceable against the Investor in
accordance with its terms.
Section 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 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
E-8
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
Section 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 Accredited Investor. The Investor is an "Accredited Investor" as
-------------------- -------------------
that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.
Section Information. The Investor and its advisors (and its counsel), if
-----------
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information it deemed material to making an
informed investment decision. The Investor and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management.
Neither such inquiries nor any other due diligence investigations conducted by
such Investor or its advisors, if any, or its representatives shall modify,
amend or affect the Investor's right to rely on the Company's representations
and warranties contained in this Agreement. The Investor understands that its
investment involves a high degree of risk. The Investor is in a position
regarding the Company, which, based upon employment, family relationship or
economic bargaining power, enabled and enables such Investor to obtain
information from the Company in order to evaluate the merits and risks of this
investment. The Investor has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to this transaction.
Section Receipt of Documents. The Investor and its counsel have received and
--------------------
read in their entirety: (i) this Agreement and the Exhibits annexed hereto;
(ii) all due diligence and other information necessary to verify the accuracy
and completeness of such representations, warranties and covenants; (iii) the
Company's Form 10-KSB for the year ended year ended December 31, 2003 and Form
10-QSB for the period ended March 31, 2004 ; and (iv) answers to all questions
the Investor submitted to the Company regarding an investment in the Company;
and the Investor has relied on the information contained therein and has not
been furnished any other documents, literature, memorandum or prospectus.
Section 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 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
E-9
Regulation D under the Securities Act) in connection with the offer or sale of
the shares of Common Stock offered hereby.
Section 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 Trading Activities. The Investor's trading activities with respect
-------------------
to the Company's Common Stock shall be in compliance with all applicable federal
and state securities laws, rules and regulations and the rules and regulations
of the Principal Market on which the Company's Common Stock is listed or traded.
Neither the Investor nor its affiliates has an open short position in the Common
Stock of the Company and, except as set forth below, the Investor shall not and
will cause its affiliates not to engage in any short sale as defined in any
applicable SEC or National Association of Securities Dealers rules on any
hedging transactions with respect to the Common Stock. Without limiting the
foregoing, the Investor agrees not to engage in any naked short transactions in
excess of the amount of shares owned (or an offsetting long position) during the
Commitment Period. The Investor shall be entitled to sell Common Stock during
the applicable Pricing Period.
ARTICLE
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 Organization and Qualification. The Company is duly
--------------------------------
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
Section 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
E-10
Registration Rights Agreement, the Escrow Agreement, the Placement Agent
Agreement and any related agreements by the Company and the consummation by it
of the transactions contemplated hereby and thereby, have been duly authorized
by the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its stockholders, (iii) this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements have been duly executed and
delivered by the Company, (iv) this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Placement Agent Agreement and assuming the
execution and delivery thereof and acceptance by the Investor and any related
agreements constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
Section Capitalization. As of the date hereof, the authorized capital stock
--------------
of the Company consists of 205,000,000 shares of Common Stock, par value $.0001
per share and 5,000,000 shares of Preferred Stock of which 88,278,000 shares of
Common Stock and no shares of Preferred Stock were issued and outstanding. All
of such outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in the SEC Documents, no shares of Common
Stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company. Except as disclosed in
the SEC Documents, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities (iii) there are no outstanding registration statements other than on
Form S-8 and (iv) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement). There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by this Agreement or
any related agreement or the consummation of the transactions described herein
or therein. The Company has furnished to the Investor true and correct copies
of the Company's Articles of Incorporation, as amended and as in effect on the
date hereof (the "Articles of Incorporation"), and the Company's By-laws, as in
-------------------------
effect on the date hereof (the "By-laws"), and the terms of all securities
-------
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
Section No Conflict. The execution, delivery and performance of this
------------
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Articles of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with or constitute a
default (or an event which with notice or lapse of time or both would become a
E-11
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which would cause a
Material Adverse Effect. Except as disclosed in the SEC Documents, neither the
Company nor its subsidiaries is in violation of any term of or in default under
its Articles of Incorporation or By-laws or their organizational charter or
by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries. The business
of the Company and its subsidiaries is not being conducted in violation of any
material law, ordinance, regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any fact or circumstance which might
give rise to any of the foregoing.
Section SEC Documents; Financial Statements. Since May 15, 2002, the
--------------------------------------
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under of the Exchange Act. The Company
has delivered to the Investor or its representatives, or made available through
the SEC's website at 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.
E-12
Section 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 No Default. Except as disclosed in the SEC Documents, the
-----------
Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its property is bound and neither the execution,
nor the delivery by the Company, nor the performance by the Company of its
obligations under this Agreement or any of the exhibits or attachments hereto
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under its
Articles of Incorporation, By-Laws, any material indenture, mortgage, deed of
trust or other material agreement applicable to the Company or instrument to
which the Company is a party or by which it is bound, or any statute, or any
decree, judgment, order, rules or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, in each case
which default, lien or charge is likely to cause a Material Adverse Effect on
the Company's business or financial condition.
Section 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 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 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.
E-13
Section 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 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 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 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 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 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,
E-14
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
Section Absence of Litigation. Except as set forth in the SEC
-----------------------
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a Material Adverse Effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
Section 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 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 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 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.
E-15
Section 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 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 Opinion of Counsel. Investor shall receive an opinion letter from
--------------------
Gottbetter & Partners, LLP, counsel to the Company, on the date hereof.
Section Opinion of Counsel. The Company will obtain for the Investor, at
--------------------
the Company's expense, any and all opinions of counsel which may be reasonably
required in order to sell the securities issuable hereunder without restriction.
Section 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
INDEMNIFICATION
The Investor and the Company represent to the other the following with
respect to itself:
Section Indemnification.
---------------
In consideration of the Investor's execution and delivery of this
Agreement, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Investor, and all of its officers, directors, partners, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Investor
--------
Indemnitees") from and against any and all actions, causes of action, suits,
-----------
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Investor Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
-----------
Liabilities"), incurred by the Investor Indemnitees or any of them as a result
-----------
of, or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
E-16
such Investor Indemnitee not arising out of any action or inaction of an
Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
In consideration of the Company's execution and delivery of this Agreement,
and in addition to all of the Investor's other obligations under this Agreement,
the Investor shall defend, protect, indemnify and hold harmless the Company and
all of its officers, directors, shareholders, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
-------------------
and against any and all Indemnified Liabilities incurred by the Company
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Investor in this Agreement, the Registration Rights Agreement, or any instrument
or document contemplated hereby or thereby executed by the Investor, (b) any
breach of any covenant, agreement or obligation of the Investor(s) contained in
this Agreement, the Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby executed by the Investor,
or (c) any cause of action, suit or claim brought or made against such Company
Indemnitee based on misrepresentations or due to a breach by the Investor and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Company Indemnitees. To the extent that
the foregoing undertaking by the Investor may be unenforceable for any reason,
the Investor shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities, which is permissible under applicable
law.
(c) The obligations of the parties to indemnify or make contribution
under this Section 5.1 shall survive termination.
ARTICLE
COVENANTS OF THE COMPANY
Section 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 Listing of Common Stock. The Company shall maintain the Common
--------------------------
Stock's authorization for quotation on the Principal Market.
Section 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
E-17
(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 Transfer Agent Instructions. Not later than two (2) business days
-----------------------------
after each Advance Notice Date and prior to each Closing and the effectiveness
of the Registration Statement and resale of the Common Stock by the Investor,
the Company will deliver instructions to its transfer agent to issue shares of
Common Stock free of restrictive legends.
Section Corporate Existence. The Company will take all steps necessary to
--------------------
preserve and continue the corporate existence of the Company.
Section Notice of Certain Events Affecting Registration; Suspension of Right
--------------------------------------------------------------------
to Make an Advance. The Company will immediately notify the Investor upon its
--------------------
becoming aware of the occurrence of any of the following events in respect of a
registration statement or related prospectus relating to an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other Federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the registration statement or related prospectus; (ii) the issuance by the SEC
or any other Federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus of any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Advance Notice during the
continuation of any of the foregoing events.
Section 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.
E-18
Section 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 notwithstanding the foregoing the
Company may upon fifteen (15) business days prior written notice to the Buyer(s)
file a registration statement on Form S-8 for the issuance of shares of common
stock and/or options for consultants and/or attorneys for bona fide services
rendered or pursuant to bona fide employee stock option plans.
Section Consolidation; Merger. The Company shall not, at any time after the
---------------------
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all the assets of the Company to another
entity (a "Consolidation Event") unless the resulting successor or acquiring
--------------------
entity (if not the Company) assumes by written instrument the obligation to
deliver to the Investor such shares of stock and/or securities as the Investor
is entitled to receive pursuant to this Agreement.
Section Issuance of the Company's Common Stock. The sale of the shares of
-----------------------------------------
Common Stock shall be made in accordance with the provisions and requirements of
Regulation D and any applicable state securities law.
ARTICLE
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
Section 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.
Accuracy of the Investor's Representations and Warranties. The
---------------------------------------------------------------
representations and warranties of the Investor shall be true and correct in all
material respects.
Performance by the Investor. The Investor shall have performed, satisfied
----------------------------
and complied in all respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights Agreement to be
performed, satisfied or complied with by the Investor at or prior to such
Closing.
Section 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:
-----------------------------
E-19
Registration of the Common Stock with the SEC. The Company shall have
---------------------------------------------
filed with the SEC a Registration Statement with respect to the resale of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement. As set forth in the Registration Rights Agreement, the Registration
Statement shall have previously become effective and shall remain effective on
each Condition Satisfaction Date and (i) neither the Company nor the Investor
shall have received notice that the SEC has issued or intends to issue a stop
order with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investor is reasonably satisfied that
the SEC no longer is considering or intends to take such action), and (ii) no
other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first
Advance Notice Date.
Authority. The Company shall have obtained all permits and qualifications
---------
required by any applicable state in accordance with the Registration Rights
Agreement for the offer and sale of the shares of Common Stock, or shall have
the availability of exemptions therefrom. The sale and issuance of the shares
of Common Stock shall be legally permitted by all laws and regulations to which
the Company is subject.
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.
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.
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.
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).
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
E-20
Investor to own in excess of nine and 9/10 percent (9.9%) of the then
outstanding Common Stock of the Company.
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.
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
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section Due Diligence Review. Prior to the filing of the Registration
---------------------
Statement the Company shall make available for inspection and review by the
Investor, its advisors and representatives, and any underwriter participating in
any disposition of the Registrable Securities on behalf of the Investor pursuant
to the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section Non-Disclosure of Non-Public Information.
-------------------------------------------
The Company shall not disclose non-public information to the Investor,
its advisors, or its representatives, unless prior to disclosure of such
information the Company identifies such information as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public
information hereunder, require the Investor's advisors and representatives to
enter into a confidentiality agreement in form reasonably satisfactory to the
Company and the Investor.
Nothing herein shall require the Company to disclose non-public information
to the Investor or its advisors or representatives, and the Company represents
that it does not disseminate non-public information to any investors who
purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
E-21
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE
CHOICE OF LAW/JURISDICTION
Section 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
ASSIGNMENT; TERMINATION
Section Assignment. Neither this Agreement nor any rights of the
----------
Company hereunder may be assigned to any other Person.
Section Termination. The obligations of the Investor to make Advances under
-----------
Article II hereof shall terminate twenty-four (24) months after the Effective
Date.
ARTICLE
NOTICES
Section 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
E-22
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: NS8 Corporation
Two Union Square
000 Xxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
NS8 Corporation
000-0000 Xxxx Xxxxxx
Xxxxxxxxx, XX Xxxxxx X0X 0X0
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxx, 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.
E-23
ARTICLE
MISCELLANEOUS
Section 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 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 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 Fees and Expenses. The Company hereby agrees to pay the following
-------------------
fees:
Legal Fees. Each of the parties shall pay its own fees and expenses
-----------
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) in connection with this Agreement and the transactions
contemplated hereby, except that the Company will pay Fifteen Thousand Dollars
($15,000) to Xxxxxx Xxxxxxxx LLP for legal, administrative, and escrow fees
directly from the gross proceeds of the First Closing of the Convertible
Debenture transaction pursuant to the Securities Purchase Agreement dated the
date hereof. 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 proceeds of any Advances hereunder.
Commitment Fees.
----------------
On each Advance Date the Company shall pay to the Investor, directly
from the gross proceeds held in escrow, an amount equal to five percent (5%) of
the amount of each Advance. The Company hereby agrees that if such payment, as
is described above, is not made by the Company on the Advance Date, such payment
will be made at the direction of the Investor as outlined and mandated by
Section 2.3 of this Agreement.
E-24
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 Nine Hundred
Ninety Thousand Dollars ($990,000) divided by the VWAP of the Company's Common
Stock, as quoted by Bloomberg, LP, on the date hereof (the "Investor's Shares").
-----------------
(iii) Fully Earned. The Investor's Shares shall be deemed fully earned as
-------------
of the date hereof.
(iv) Registration Rights. The Investor's Shares will have "piggy-back"
--------------------
registration rights.
(v) Due Diligence Fee. Upon the submission of the due diligence package
------------------
to the Company shall pay to the Investor Five Thousand Dollars ($5,000) as a non
refundable fee in order to defray the costs of due diligence.
Section Brokerage. Each of the parties hereto represents that it has
---------
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 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]
E-25
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:
NS8 CORPORATION
By: /s/ Xxxxx Xxxxxxxxxx
----------------------
Name: Xxxxx Xxxxxxxxxx
Title: CEO
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: Xxxx X. Xxxxxx
----------------
Name: Xxxx X. Xxxxxx
Title: Portfolio Manager
E-26
