STANDBY EQUITY DISTRIBUTION AGREEMENT
THIS STANDBY EQUITY DISTRIBUTION AGREEMENT (the "Agreement")
is entered into as of October 21, 2004 between CORNELL CAPITAL
PARTNERS, LP, a Delaware limited partnership (the "Investor"), and
TELCO-TECHNOLOGY, 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
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.
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.
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Section 1.4. "Advance Notice Date" shall mean each date
the Company delivers to the Investor an Advance Notice requiring the
Investor to advance funds to the Company, subject to the terms of
this Agreement. No Advance Notice Date shall be less than seven (7)
Trading Days after the prior Advance Notice Date.
Section 1.5. "Bid Price" shall mean, on any date, the
closing bid price (as reported by Bloomberg L.P.) of the Common
Stock on the Principal Market or if the Common Stock is not traded
on a Principal Market, the highest reported bid price for the Common
Stock, as furnished by the National Association of Securities
Dealers, Inc.
Section 1.6. "Closing" shall mean one of the closings of
a purchase and sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate
amount of up to 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 mutually
agree in writing, and expiring on the earliest to occur of (x) the
date on which the Investor shall have made payment of Advances
pursuant to this Agreement in the aggregate amount of Five Million
Dollars ($5,000,000), (y) the date this Agreement is terminated
pursuant to Section 2.5, 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 Xxxxxx Xxxxxxxx LLP
dated the date hereof.
Section 1.14. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
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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 Two
Hundred Fifty Thousand Dollars ($250,000) per Advance Notice.
Section 1.18 "NASD" shall mean the National Association
of Securities Dealers, Inc.
Section 1.19 "Person" shall mean an individual, a
corporation, a partnership, an association, a trust or other entity
or organization, including a government or political subdivision or
an agency or instrumentality thereof.
Section 1.20 "Placement Agent" shall mean Newbridge
Securities Corporation, a registered broker-dealer.
Section 1.21 "Pricing Period" shall mean the five (5)
consecutive Trading Days after the Advance Notice Date.
Section 1.22 "Principal Market" shall mean the Nasdaq
National Market, the Nasdaq SmallCap Market, the American Stock
Exchange, the OTC Bulletin Board or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market
for the Common Stock.
Section 1.23 "Purchase Price" shall be set at ninety five
percent (95%) 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.
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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.
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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 seven (7) Trading Days between each Advance Notice Date.
(b) Date of Delivery of Advance Notice. An Advance
Notice shall be deemed delivered on (i) the Trading Day it is
received by facsimile or otherwise by the Investor if such notice is
received prior to 12:00 noon Eastern Time, or (ii) the immediately
succeeding Trading Day if it is received by facsimile or otherwise
after 12:00 noon Eastern Time on a Trading Day or at any time on a
day which is not a Trading Day. No Advance Notice may be deemed
delivered on a day that is not a Trading Day.
(c) Pre-Closing Share Credit. Within two (2) business
days after the Advance Notice Date, the Company shall credit shares
of the Company's Common Stock to the Investor's 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.
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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 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, the Investor's counsel
and Xxxxxx Xxxxxx LLP 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, and (ii) the Company shall at any time fail materially to
comply with the requirements of Article VI and such failure is not
cured within thirty (30) days after receipt of written notice from
the Investor, provided, however, that this termination provision
shall not apply to any period commencing upon the filing of a post-
effective amendment to such Registration Statement and ending upon
the date on which such post effective amendment is declared
effective by the SEC.
Section 2.5. Agreement to Advance Funds.
(a) The Investor agrees to advance the amount
specified in the Advance Notice to the Company after the completion
of each of the following conditions and the other conditions set
forth in this Agreement:
(i) the execution and delivery by the Company,
and the Investor, of this Agreement, and the Exhibits hereto;
(ii) 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;
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(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 Xxxxxxxxx, Rich, Baker, Xxxxxx &
Company 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.
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.
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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.
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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.
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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.
Section 3.12. No Buyer makes any representation or
warranty regarding the Company's ability to successfully become a
public company or to have any registration statement filed by the
Company pursuant to the Registration Rights Agreement or otherwise
declared effective by the SEC. The Company has the sole obligation
to make any and all such filings as may be necessary to become a
public company and to have any registration statement declared
effective by the SEC.
Section 3.13. The Company acknowledges that the Buyer is
relying on the representations and warranties made by the Company
hereunder and that such representations and warranties are a
material inducement to the Buyer purchasing the Convertible
Debentures. The Company further acknowledges that without such
representations and warranties of the Company made hereunder, the
Buyer would not enter into this Agreement.
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:
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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 220,000,000
shares of stock, of which 200,000,000 shares are designated as
Common Stock, of which 28,974,944 shares of Common Stock are
outstanding. 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.
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Section 4.4. No Conflict. The execution, delivery and
performance of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby will not (i)
result in a violation of the Certificate of Incorporation 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.
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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.
-13-
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.
-14-
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.
-15-
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.
-16-
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.
-17-
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.
-18-
Section 6.7. Expectations Regarding Advance Notices.
Within ten (10) days after the commencement of each calendar quarter
occurring subsequent to the commencement of the Commitment Period,
the Company must notify the Investor, in writing, as to its
reasonable expectations as to the dollar amount it intends to raise
during such calendar quarter, if any, through the issuance of
Advance Notices. Such notification shall constitute only the
Company's good faith estimate and shall in no way obligate the
Company to raise such amount, or any amount, or otherwise limit its
ability to deliver Advance Notices. The failure by the Company to
comply with this provision can be cured by the Company's notifying
the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
Section 6.8. Restriction on Sale of Capital Stock.
During the Commitment Period, the Company shall not issue or sell,
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 6 months after the Registration Statement
is declared effective.
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.
-19-
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.
-20-
(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.
-21-
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.
-22-
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:
-23-
If to the Company, to:
Telco-Technology, Inc.
000 Xxxxxxxxxx Xxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx Xxxxxxx, President & CFO
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxx Xxxxxx, LLC
The Atrium
East 00 Xxxxx 0
Xxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx Xxxxxxx, 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.
-24-
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.
(i) On each Advance Date the Company shall pay
to the Investor, directly from the gross proceeds held in escrow, an
amount equal to five percent (5%) of the amount of each Advance.
The Company hereby agrees that if such payment, as is described
above, is not made by the Company on the Advance Date, such payment
will be made at the direction of the Investor as outlined and
mandated by Section 2.3 of this Agreement.
(ii) Upon the execution of this Agreement the
Company shall issue to the Investor a Compensation Debenture in the
amount of Two Hundred Fifty Thousand Dollars ($250,000), which shall
be convertible into Common Stock valued at the lowest VWAP of the
Company's common stock for the five (5) Trading Days immediately
preceding conversion (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.
-25-
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-26-
IN WITNESS WHEREOF, the parties hereto have caused this
Standby Equity Distribution Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set
forth above.
COMPANY:
TELCO-TECHNOLOGY, INC.
By: /s/ Xxxxx Xxxxxxx
----------------------
Name: Xxxxx Xxxxxxx
Title: President & CFO
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Xxxx Xxxxxx
--------------------------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
-27-
* * * * * * * * *
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
TELCO-TECHNOLOGY, INC.
The undersigned, _______________________ hereby certifies, with respect
to the sale of shares of Common Stock of Telco-Technology, 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 Director of the Company.
2. There are no fundamental changes to the information set forth in
the Registration Statement which would require the Company to file a post
effective amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants
and agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of
_______________.
TELCO-TECHNOLOGY, INC.
By:
Name: Xxxxx Xxxxxxx
Title: President & CFO
-A1-
* * * * * * * * *
Exhibit B
DISCLOSURE STATEMENT
-B1-
* * * * * * * * *
SCHEDULED 2.6
TELCO-TECHNOLOGY, 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 Telco-Technology, 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
Schedule 2.6-1
