EXHIBIT 10.26
STANDBY EQUITY DISTRIBUTION AGREEMENT
THIS STANDBY EQUITY DISTRIBUTION AGREEMENT (the "Agreement")
is entered into as of December 13, 2004 between CORNELL CAPITAL
PARTNERS, LP, a Delaware limited partnership (the "Investor"),
and DCI USA, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject
to the conditions contained herein, the Company shall issue and
sell to the Investor, from time to time as provided herein, and
the Investor shall purchase from the Company up to Five Million
Dollars ($5,000,000) of the Company's common stock, par value
$0.001 per share (the "Common Stock"); and
WHEREAS, such investments will be made in reliance upon the
provisions of Regulation D ("Regulation D") of the Securities Act
of 1933, as amended, and the regulations promulgated thereunder
(the "Securities Act"), and or upon such other exemption from the
registration requirements of the Securities Act as may be
available with respect to any or all of the investments to be
made hereunder; and
WHEREAS, the Company has engaged Newbridge Securities
Corporation to act as the Company's exclusive placement agent in
connection with the sale of the Company's Common Stock to the
Investor hereunder pursuant to the Placement Agent Agreement
dated the date hereof by and among the Company, the Placement
Agent and the Investor (the "Placement Agent Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Certain Definitions
Section 1.1. "Advance" shall mean the portion of the
Commitment Amount requested by the Company in the Advance Notice.
Section 1.2. "Advance Date" shall mean the date the Xxxxx
Xxxxxxxx Escrow Account is in receipt of the funds from the
Investor and Xxxxx Xxxxxxxx, 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 Xxxxx
Xxxxxxxx can release the free trading shares to the Investor. The
Advance Date shall be one (1) Trading Day after the applicable
Pricing Period.
Section 1.3. "Advance Notice" shall mean a written notice
to the Investor setting forth the Advance amount that the Company
requests from the Investor and the Advance Date.
Section 1.4. "Advance Notice Date" shall mean each date
the Company delivers to the Investor an Advance Notice requiring
the Investor to advance funds to the Company, subject to the
terms of this Agreement. No Advance Notice Date shall be less
than five (5) Trading Days after the prior Advance Notice Date.
Section 1.5. "Bid Price" shall mean, on any date, the
closing bid price (as reported by Bloomberg L.P.) of the Common
Stock on the Principal Market or if the Common Stock is not
traded on a Principal Market, the highest reported bid price for
the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.6. "Closing" shall mean one of the closings of a
purchase and sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate
amount of up to 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 the earlier to occur of (i) the Effective Date, or
(ii) such earlier date as the Company and the Investor may 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 2.5, or (z) the date occurring
twenty-four (24) months after the Effective Date.
Section 1.9. "Common Stock" shall mean the Company's
common stock, par value $0.001 per share.
Section 1.10. "Condition Satisfaction Date" shall have the
meaning set forth in Section 7.2.
Section 1.11. "Damages" shall mean any loss, claim, damage,
liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and costs and
expenses of expert witnesses and investigation).
Section 1.12. "Effective Date" shall mean the date on which
the SEC first declares effective a Registration Statement
registering the resale of the Registrable Securities as set forth
in Section 7.2(b).
Section 1.13. "Escrow Agreement" shall mean the escrow
agreement among the Company, the Investor, and Xxxxx Xxxxxxxx
dated the date hereof.
Section 1.14. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
Section 1.15. "Material Adverse Effect" shall mean any
condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to
enter into and perform any of its obligations under this
Agreement or the Registration Rights Agreement in any material
respect.
Section 1.16. "Market Price" shall mean the lowest VWAP of
the Common Stock during the Pricing Period.
Section 1.17. "Maximum Advance Amount" shall be One Hundred
and Twenty Five Thousand Dollars ($125,000) per Advance Notice;
provided that in no event shall the total amount in any 30-day
period exceed five hundred thousand dollars ($500,000).
Section 1.18 "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section 1.19 "Person" shall mean an individual, a
corporation, a partnership, an association, a trust or other
entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
Section 1.20 "Placement Agent" shall mean Newbridge
Securities Corporation, a registered broker-dealer.
Section 1.21 "Pricing Period" shall mean the five (5)
consecutive Trading Days after the Advance Notice Date.
Section 1.22 "Principal Market" shall mean the Nasdaq
National Market, the Nasdaq SmallCap Market, the American Stock
Exchange, the OTC Bulletin Board or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market
for the Common Stock.
Section 1.23 "Purchase Price" shall be set at ninety seven
percent (97%) 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 there under
in accordance with the provisions of this Agreement and the
Registration Rights Agreement, and in accordance with the
intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable
Securities under the Securities Act.
Section 1.27 "Regulation D" shall have the meaning set
forth in the recitals of this Agreement.
Section 1.28 "SEC" shall mean the Securities and Exchange
Commission.
Section 1.29 "Securities Act" shall have the meaning set
forth in the recitals of this Agreement.
Section 1.30 "SEC Documents" shall mean Annual Reports on
Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on
Form 8-K and Proxy Statements of the Company as supplemented to
the date hereof, filed by the Company for a period of at least
twelve (12) months immediately preceding the date hereof or the
Advance Date, as the case may be, until such time as the Company
no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights
Agreement.
Section 1.31 "Trading Day" shall mean any day during which
the New York Stock Exchange shall be open for business.
Section 1.32 "VWAP" shall mean the volume weighted average
price of the Company's common stock as quoted by Bloomberg, LP.
ARTICLE II.
Advances
Section 2.1. Investments.
(a) Advances. Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article
VII hereof), on any Advance Notice Date the Company may request
an Advance by the Investor by the delivery of an Advance Notice.
The number of shares of Common Stock that the Investor shall
receive for each Advance shall be determined by dividing the
amount of the Advance by the Purchase Price. No fractional
shares shall be issued. Fractional shares shall be rounded to the
next higher whole number of shares. The aggregate maximum amount
of all Advances that the Investor shall be obligated to make
under this Agreement shall not exceed the Commitment Amount.
Section 2.2. Mechanics.
(a) Advance Notice. At any time during the Commitment
Period, the Company may deliver an Advance Notice to the
Investor, subject to the conditions set forth in Section 7.2;
provided, however, the amount for each Advance as designated by
the Company in the applicable Advance Notice shall not be more
than the Maximum Advance Amount. The aggregate amount of the
Advances pursuant to this Agreement shall not exceed the
Commitment Amount. The Company acknowledges that the Investor
may sell shares of the Company's Common Stock corresponding with
a particular Advance Notice on the day the Advance Notice is
received by the Investor. There will be a minimum of five (5)
Trading Days between each Advance Notice Date.
(b) Date of Delivery of Advance Notice. An Advance
Notice shall be deemed delivered on (i) the Trading Day it is
received by facsimile or otherwise by the Investor if such notice
is received prior to 12:00 noon Eastern Time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile
or otherwise after 12:00 noon Eastern Time on a Trading Day or at
any time on a day which is not a Trading Day. No Advance Notice
may be deemed delivered on a day that is not a Trading Day.
(c) Pre-Closing Share Credit. Within two (2) business
days after the Advance Notice Date, the Company shall credit
shares of the Company's Common Stock to the Investor's balance
account with The Depository Trust Company through its Deposit
Withdrawal At Custodian system, in an amount equal to the amount
of the requested Advance divided by the closing Bid Price of the
Company's Common Stock as of the Advance Notice Date multiplied
by one point one (1.1). Any adjustments to the number of shares
to be delivered to the Investor at the Closing as a result of
fluctuations in the closing Bid Price of the Company's Common
Stock shall be made as of the date of the Closing. Any excess
shares shall be credited to the next Advance. In no event shall
the number of shares issuable to the Investor pursuant to an
Advance cause the Investor to own in excess of nine and 9/10
percent (9.9%) of the then outstanding Common Stock of the
Company.
(d) Hardship. In the event the Investor sells the
Company's Common Stock pursuant to subsection (c) above and the
Company fails to perform its obligations as mandated in Section
2.5 and 2.2 (c), and specifically fails to provide the Investor
with the shares of Common Stock for the applicable Advance, the
Company acknowledges that the Investor shall suffer financial
hardship and therefore shall be liable for any and all losses,
commissions, fees, or financial hardship caused to the Investor.
Section 2.3. Closings. On each Advance Date, which shall
be one (1) Trading Day after an applicable Pricing Period, (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 Xxxxx Xxxxxxxx (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.
Section 2.4. Termination of Investment. The obligation of
the Investor to make an Advance to the Company pursuant to this
Agreement shall terminate permanently (including with respect to
an Advance Date that has not yet occurred) in the event that (i)
there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of
fifty (50) Trading Days, other than due to the acts of the
Investor, during the Commitment Period, (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.
Notwithstanding anything contained herein to the contrary, upon
fifteen (15) business days prior written notice from the Company
to the Investor, this Agreement shall terminate and have no
further force and effect, provided that at any time any such
notice is given, there are no (i) pending Advance Notices; or
(ii) amounts owed to the Investor under the Securities Purchase
Agreement of even date herewith or the Convertible Debentures
issued in connection therewith.
Section 2.5. Agreement to Advance Funds.
(a) The Investor agrees to advance the amount
specified in the Advance Notice to the Company after the
completion of each of the following conditions and the other
conditions set forth in this Agreement:
(i) the execution and delivery by the Company,
and the Investor, of this Agreement, and the Exhibits hereto;
(ii) the Company's Common Stock shall have been
authorized for quotation on the Principal Market.
(iii) Investor's Counsel shall have received
the shares of Common Stock applicable to the Advance in
accordance with Section 2.2(c) hereof;
(iv) 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;
(v) 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;
(vi) 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;
(vii) the fees as set forth in Section 12.4
below shall have been paid or can be withheld as provided in
Section 2.3;
(viii) the conditions set forth in Section 7.2
shall have been satisfied;
(ix) The Company shall have provided to the
Investor an acknowledgement, from Xxxxxxx Xxxxxxxx, as to its
ability to provide all consents required in order to file a
registration statement in connection with this transaction; and
(x) The Company's transfer agent shall be DWAC
eligible.
Section 2.6. Lock Up Period.
(i) During the Commitment Period, the Company
shall not issue or sell, without the prior written consent of the
Investor, (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.
(ii) On the date hereof, the Company shall obtain
from each officer and director a lock-up agreement, as defined
below, in the form annexed hereto as Schedule 2.6 agreeing to
only sell in compliance with the volume limitation of Rule 144.
(iii) The Company shall not file any other
registration statement until at least 12 months after the
Registration Statement is declared effective. Moreover, after the
one year anniversary hereof, upon a minimum of ten (10) days'
prior written notice, the Company may at its discretion grant
warrants or options to its employees, officers, directors, agents
and representatives, in an amount not to exceed 10% of the
Company's outstanding Common Stock.
Notwithstanding anything contained herein to the contrary, the
Investor agrees that the Company has the right to (i) file a Form
S-8 for a stock option plan with respect to 3,750,000 shares of
common stock; the issuance of shares thereunder shall require the
stockholder to execute a lock-up restricting such holder's shares
to no more than 25% of such shares within each 4 month period,
and (ii) issue restricted shares of common stock pursuant to rule
144 as follows: Xxxxx Xxxxxxxxxx - 850,000 shares; Xxxx Xxxx-
360,000 shares; Xxx Xxxxxxxx-360,000 shares and DCI Management,
LLC-1,500,000 shares.
(iv) During the Commitment Period, the Company
hereby grants to Investor the right of first refusal (the "Right
of First Refusal") to purchase New Securities (as defined in the
next paragraph) that the Company may, from time to time and in
one or more transactions, propose to sell and issue. In
connection with such right, the Company covenants and agrees to
give Investor written notice (an "Offering Notice") specifying,
in detail, the terms and conditions of any bona fide proposed
sale of New Securities and the names and addresses of such
persons and entities prepared to purchase such New Securities,
and any representatives, brokers or dealers proposing to
effectuate such sale, together with all compensation terms. The
Investor shall have the right, for a period expiring at 11:59 PM
(Eastern Time) on the fifth (5th) business day after the giving
of the Offering Notice (the "Exercise Period"), to purchase the
New Securities for the price and on the general terms and
conditions specified in the Offering Notice. The Investor's
failure to exercise such right shall not result in the
cancellation of Investor's right of first refusal on any other
proposed financing by the Company thereafter.
The term "New Securities" as used in the preceding paragraph
shall mean any offering and issuance by the Company of Common
Stock or securities convertible into, and/or other rights
exercisable for the issuance of, Common Stock to or with any
third party without consideration or for a consideration per
share less than the Bid Price on the date of issuance of the New
Securities with the exception of New Securities issued in
conjunction with the closing of a contract, sub-contract, teaming
arrangement, joint venture or strategic partnership but only to
the extent that such New Securities do not exceed 10% of the
Company's outstanding Common Stock on the date of issuance, this
shall exclude issuance detailed in section (iii) above. Except
as may otherwise be permitted pursuant to the forgoing, during
the Commitment Period, the Company shall not issue or sell any
warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire
Common Stock without consideration or for a consideration per
share less than the Bid Price on the date of issuance.
ARTICLE III.
Representations and Warranties of Investor
Investor hereby represents and warrants to, and agrees with,
the Company that the following are true and as of the date hereof
and as of each Advance Date:
Section 3.1. Organization and Authorization. The Investor
is duly incorporated or organized and validly existing in the
jurisdiction of its incorporation or organization and has all
requisite power and authority to purchase and hold the securities
issuable hereunder. The decision to invest and the execution and
delivery of this Agreement by such Investor, the performance by
such Investor of its obligations hereunder and the consummation
by such Investor of the transactions contemplated hereby have
been duly authorized and requires no other proceedings on the
part of the Investor. The undersigned has the right, power and
authority to execute and deliver this Agreement and all other
instruments (including, without limitations, the Registration
Rights Agreement), on behalf of the Investor. This Agreement has
been duly executed and delivered by the Investor and, assuming
the execution and delivery hereof and acceptance thereof by the
Company, will constitute the legal, valid and binding obligations
of the Investor, enforceable against the Investor in accordance
with its terms.
Section 3.2. Evaluation of Risks. The Investor has such
knowledge and experience in financial tax and business matters as
to be capable of evaluating the merits and risks of, and bearing
the economic risks entailed by, an investment in the Company and
of protecting its interests in connection with this transaction.
It recognizes that its investment in the Company involves a high
degree of risk.
Section 3.3. No Legal Advice From the Company. The
Investor acknowledges that it had the opportunity to review this
Agreement and the transactions contemplated by this Agreement
with his or its own legal counsel and investment and tax
advisors. The Investor is relying solely on such counsel and
advisors and not on any statements or representations of the
Company or any of its representatives or agents for legal, tax or
investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities
laws of any jurisdiction.
Section 3.4. Investment Purpose. The securities are being
purchased by the Investor for its own account, for investment and
without any view to the distribution, assignment or resale to
others or fractionalization in whole or in part. The Investor
agrees not to assign or in any way transfer the Investor's rights
to the securities or any interest therein and acknowledges that
the Company will not recognize any purported assignment or
transfer except in accordance with applicable Federal and state
securities laws. No other person has or will have a direct or
indirect beneficial interest in the securities. The Investor
agrees not to sell, hypothecate or otherwise transfer the
Investor's securities unless the securities are registered under
Federal and applicable state securities laws or unless, in the
opinion of counsel satisfactory to the Company, an exemption from
such laws is available.
Section 3.5. Accredited Investor. The Investor is an
"Accredited Investor" as that term is defined in Rule 501(a)(3)
of Regulation D of the Securities Act.
Section 3.6. Information. The Investor and its advisors
(and its counsel), if any, have been furnished with all materials
relating to the business, finances and operations of the Company
and information it deemed material to making an informed
investment decision. The Investor and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and
its management. Neither such inquiries nor any other due
diligence investigations conducted by such Investor or its
advisors, if any, or its representatives shall modify, amend or
affect the Investor's right to rely on the Company's
representations and warranties contained in this Agreement. The
Investor understands that its investment involves a high degree
of risk. The Investor is in a position regarding the Company,
which, based upon employment, family relationship or economic
bargaining power, enabled and enables such Investor to obtain
information from the Company in order to evaluate the merits and
risks of this investment. The Investor has sought such
accounting, legal and tax advice, as it has considered necessary
to make an informed investment decision with respect to this
transaction.
Section 3.7. Receipt of Documents. The Investor and its
counsel has received and read in their entirety: (i) this
Agreement and the Exhibits annexed hereto; (ii) all due diligence
and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants;
and (iii) answers to all questions the Investor submitted to the
Company regarding an investment in the Company; and the Investor
has relied on the information contained therein and has not been
furnished any other documents, literature, memorandum or
prospectus.
Section 3.8. Registration Rights Agreement and Escrow
Agreement. The parties have entered into the Registration Rights
Agreement and the Escrow Agreement, each dated the date hereof.
Section 3.9. No General Solicitation. Neither the
Company, nor any of its affiliates, nor any person acting on its
or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the
shares of Common Stock offered hereby.
Section 3.10. Not an Affiliate. The Investor is not an
officer, director or a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by,
or is under common control with the Company or any "Affiliate" of
the Company (as that term is defined in Rule 405 of the
Securities Act). Neither the Investor nor its Affiliates has an
open short position in the Common Stock of the Company, and the
Investor agrees that it will not, and that it will cause its
Affiliates not to, engage in any short sales of or hedging
transactions with respect to the Common Stock, provided that the
Company acknowledges and agrees that upon receipt of an Advance
Notice the Investor will sell the Shares to be issued to the
Investor pursuant to the Advance Notice, even if the Shares have
not been delivered to the Investor.
Section 3.11. Trading Activities. The Investor's trading
activities with respect to the Company's Common Stock shall be in
compliance with all applicable federal and state securities laws,
rules and regulations and the rules and regulations of the
Principal Market on which the Company's Common Stock is listed or
traded. Neither the Investor nor its affiliates has an open short
position in the Common Stock of the Company and, except as set
forth below, the Investor shall not and will cause its affiliates
not to engage in any short sale as defined in any applicable SEC
or National Association of Securities Dealers rules on any
hedging transactions with respect to the Common Stock. Without
limiting the foregoing, the Investor agrees not to engage in any
naked short transactions in excess of the amount of shares owned
(or an offsetting long position) during the Commitment Period.
The Investor shall be entitled to sell Common Stock during the
applicable Pricing Period.
ARTICLE IV.
Representations and Warranties of the Company
Except as stated below or on the Disclosure Schedule (the
"Disclosure Schedule") attached hereto as Exhibit "B," the
Company hereby represents and warrants to, and covenants with,
the Investor that the following are true and correct as of the
date hereof:
Section 4.1. Organization and Qualification. The Company
is duly incorporated or organized and validly existing in the
jurisdiction of its incorporation or organization and has all
requisite power and authority corporate power to own its
properties and to carry on its business as now being conducted.
Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted
by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would
not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
Section 4.2. Authorization, Enforcement, Compliance with
Other Instruments. (i) The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements, in
accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Placement Agent Agreement
and any related agreements by the Company and the consummation by
it of the transactions contemplated hereby and thereby, have been
duly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its
Board of Directors or its stockholders, (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements have been
duly executed and delivered by the Company, and (iv) this
Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Placement Agent Agreement and assuming the
execution and delivery thereof and acceptance by the Investor and
any related agreements constitute the valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of
creditors' rights and remedies.
Section 4.3. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of 101,000,000
shares of stock, of which 100,000,000 shares are designated as
Common Stock, of which 35,000,000 shares of Common Stock are
outstanding and 1,000,000 shares, which are designated as
preferred shares, of which 200,000 are designated as Series A
Preferred. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed
in the Disclosure Schedule, 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 Disclosure Schedule, 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 and (iv) there are no agreements or
arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of their securities
under the Securities Act (except pursuant to the Registration
Rights Agreement). There are no securities or instruments
containing anti-dilution or similar provisions that will be
triggered by this Agreement or any related agreement or the
consummation of the transactions described herein or therein.
The Company has furnished to the Investor true and correct copies
of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on the
date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
Section 4.4. No Conflict. The execution, delivery and
performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby will not
(i) result in a violation of the Certificate of Incorporation or
any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with
or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a
violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and
the rules and regulations of the Principal Market on which the
Common Stock is quoted) applicable to the Company or any of its
subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which
would cause a Material Adverse Effect. Except as disclosed in
the Disclosure Schedule, neither the Company nor its subsidiaries
is in violation of any term of or in default under its
Certificate of Incorporation or By-laws or their organizational
charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation
applicable to the Company or its subsidiaries. The business of
the Company and its subsidiaries is not being conducted in
violation of any material law, ordinance, regulation of any
governmental entity. Except as specifically contemplated by this
Agreement and as required under the Securities Act and any
applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations
under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof.
All consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date
hereof. The Company and its subsidiaries are unaware of any fact
or circumstance which might give rise to any of the foregoing.
Section 4.5. Financial Statements. As of their respective
dates, the financial statements of the Company (the "Financial
Statements") for the two most recently completed fiscal years and
any subsequent interim period 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 contains any untrue
statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Section 4.6. No Default. Except as disclosed in the
Disclosure Schedule, 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 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 4.7. Absence of Events of Default. Except for
matters described in the Disclosure Schedule 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 4.8. Intellectual Property Rights. The Company
and its subsidiaries own or possess adequate rights or licenses
to use all material trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. The Company and
its subsidiaries do not have any knowledge of any infringement by
the Company or its subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service
names, service marks, service xxxx registrations, trade secret or
other similar rights of others, and, to the knowledge of the
Company, there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened
against, the Company or its subsidiaries regarding trademark,
trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx
registrations, trade secret or other infringement; and the
Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
Section 4.9. Employee Relations. Neither the Company nor
any of its subsidiaries is involved in any labor dispute nor, to
the knowledge of the Company or any of its subsidiaries, is any
such dispute threatened. None of the Company's or its
subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their
employees are good.
Section 4.10. Environmental Laws. The Company and its
subsidiaries are (i) in compliance with any and all applicable
material foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.
Section 4.11. Title. Except as set forth in the Disclosure
Schedule, 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 4.12. Insurance. The Company and each of its
subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts
as management of the Company believes to be prudent and customary
in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither
the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect
the condition, financial or otherwise, or the earnings, business
or operations of the Company and its subsidiaries, taken as a
whole.
Section 4.13. Regulatory Permits. The Company and its
subsidiaries possess all material certificates, authorizations
and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
Section 4.14. Internal Accounting Controls. The Company
and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken
with respect to any differences.
Section 4.15. No Material Adverse Breaches, etc. Except as
set forth in the Disclosure Schedule, 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 Disclosure Schedule,
neither the Company nor any of its subsidiaries is in breach of
any contract or agreement which breach, in the judgment of the
Company's officers, has or is expected to have a Material Adverse
Effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or
its subsidiaries.
Section 4.16. Absence of Litigation. Except as set forth
in the Disclosure Schedule, 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 Disclosure Schedule, have a Material
Adverse Effect on the business, operations, properties, financial
condition or results of operation of the Company and its
subsidiaries taken as a whole.
Section 4.17. Subsidiaries. Except as disclosed in the
Disclosure Schedule, the Company does not presently own or
control, directly or indirectly, any interest in any other
corporation, partnership, association or other business entity.
Section 4.18. Tax Status. Except as disclosed in the
Disclosure Schedule, the Company and each of its subsidiaries has
made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to
which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and
unreported taxes) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.
Section 4.19. Certain Transactions. Except as set forth in
the Disclosure Schedule, none of the officers, directors, or
employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers
and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
Section 4.20. Fees and Rights of First Refusal. The
Company is not obligated to offer the securities offered
hereunder on a right of first refusal basis or otherwise to any
third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or
other third parties.
Section 4.21. Use of Proceeds. The Company represents that
the net proceeds from this offering will be used for general
corporate purposes. However, in no event shall the net proceeds
from this offering be used by the Company for the payment (or
loaned to any such person for the payment) of any judgment, or
other liability, incurred by any executive officer, officer,
director or employee of the Company, except for any liability
owed to such person for services rendered, or if any judgment or
other liability is incurred by such person originating from
services rendered to the Company, or the Company has indemnified
such person from liability.
Section 4.22. Further Representation and Warranties of the
Company. For so long as any securities issuable hereunder held
by the Investor remain outstanding, the Company acknowledges,
represents, warrants and agrees that it will maintain the listing
of its Common Stock on the Principal Market
Section 4.23. Opinion of Counsel. Investor shall receive
an opinion letter from counsel acceptable to the Investor on the
date hereof.
Section 4.24. Opinion of Counsel. The Company will obtain
for the Investor, at the Company's expense, any and all opinions
of counsel which may be reasonably required in order to sell the
securities issuable hereunder without restriction.
Section 4.25. 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
Section 5.1. Indemnification.
(a) In consideration of the Investor's execution and
delivery of this Agreement, and in addition to all of the
Company's other obligations under this Agreement, the Company
shall defend, protect, indemnify and hold harmless the Investor,
and all of its officers, directors, partners, attorneys,
employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Investor Indemnitees") from and
against any and all actions, causes of action, suits, claims,
losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any
such Investor Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by the Investor Indemnitees or any of
them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty
made by the Company in this Agreement or the Registration Rights
Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this
Agreement or the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or
thereby, or (c) any cause of action, suit or claim brought or
made against such Investor Indemnitee arising out of or resulting
from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed
pursuant hereto by any of the Investor Indemnitees. To the
extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the
Indemnified Liabilities, which is permissible under applicable
law.
(b) In consideration of the Company's execution and
delivery of this Agreement, and in addition to all of the
Investor's other obligations under this Agreement, the Investor
shall defend, protect, indemnify and hold harmless the Company
and all of its officers, directors, shareholders, attorneys,
employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Company Indemnitees") from and
against any and all Indemnified Liabilities incurred by the
Company Indemnitees or any of them as a result of, or arising out
of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Investor in this
Agreement, the Registration Rights Agreement, or any instrument
or document contemplated hereby or thereby executed by the
Investor, (b) any breach of any covenant, agreement or obligation
of the Investor(s) contained in this Agreement, the Registration
Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Investor, or (c)
any cause of action, suit or claim brought or made against such
Company Indemnitee based on misrepresentations or due to a
breach by the Investor and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement
or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnitees. To the extent that the
foregoing undertaking by the Investor may be unenforceable for
any reason, the Investor shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.
(c) The obligations of the parties to indemnify or
make contribution under this Section 5.1 shall survive
termination.
ARTICLE VI.
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause
the Registration Rights Agreement to remain in full force and
effect and the Company shall comply in all material respects with
the terms thereof.
Section 6.2. Listing of Common Stock. The Company shall
obtain and maintain the Common Stock's authorization for
quotation on the National Association of Securities Dealers
Inc.'s Over the Counter Bulletin Board.
Section 6.3. Exchange Act Registration. The Company will
cause its Common Stock to be registered under Section 12(g) of
the Exchange Act, will file in a timely manner all reports and
other documents required of it as a reporting company under the
Exchange Act and will not take any action or file any document
(whether or not permitted by Exchange Act or the rules
thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under
said Exchange Act.
Section 6.4. Transfer Agent Instructions. Not later than
two (2) business days after each Advance Notice Date and prior to
each Closing and resale of the Common Stock by the Investor, the
Company will deliver instructions to its transfer agent to issue
shares of Common Stock free of restrictive legends.
Section 6.5. Corporate Existence. The Company will take
all steps necessary to preserve and continue the corporate
existence of the Company.
Section 6.6. Notice of Certain Events Affecting
Registration; Suspension of Right to Make an Advance. The
Company will immediately notify the Investor upon its becoming
aware of the occurrence of any of the following events in respect
of a registration statement or related prospectus relating to an
offering of Registrable Securities: (i) receipt of any request
for additional information by the SEC or any other Federal or
state governmental authority during the period of effectiveness
of the Registration Statement for amendments or supplements to
the registration statement or related prospectus; (ii) the
issuance by the SEC or any other Federal or state governmental
authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for
that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that
makes any statement made in the Registration Statement or related
prospectus of any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration
Statement, related prospectus or documents so that, in the case
of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be
appropriate; and the Company will promptly make available to the
Investor any such supplement or amendment to the related
prospectus. The Company shall not deliver to the Investor any
Advance Notice during the continuation of any of the foregoing
events.
Section 6.7. Expectations Regarding Advance Notices.
Within ten (10) days after the commencement of each calendar
quarter occurring subsequent to the commencement of the
Commitment Period, the Company may notify the Investor, in
writing, as to its reasonable expectations as to the dollar
amount it intends to raise during such calendar quarter, if any,
through the issuance of Advance Notices. Such notification shall
constitute only the Company's good faith estimate and shall in no
way obligate the Company to raise such amount, or any amount, or
otherwise limit its ability to deliver Advance Notices. The
failure by the Company to comply with this provision can be cured
by the Company's notifying the Investor, in writing, at any time
as to its reasonable expectations with respect to the current
calendar quarter.
Section 6.8. Restriction on Sale of Capital Stock. During
the Commitment Period, the Company shall not issue or sell,
without the prior written consent of the Investor, (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 until at least twelve (12) months after
the Registration Statement is declared effective. However, after
a one year anniversary hereof, upon a minimum of ten (10) days'
prior written notice, the Company may at its discretion grant
warrants or options to its employees, officers, directors, agents
and representatives, in an amount not to exceed 10% of the
Company's outstanding Common Stock
Notwithstanding anything contained herein to the contrary, the
Investor agrees that the Company has the right to (i) file a Form
S-8 for a stock option plan with respect to 3,750,000 shares of
common stock; the issuance of shares thereunder shall require the
stockholder to execute a lock-up restricting such holder's shares
to no more than 25% of such shares within each 4 month period,
and (ii) issue restricted shares of common stock pursuant to rule
144 as follows: Xxxxx Xxxxxxxxxx - 850,000 shares; Xxxx Xxxx-
360,000 shares; Xxx Xxxxxxxx-360,000 shares and DCI Management,
LLC-1,500,000 shares.
Section 6.9. Consolidation; Merger. The Company shall
not, at any time after the date hereof, effect any merger or
consolidation of the Company with or into, or a transfer of all
or substantially all the assets of the Company to another entity
(a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to the Investor such shares
of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement.
Section 6.10. Issuance of the Company's Common Stock. The
sale of the shares of Common Stock shall be made in accordance
with the provisions and requirements of Regulation D and any
applicable state securities law.
ARTICLE VII.
Conditions for Advance and Conditions to Closing
Section 7.1. Conditions Precedent to the Obligations of
the Company. The obligation hereunder of the Company to issue
and sell the shares of Common Stock to the Investor incident to
each Closing is subject to the satisfaction, or waiver by the
Company, at or before each such Closing, of each of the
conditions set forth below.
(a) Accuracy of the Investor's Representations and
Warranties. The representations and warranties of the Investor
shall be true and correct in all material respects.
(b) Performance by the Investor. The Investor shall
have performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement
and the Registration Rights Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing.
Section 7.2. Conditions Precedent to the Right of the
Company to Deliver an Advance Notice and the Obligation of the
Investor to Purchase Shares of Common Stock. The right of the
Company to deliver an Advance Notice and the obligation of the
Investor hereunder to acquire and pay for shares of the Company's
Common Stock incident to a Closing is subject to the fulfillment
by the Company, on (i) the date of delivery of such Advance
Notice and (ii) the applicable Advance Date (each a "Condition
Satisfaction Date"), of each of the following conditions:
(a) Listing of the Company's Common Stock. The
Company's Common Stock shall have been authorized for quotation
on the National Association of Securities Dealers Inc.'s Over the
Counter Bulletin Board.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) No Suspension of Trading in or Delisting of Common
Stock. The trading of the Common Stock has commenced on the
Principal Market and has not been suspended by the SEC or the
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
any). The Company shall not have received any notice threatening
the continued listing of the Common Stock on the Principal
Market.
(h) Maximum Advance Amount. The amount of any Advance
requested by the Company shall not exceed the Maximum Advance
Amount. In addition, in no event shall the number of shares
issuable to the Investor pursuant to an Advance cause the
Investor to beneficially own in excess of nine and 9/10 percent
(9.9%) of the then outstanding Common Stock of the Company.
(i) 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.
(j) Other. On each Condition Satisfaction Date, the
Investor shall have received the certificate executed by an
officer of the Company in the form of Exhibit A attached hereto.
ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1. Due Diligence Review. Prior to the filing of
the Registration Statement the Company shall make available for
inspection and review by the Investor, advisors to and
representatives of the Investor, any underwriter participating in
any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any
blue sky, NASD or other filing, all financial and other records,
all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all
such information reasonably requested by the Investor or any such
representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after
the filing and effectiveness of the Registration Statement for
the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public
information to the Investor, advisors to or representatives of
the Investor unless prior to disclosure of such information the
Company identifies such information as being non-public
information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to
accept such non-public information for review. The Company may,
as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to
enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to
disclose non-public information to the Investor or its advisors
or representatives, and the Company represents that it does not
disseminate non-public information to any investors who purchase
stock in the Company in a public offering, to money managers or
to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove
provided, immediately notify the advisors and representatives of
the Investor and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware,
constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due
diligence by such persons or entities), which, if not disclosed
in the prospectus included in the Registration Statement would
cause such prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to
make the statements, therein, in light of the circumstances in
which they were made, not misleading. Nothing contained in this
Section 8.2 shall be construed to mean that such persons or
entities other than the Investor (without the written consent of
the Investor prior to disclosure of such information) may not
obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration
Statement contains an untrue statement of material fact or omits
a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein,
in light of the circumstances in which they were made, not
misleading.
ARTICLE IX.
Choice of Law/Jurisdiction
Section 9.1. Governing Law. This Agreement shall be
governed by and interpreted in accordance with the laws of the
State of New Jersey without regard to the principles of conflict
of laws. The parties further agree that any action between them
shall be heard exclusively 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.
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: DCI USA, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxx Xxxxx & Associates
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxx, 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: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx -Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Senior Vice-President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide five (5) days' prior written notice to
the other party of any change in address or facsimile number.
ARTICLE XII.
Miscellaneous
Section 12.1. Counterparts. This Agreement may be
executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means
of delivery shall cause four (4) additional original executed
signature pages to be physically delivered to the other party
within five (5) days of the execution and delivery hereof, though
failure to deliver such copies shall not affect the validity of
this Agreement.
Section 12.2. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the
Investor, the Company, their affiliates and persons acting on
their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein contain the
entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Investor makes any
representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or
amended other than by an instrument in writing signed by the
party to be charged with enforcement.
Section 12.3. Reporting Entity for the Common Stock. The
reporting entity relied upon for the determination of the trading
price or trading volume of the Common Stock on any given Trading
Day for the purposes of this Agreement shall be Bloomberg, L.P.
or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other
reporting entity.
Section 12.4. Fees and Expenses. The Company hereby agrees
to pay the following fees:
(a) Legal Fees. Except as provided in Section
12.4(b), 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.
(b) Structuring Fees. The Company shall pay the
Investor the fee of Fifteen Thousand Dollars ($15,000) for
structuring fees referenced in the Securities Purchase Agreement
of even date herewith, which shall be paid out of the gross
proceeds of the Closing, as such terms are defined in the
Securities Purchase Agreement of even date herewith. This fee
shall be deemed fully earned on the date hereof.
(c) Commitment Fees.
(b) 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. Subsequently on
each advance date, the Company will pay Yorkville Advisors
Management, LLC a structuring fee of Five Hundred Dollars ($500).
(i) Upon the execution of this Agreement the
Company shall issue to the Investor the Series A Convertible
Preferred Stock, with the preferences and designations as
indicated in the Certificate of Designation of such stock
attached hereto as Exhibit C with a face value of Two Hundred
Thousand Dollars ($200,000) worth of Common Stock (the "Closing
Fee"). The final number of share shall be determined as detailed
in and pursuant with the Certificate of Designation of Series A
Preferred Stock of DCI USA, Inc. dated November 30th,2004, and
attached hereto(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.
Section 12.5. Brokerage. Each of the parties hereto
represents that it has had no dealings in connection with this
transaction with any finder or broker who will demand payment of
any fee or commission from the other party. The Company on the
one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or
finder's fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 12.6. Confidentiality. If for any reason the
transactions contemplated by this Agreement are not consummated,
each of the parties hereto shall keep confidential any
information obtained from any other party (except information
publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly
return to the other parties all schedules, documents,
instruments, work papers or other written information without
retaining copies thereof, previously furnished by it as a result
of this Agreement or in connection herein.
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:
DCI USA, INC.
By: /s/ Xxxxx Xxxxxxxxxx
Name: Xxxxx Xxxxxxxxxx
Title: Chairman
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Title: Portfolio Manager
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
DCI USA, INC.
The undersigned, _______________________ hereby certifies,
with respect to the sale of shares of Common Stock of DCI USA,
Inc. (the "Company"), issuable in connection with this Advance
Notice and Compliance Certificate dated ___________________ (the
"Notice"), delivered pursuant to the Standby Equity Distribution
Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected Chairman of the
Company.
2. There are no fundamental changes to the information set
forth in the Registration Statement which would require the
Company to file a post effective amendment to the Registration
Statement.
3. The Company has performed in all material respects all
covenants and agreements to be performed by the Company on or
prior to the Advance Date related to the Notice and has complied
in all material respects with all obligations and conditions
contained in the Agreement.
4. The 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, 10-K,
8-K, etc. All SEC Filings and other public disclosures made by
the Company, including, without limitation, all press releases,
analysts meetings and calls, etc. (collectively, the "Public
Disclosures"), have been reviewed and approved for release by the
Company's attorneys and, if containing 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 _________________.
DCI USA, INC.
By:
Name:
Title:
EXHIBIT B
DISCLOSURE STATEMENT
[intentionally omitted]
EXHIBIT C
CERTIFICATE OF DESIGNATION OF
SERIES A PREFERRED STOCK OF
DCI USA, INC.
[intentionally omitted]
SCHEDULE 2.6
DCI USA, INC.
The undersigned hereby agrees that for a period commencing
on the date hereof and expiring on the termination of the
Agreement dated _______, 2004 between DCI USA, Inc., (the
"Company") and Cornell Capital Partners, LP (the "Investor") (the
"Lock-up Period"), he, she or it will not, directly or
indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for
the purchase or sale of, transfer, pledge, assign, hypothecate,
distribute or otherwise encumber or dispose of except pursuant to
Rule 144 of the General Rules and Regulations under the
Securities Act of 1933, any securities of the Company, including
common stock or options, rights, warrants or other securities
underlying, convertible into, exchangeable or exercisable for or
evidencing any right to purchase or subscribe for any common
stock (whether or not beneficially owned by the undersigned), or
any beneficial interest therein (collectively, the "Securities").
In order to enable the aforesaid covenants to be enforced,
the undersigned hereby consents to the placing of legends and/or
stop-transfer orders with the transfer agent of the Company's
securities with respect to any of the Securities registered in
the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the
undersigned's investment in the Company.
Dated: _______________, 2004
Signature
Address:
City, State, Zip Code:
Print Social Security Number
or Taxpayer I.D. Number
