EXHIBIT 10.1
STANDBY EQUITY DISTRIBUTION AGREEMENT
AGREEMENT dated as of the 12th day of February 2004 (the "Agreement")
between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"), and DISTRIBITION MANAGEMENT SERVICES, INC., a corporation organized
and existing under the laws of the State of Florida (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.
WHEREAS, the Company has engaged TN Capital Equities, Ltd., 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:
1. ARTICLE
Certain Definitions
1. Section "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
2. Section "Advance Date" shall mean the date Xxxxxx Xxxxxxxx LLP
Escrow Account is in receipt of the funds from the Investor and Xxxxxx Xxxxxxxx
LLP, as the Investor's Counsel, is in possession of free trading shares from the
Company and therefore an Advance by the Investor to the Company can be made and
Xxxxxx Xxxxxxxx LLP can release the free trading
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shares to the Investor. No Advance Date shall be less than six (6) Trading Days
after an Advance Notice Date.
3. Section "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date.
4. Section "Advance Notice Date" shall mean each date the Company
delivers to the Investor an Advance Notice requiring the Investor to advance
funds to the 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.
5. Section "Bid Price" shall mean, on any date, the closing bid price
(as reported by Bloomberg L.P.) of the Common Stock on the Principal Market or
if the Common Stock is not traded on a Principal Market, the highest reported
bid price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
6. Section "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.
7. Section "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.
8. Section "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of 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.
9. Section "Common Stock" shall mean the Company's common stock, par
value $0.001 per share.
10. Section "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
11. Section "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
12. Section "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
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13. Section "Escrow Agreement" shall mean the escrow agreement among
the Company, the Investor, and Xxxxxx Xxxxxxxx LLP dated the date hereof.
14. Section "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
15. Section "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement in any material
respect.
16. Section "Market Price" shall mean the lowest closing Bid Price of
the Common Stock during the Pricing Period.
17. Section "Maximum Advance Amount" shall be Fifty Three Thousand
Dollars ($53,000) per Advance Notice up to a maximum of Two Hundred Ten Thousand
Dollars ($210,000), in the aggregate, in any thirty-day (30) calendar period..
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 TN Capital Equities, Ltd., 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.
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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.
2. ARTICLE
ADVANCES
1. Section Investments.
2. 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.
3. Section Mechanics.
4. 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
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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.
5. Section Closings. On each Advance Date, which shall be six (6)
Trading Days after an Advance Notice Date, (i) the Company shall deliver to the
Investor's Counsel, as defined pursuant to the Escrow Agreement, shares of the
Company's Common Stock, representing the amount of the Advance by the Investor
pursuant to Section 2.1 herein, registered in the name of the Investor which
shall be delivered to the Investor, or otherwise in accordance with the Escrow
Agreement and (ii) the Investor shall deliver to Xxxxxx Xxxxxxxx LLP (the
"Escrow Agent") the amount of the Advance specified in the Advance Notice by
wire transfer of immediately available funds which shall be delivered to the
Company, or otherwise in accordance with the Escrow Agreement. In addition, on
or prior to the Advance Date, each of the Company and the Investor shall deliver
to the other through the Investor's Counsel all documents, instruments and
writings required to be delivered by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. Payment
of funds to the Company and delivery of the Company's Common Stock to the
Investor shall occur in accordance with the
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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.
6. Section Termination of Investment. The obligation of the Investor to
make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of fifty
(50) Trading Days, other than due to the acts of the Investor, during the
Commitment Period, and (ii) the Company shall at any time fail materially to
comply with the requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written notice from the Investor, provided,
however, that this termination provision shall not apply to any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is
declared effective by the SEC.
7. Section Agreement to Advance Funds.
8. 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:
1. the execution and delivery by the Company, and the
Investor, of this Agreement, and the Exhibits hereto;
2. Investor's Counsel shall have received the shares of
Common Stock applicable to the Advance in accordance with Section 2.2(c) hereof;
3. 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;
4. 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;
5. the Company shall have filed with the SEC in a timely
manner all reports, notices and other documents required of a "reporting
company" under the Exchange Act and applicable SEC regulations;
6. the fees as set forth in Section 12.4 below shall have
been paid or can be withheld as provided in Section 2.3; and
7. the conditions set forth in Section 7.2 shall have been
satisfied.
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8. The Company shall have provided to the Investor an
acknowledgement, from Xxxxxxxxx, Lago & Company LLP and Xxxxxx X. Xxxxxxx,
C.P.A. as to their ability to provide all consents required in order to file a
registration statement in connection with this transaction;
9. The Company's transfer agent shall be DWAC eligible.
9. Section Lock Up Period.
1. During the Commitment Period, the Company shall not, issue
or sell (i) any Common Stock or Preferred Stock without consideration or for a
consideration per share less than the Bid Price on the date of issuance or (ii)
issue or sell any warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock without
consideration or for a consideration per share less than the Bid Price on the
date of issuance.
2. On the date hereof, the Company shall obtain from each
officer and director a lock-up agreement, as defined below, in the form annexed
hereto as Schedule 2.6(b) agreeing to only sell in compliance with the volume
limitation of Rule 144.
3. ARTICLE
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby represents and warrants to, and agrees with, the
Company that the following are true and as of the date hereof and as of each
Advance Date:
1. Section Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.
2. Section Evaluation of Risks. The Investor has such knowledge and
experience in financial, tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
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3. Section No Legal Advice From the Company. The Investor acknowledges
that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors. The Investor is relying solely on such counsel and advisors
and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
4. Section Investment Purpose. The securities are being purchased by
the Investor for its own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part. The Investor agrees not to assign or in any way transfer the Investor's
rights to the securities or any interest therein and acknowledges that the
Company will not recognize any purported assignment or transfer except in
accordance with applicable Federal and state securities laws. No other person
has or will have a direct or indirect beneficial interest in the securities. The
Investor agrees not to sell, hypothecate or otherwise transfer the Investor's
securities unless the securities are registered under Federal and applicable
state securities laws or unless, in the opinion of counsel satisfactory to the
Company, an exemption from such laws is available.
5. Section Accredited Investor. The Investor is an "Accredited
Investor" as that term is defined in Rule 501(a)(3) of Regulation D of the
Securities Act.
6. Section Information. The Investor and its advisors (and its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information it deemed
material to making an informed investment decision. The Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence
investigations conducted by such Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor's right to rely on
the Company's representations and warranties contained in this Agreement. The
Investor understands that its investment involves a high degree of risk. The
Investor is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such
Investor to obtain information from the Company in order to evaluate the merits
and risks of this investment. The Investor has sought such accounting, legal and
tax advice, as it has considered necessary to make an informed investment
decision with respect to this transaction.
7. Section Receipt of Documents. The Investor and its counsel has
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-KSB for the year ended year ended May 31, 2003 and
Form 10-QSB for the period ended August 31, 2003; and (iv) answers to all
questions the Investor submitted to the Company regarding an investment in the
Company; and the Investor has relied on the information contained therein and
has not been furnished any other documents, literature, memorandum or
prospectus.
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8. Section Registration Rights Agreement and Escrow Agreement. The
parties have entered into the Registration Rights Agreement and the Escrow
Agreement, each dated the date hereof.
9. Section No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the shares of Common Stock offered hereby.
10. Section Not an Affiliate. The Investor is not an officer, director
or a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company or any
"Affiliate" of the Company (as that term is defined in Rule 405 of the
Securities Act). Neither the Investor nor its Affiliates has an open short
position in the Common Stock of the Company, and the Investor agrees that it
will not, and that it will cause its Affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock, provided that
the Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor will sell the Shares to be issued to the Investor pursuant to the
Advance Notice, even if the Shares have not been delivered to the Investor.
4. ARTICLE
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below, on the disclosure schedules attached hereto or
in the SEC Documents (as defined herein), the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
1. Section Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
2. Section Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the 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
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any related agreements have been duly executed and delivered by the Company,
(iv) this Agreement, the Registration Rights Agreement, the Escrow Agreement,
the Placement Agent Agreement and assuming the execution and delivery thereof
and acceptance by the Investor and any related agreements constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
3. Section Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of 50,000,000 shares of Common Stock, par value $ 0.001
per share and no shares of Preferred Stock of which 8,204,508 shares of Common
Stock and no shares of Preferred Stock were issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in the SEC Documents, no shares of Common
Stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company. Except as disclosed in the
SEC Documents, and the right to acquire up to 150,000 shares of the Company's
common stock pursuant to an agreement between the Company and Tibby Holding's
Inc., which such shares may be registered on Form S-8 or another available
registration statement, as of the date hereof, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities (iii) there are no outstanding registration statements other than on
Form S-8 and (iv) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement) other than the shares referenced herein. 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 other than anti-dilution
provisions provided for herein. 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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5. Section No Conflict. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which would cause a
Material Adverse Effect. Except as disclosed in the SEC Documents, neither the
Company nor its subsidiaries is in violation of any term of or in default under
its 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. To its
knowledge, the business of the Company and its subsidiaries is not being
conducted in violation of any material law, ordinance, regulation of any
governmental entity applicable to the Company and its subsidiaries taken as a
whole. 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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1. Section SEC Documents; Financial Statements. Since August 2002, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under of the Exchange Act. The Company
has delivered to the Investor or its representatives, or made available through
the SEC's website at xxxx://xxx.xxx.xxx, true and complete copies of the SEC
Documents. As of their respective dates, the financial statements of the Company
disclosed in the SEC Documents (the "Financial Statements") complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Investor which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
2. Section 10b-5. To its knowledge, the SEC Documents do not include
any untrue statements of material fact, nor do they omit to state any material
fact required to be stated therein necessary to make the statements made, in
light of the circumstances under which they were made, not misleading.
3. Section No Default. Except as disclosed in the SEC Documents, the
Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its property is bound and neither the execution,
nor the delivery by the Company, nor the performance by the Company of its
obligations under this Agreement or any of the exhibits or attachments hereto
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under its
Articles of Incorporation, By-Laws, any material indenture, mortgage, deed of
trust or other material agreement applicable to the Company or instrument to
which the Company is a party or by which it is bound, or any applicable 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.
4. Section Absence of Events of Default. Except for matters described
in the SEC Documents and/or this Agreement, no Event of Default, as defined in
the respective agreement to which the Company is a party, and no event which,
with the giving of notice or the passage of time or both, would become an Event
of Default (as so defined), has occurred and is continuing, which would have a
Material Adverse Effect on the Company's business, properties, prospects,
financial condition or results of operations.
12
5. Section Intellectual Property Rights. Except as disclosed in the SEC
Documents 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, except
as disclosed in the SEC Documents, 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 except as disclosed in the SEC Documents, the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
6. Section Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
7. Section Environmental Laws. The Company and its subsidiaries are (i)
in compliance with any and all applicable material foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.
8. Section Title. Except as set forth in the SEC Documents, the Company
has good and marketable title to its properties and material assets owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company. Any real property and facilities held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
9. Section Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely
13
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
10. Section Regulatory Permits. The Company and its subsidiaries
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
11. Section Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
12. Section No Material Adverse Breaches, etc. Except as set forth in
the SEC Documents, neither the Company nor any of its subsidiaries is subject to
any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected in the future to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
13. Section Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a Material Adverse Effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
14. Section Subsidiaries. Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
15. Section Tax Status. The Company and each of its subsidiaries has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any
14
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.
16. Section Certain Transactions. Except as set forth in the SEC
Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
17. Section Fees and Rights of First Refusal. Except as set forth in
the SEC Documents, 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.
18. Section Use of Proceeds. The Company represents that the net
proceeds from this offering will be used for general corporate purposes.
However, in no event shall the net proceeds from this offering be used by the
Company for the payment (or loaned to any such person for the payment) of any
judgment, or other liability, incurred by any executive officer, officer,
director or employee of the Company, except for any liability owed to such
person for services rendered, or if any judgment or other liability is incurred
by such person originating from services rendered to the Company, or the Company
has indemnified such person from liability.
19. Section Further Representation and Warranties of the Company. For
so long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will use its best efforts to maintain the listing of its Common Stock on the
Principal Market
20. Section Opinion of Counsel. Investor shall receive an opinion
letter from Xxxxxxxx Xxxxxxx Xxxx, P.A., counsel to the Company on the date
hereof.
21. Section Opinion of Counsel. The Company will obtain for the
Investor, at the Company's expense, any and all opinions of counsel which may be
reasonably required in order to sell the securities issuable hereunder without
restriction.
15
22. Section Dilution. The Company is aware and acknowledges that
issuance of shares of the Company's Common Stock could cause dilution to
existing shareholders and could significantly increase the outstanding number of
shares of Common Stock.
6. ARTICLE
INDEMNIFICATION
The Investor and the Company represent to the other the following with
respect to itself:
1. Section Indemnification.
2. In consideration of the Investor's execution and delivery of
this Agreement, and in addition to all of the Company's other obligations under
this Agreement, the Company shall defend, protect, indemnify and hold harmless
the Investor, and all of its officers, directors, partners, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Investor
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Investor Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by the Investor Indemnitees or any of them as a result
of, or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Investor Indemnitee not arising out of any action or inaction of an
Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
3. In consideration of the Company's execution and delivery of
this Agreement, and in addition to all of the Investor's other obligations under
this Agreement, the Investor shall defend, protect, indemnify and hold harmless
the Company and all of its officers, directors, shareholders, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Company
Indemnitees") from and against any and all Indemnified Liabilities incurred by
the Company Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Investor in this Agreement, the Registration Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant, agreement or
16
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.
7. ARTICLE
COVENANTS OF THE COMPANY
1. Section Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
2. Section Listing of Common Stock. The Company shall use its best
efforts to maintain the Common Stock's authorization for quotation on the
National Association of Securities Dealers, Inc's Over the Counter Bulletin
Board.
3. Section Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
file in a timely manner all reports and other documents required of it as a
reporting company under the Exchange Act and will not take any action or file
any document (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.
4. Section Transfer Agent Instructions. Not later than two (2) business
days after each Advance Notice Date and prior to each Closing and the
effectiveness of the Registration Statement and resale of the Common Stock by
the Investor, the Company will deliver instructions to its transfer agent to
issue shares of Common Stock free of restrictive legends.
5. Section Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
6. Section Notice of Certain Events Affecting Registration; Suspension
of Right to Make an Advance. The Company will immediately notify the Investor
upon its becoming aware of the occurrence of any of the following events in
respect of a registration statement or related prospectus relating to an
offering of Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other Federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other Federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the
17
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.
7. Section Expectations Regarding Advance Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Advance
Notices. Such notification shall constitute only the Company's good faith
estimate and shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Advance Notices. The failure
by the Company to comply with this provision can be cured by the Company's
notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
8. Section Restriction on Sale of Capital Stock. During the Commitment
Period, the Company shall not issue or sell without thirty (30) calendar days
prior written notice to the Investor, receipt of which is confirmed by 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 on
Form S-8, except as provided for and disclosed herein.
9. Section Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all the assets of the Company to
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
10. Section Issuance of the Company's Common Stock. The sale of the
shares of Common Stock shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state securities law.
18
8. ARTICLE
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
1. Section Conditions Precedent to the Obligations of the Company. The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.
2. Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects.
3. 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.
4. Section Conditions Precedent to the Right of the Company to Deliver
an Advance Notice and the Obligation of the Investor to Purchase Shares of
Common Stock. The right of the Company to deliver an Advance Notice and the
obligation of the Investor hereunder to acquire and pay for shares of the
Company's Common Stock incident to a Closing is subject to the fulfillment by
the Company, on (i) the date of delivery of such Advance Notice and (ii) the
applicable Advance Date (each a "Condition Satisfaction Date"), of each of the
following conditions:
5. 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.
6. 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.
19
7. 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.
8. 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.
9. 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.
10. No Suspension of Trading in or Delisting of Common Stock. The
trading of the Common Stock is not suspended by the SEC or the Principal Market
(if the Common Stock is traded on a Principal Market). The issuance of shares of
Common Stock with respect to the applicable Closing, if any, shall not violate
the shareholder approval requirements of the Principal Market (if the Common
Stock is traded on a Principal Market). The Company shall not have received any
notice threatening the continued listing of the Common Stock on the Principal
Market (if the Common Stock is traded on a Principal Market).
11. Maximum Advance Amount. The amount of the Advances requested
by the Company in any thirty (30) day period 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 own in excess of nine
and 9/10 percent (9.9%) of the then outstanding Common Stock of the Company.
12. 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.
13. 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.
20
9. ARTICLE
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
1. Section 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.
2. Section Non-Disclosure of Non-Public Information.
3. 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.
4. 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.
21
10. ARTICLE
CHOICE OF LAW/JURISDICTION
1. Section Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Florida without regard
to the principles of conflict of laws. The parties further agree that any action
between them shall be heard in Xxxxxx County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Xxxxxx County, New Jersey and the United States District Court of New Jersey,
sitting in Newark, New Jersey, for the adjudication of any civil action asserted
pursuant to this paragraph.
11. ARTICLE
ASSIGNMENT; TERMINATION
1. Section Assignment. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.
2. Section Termination. The obligations of the Investor to make
Advances under Article II hereof shall terminate twenty-four (24) months after
the Effective Date. Provided that there are no outstanding Advance Notices, the
Company may terminate this Agreement with thirty (30) calendar days prior
written notice, receipt of which is confirmed by the Investor.
12. ARTICLE
NOTICES
1. Section Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
22
If to the Company, to: Distribution Management Services, Inc.
00000 Xxxxxxxx Xxxx. - Xxxxx 000
Xxxxx, Xxxxxxx 00000
Attention: Xxx Xxxxxxxxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxx Xxxxxxx Xxxx, P.A.
000 Xxxxxxxxx Xxxxx Xxxxxx - Xxxxx 000
Ft. Xxxxxxxxxx, Xxxxxxx 00000 -1953
Attention: Xxxxxxxx Xxxxxxx Xxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investor(s): Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx -Xxxxx 0000
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a Copy to: Xxxxxx Xxxxxxxx LLP
0000 Xxxxxx Xxxxxx - Xxxxx 000
Xxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
13. ARTICLE
MISCELLANEOUS
1. Section Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof, though failure to deliver such copies shall not affect the
validity of this Agreement.
23
2. Section Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
3. Section Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
4. Section Fees and Expenses. The Company hereby agrees to pay the
following fees:
(ii)
1. Legal Fees. Each of the parties shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) in connection with this Agreement and the transactions
contemplated hereby, except that the Company will pay the sum of Twelve Thousand
Five Hundred Dollars ($12,500) Dollars to Xxxxxx Xxxxxxxx LLP for legal,
administrative, and escrow, of which Two Thousand Five Hundred Dollars ($2,500)
has already been paid and fully earned, Two Thousand Five Hundred Dollars
($2,500) shall be fully earned as of the drafting of this Agreement and
therefore shall be paid upon the drafting of this Agreement (the "Investor's
Counsel's Fee"), and within five (5) business days from March 1, 2004 the
Company shall issue to the Investor's Counsel shares of the Company's Common
Stock in an amount equal to Seven Thousand Five Hundred Dollars ($7,500) divided
by the Closing Bid Price on March 1, 2004 (the "Investor's Counsel's Shares").
Subsequently on each Advance Date, the Company will pay Xxxxxx Xxxxxxxx LLP, the
sum of Five Hundred Dollars ($500) for legal, administrative and escrow fees
directly out the proceeds of any Advances hereunder.
1. 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
pay to the Investor a Commitment Fee in an amount equal to One Hundred Ninety
Thousand Dollars ($190,000), which shall be paid by the issuance of a
convertible debenture in such amount and in accordance with the terms of the
debenture dated the date hereof (the "Debenture"). As more
24
fully set forth in its terms, the Debenture shall have a three (3) year term,
accrue interest at five percent (5%) with up to Fifty Thousand Dollars ($50,000)
of principal and accrued interest to be convertible, upon the first to occur i)
ninety (90) calendar days from the date hereof or ii) the date the Registration
Statement filed pursuant to the Registration Rights Agreement dated the date
hereof is declared effective by the SEC, into shares of the Company's common
stock at a conversion price equal to ninety seven percent (97%) of the lowest
closing bid price of the Company's common stock for the three (3) trading days
immediately preceding a conversion date.
Fully Earned. The Investor's Counsel's Shares, and the Debenture
shall be deemed fully earned as of the date hereof.
(iv) Registration Rights. The Investor's Counsel's Shares and
the shares of the Company's common stock issuable upon conversion of the
Debenture will have "piggy-back" registration rights.
2. Section Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
3. Section Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
25
IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
COMPANY:
DISTRIBUTION MANAGEMENT SERVICES. INC.
By: /s/
Name: Xxx Xxxxxxxxxx
Title: President
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/
Name: Xxxx Xxxxxx
Title: Portfolio Manager
26
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
DISTRIBUITION MANAGEMENT SERVICES, INC.
The undersigned, __________________ hereby certifies, with respect to
the sale of shares of Common Stock of Distribution Management Services, Inc.,
(the "Company"), issuable in connection with this Advance Notice and Compliance
Certificate dated ___________________ (the "Notice"), delivered pursuant to the
Standyby Equity Distribution Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected President of the Company.
2. There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of
_________________.
DISTRIBUTION MANAGEMENT SERVICES, INC.
By:
----------------------------------
Name:
Title:
27
SCHEDULED 2.6(B)
DISTRIBUTION MANAGEMENT SERVICES, INC.
The undersigned hereby agrees that for a period commencing on the date
hereof and expiring on the termination of the Agreement dated ________________
between Distribution Management Services 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
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Address:
-------------------------
City, State, Zip Code:
-----------
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Print Social Security Number
or Taxpayer I.D. Number
