EXHIBIT 10-f
STANDBY EQUITY DISTRIBUTION AGREEMENT
AGREEMENT dated as of the 2nd day of June 2004 (the "Agreement") between
CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the "Investor"),
and HEADLINERS ENTERTAINMENT GROUP INC., a corporation organized and existing
under the laws of the State of Delaware f/m/a RASCALS INTERNATIONAL INC. (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 Thirty Million Dollars ($30,000,000) 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 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. "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.1 "Advance Date" shall mean the date Xxxxxx Xxxxxxxx LLP
Escrow Account is in receipt of the funds from the Investor and Xxxxxx
Xxxxxxxx LLP, as the Investor's Counsel, is in possession of free trading
shares from the Company and therefore an Advance by the Investor to the
Company can be made and Xxxxxx Xxxxxxxx LLP can release the free trading
shares to the Investor. No Advance Date shall be less than six (6) Trading
Days after an Advance Notice Date.
Section 1.2 "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 in the form annexed hereto as Exhibit A.
Section 1.3 "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 six (6) Trading Days after the prior Advance
Notice Date.
Section 1.4 "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 1.5. "Closing" shall mean one of the closings of a purchase
and sale of Common Stock pursuant to Section 2.3.
Section 1.6 "Commitment Amount" shall mean the aggregate amount of
up to Thirty Million Dollars ($30,000,000) 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 1.7 "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
Thirty Million Dollars ($30,000,000), (y) the date this Agreement is
terminated pursuant to Section 2.4, or (z) the date occurring twenty-four (24)
months after the Effective Date.
Section 1.8 "Common Stock" shall mean the Company's common stock,
par value $0.001 per share.
Section 1.9 "Condition Satisfaction Date" shall have the meaning
set forth in Section 7.2.
Section 1.10 "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 1.11 "Effective Date" shall mean the date on which
the SEC first declares effective a Registration Statement registering the
resale of the Registrable Securities as set forth in Section 7.2(a).
Section 1.12 "Escrow Agreement" shall mean the escrow
agreement among the Company, the Investor, and Xxxxxx Xxxxxxxx LLP dated the
date hereof.
Section 1.13 "Exchange Act" shall mean the Securities and
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
Section 1.14 "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 1.15 "Market Price" shall mean the lowest daily VWAP
of the Common Stock during the Pricing Period.
Section 1.16 "Maximum Advance Amount" shall be One Hundred
Fifty Thousand Dollars ($150,000) 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 eight percent
(98%) of the Market Price during the Pricing Period.
Section 1.24 "Registrable Securities" shall mean the shares of
Common Stock to be issued hereunder (i) in respect of which the Registration
Statement has not been declared effective by the SEC, (ii) which have not been
sold under circumstances meeting all of the applicable conditions of Rule 144
(or any similar provision then in force) under the Securities Act ("Rule 144")
or (iii) which have not been otherwise transferred to a holder who may trade
such shares without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend.
Section 1.25 "Registration Rights Agreement" shall mean the
Registration Rights Agreement dated the date hereof, regarding the filing of
the Registration Statement for the resale of the Registrable Securities,
entered into between the Company and the Investor.
Section 1.26 "Registration Statement" shall mean a registration
statement on Form S-1 or SB-2 (if use of such form is then available to the
Company pursuant to the rules of the SEC and, if not, on such other form
promulgated by the SEC for which the Company then qualifies and which counsel
for the Company shall deem appropriate, and which form shall be available for
the resale of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement and the Registration Rights
Agreement, and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
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, L.P.
ARTICLE II.
Section 2.1 Investments.
1. Advances. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Advance Notice Date the Company may request an Advance by the Investor by the
delivery of an Advance Notice. The number of shares of Common Stock that the
Investor shall receive for each Advance shall be determined by dividing the
amount of the Advance by the Purchase Price. No fractional shares shall be
issued. Fractional shares shall be rounded to the next higher whole number of
shares. The aggregate maximum amount of all Advances that the Investor shall
be obligated to make under this Agreement shall not exceed the Commitment
Amount.
Section 2.2 Mechanics
(a) Advance Notice. At any time during the Commitment Period,
the Company may deliver an Advance Notice to the Investor, subject to the
conditions set forth in Section 7.2; provided, however, the amount for each
Advance as designated by the Company in the applicable Advance Notice, shall
not be more than the Maximum Advance Amount. The aggregate amount of the
Advances pursuant to this Agreement shall not exceed the Commitment Amount.
The Company acknowledges that the Investor may sell shares of the Company's
Common Stock corresponding with a particular Advance Notice on the day the
Advance Notice is received by the Investor. There will be a minimum of six
(6) 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 balance account of Xxxxxx Xxxxxxxx LLP (the
"Escrow Agent" and/or "Investor's Counsel") 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, provided, however, that said
limitation shall reduce the amount of an Advance only if the Investor gives
the Company, with (1) business day after an Advance Notice Date, written
notice of the maximum shares of the Company's Common Stock which may be issued
to the Investor without exceeding the limit setforth herein, in which case the
amount of the Advance will be reduced to conform to the limit setforth herein.
(d) Hardship. In the event the Investor sells the Company's
Common Stock pursuant to subsection (c) above and the Company fails to perform
its obligations as mandated in Section 2.5 and 2.2 (c), and specifically fails
to provide the Investor with the shares of Common Stock for the applicable
Advance, the Company acknowledges that the Investor shall suffer financial
hardship and therefore shall be liable for any and all losses, commissions,
fees, or financial hardship caused to the Investor.
Section 2.3 Closings. On each Advance Date, which shall be six (6) Trading
Days after an Advance Notice Date, (i) the Company shall deliver to the
Investor's Counsel 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 net of the Pre-Closing Share Credit pursuant to Section
2.2 (c) hereof, and (ii) the Investor shall deliver to the Investor's Counsel
the amount of the Advance specified in the Advance Notice by wire transfer of
immediately available funds 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 as well as the Joint Writtem Direction and Common Stock
Joint Written Direction required by the Escrow Agreement. Payment of funds to
the Company and delivery of the Company's Common Stock to the Investor shall
occur in accordance with the conditions set forth above and those contained in
the Escrow Agreement; provided, however, that to the extent the Company has
not paid the fees, expenses, and disbursements of the Investor and/or the
Investor's counsel in accordance with Section 12.4, the amount of such fees,
expenses, and disbursements may be deducted by the Investor (and shall be paid
to the relevant party) from the amount of the Advance with no reduction in the
amount of shares of the Company's Common Stock to be delivered on such Advance
Date.
Section 2.4 Termination of Investment. The obligation of the
Investor to make an Advance to the Company pursuant to this Agreement shall
terminate permanently (including with respect to an Advance Date that has not
yet occurred) in the event that (i) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement for an aggregate
of fifty (50) Trading Days, other than due to the acts of the Investor, during
the Commitment Period, 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) Investor's Counsel shall have received the shares of
Common Stock applicable to the Advance in accordance with Section 2.2(c)
hereof;
iii) 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;
iv) 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;
v) 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;
vi) 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
vii) the conditions set forth in Section 7.2 shall have been satisfied.
viii) 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
(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(b) 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.
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; Delivery 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. The Investor further Agrees that it shall not
sell or otherwise transfer any of the Investor's securities unless the
securities are accompanied by or preceed by the prospectus contained in the
Registration Statement filed pursuant to the Registration Rights Agreement,
dated the date hereof, as then amended, or unless the Investor shall be
entitled to and relying upon an exemption from the prospectus delivery
requirements of Section 5 of the Securities Act.
Section 3.5 Accredited Investor. The Investor is an "Accredited
Investor" as that term is defined in Rule 501(a)(3) of Regulation D of the
Securities Act.
Section 3.6 Information. The Investor and its advisors (and its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information it deemed
material to making an informed investment decision. The Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due
diligence investigations conducted by such Investor or its advisors, if any,
or its representatives shall modify, amend or affect the Investor's right to
rely on the Company's representations and warranties contained in this
Agreement. The Investor understands that its investment involves a high degree
of risk. The Investor is in a position regarding the Company, which, based
upon employment, family relationship or economic bargaining power, enabled and
enables such Investor to obtain information from the Company in order to
evaluate the merits and risks of this investment. The Investor has sought
such accounting, legal and tax advice, as it has considered necessary to make
an informed investment decision with respect to this transaction.
Section 3.7 Receipt of Documents. The Investor and its counsel has
received and read in their entirety: (i) this Agreement and the Exhibits
annexed hereto; (ii) all due diligence and other information necessary to
verify the accuracy and completeness of such representations, warranties and
covenants; (iii) the Company's Form 10-KSB for the year ended year ended
December 31, 2003 and Form 10-QSB for the period ended March 31, 2004 and
(iv) answers to all questions the Investor submitted to the Company regarding
an investment in the Company; and the Investor has relied on the information
contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.
Section 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.
ARTICLE IV.
Representations and Warranties of the Company
Except as stated below, on the disclosure schedules attached hereto or in
the SEC Documents (as defined herein), the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
Section 4.1 Organization and Qualification. The Company is duly incor-
porated or organized and validly existing in the jurisdiction of its incor-
poration 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, (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 100,000,000 shares of Common Stock,
par value $0.001 per share and 5,000,000 shares of Preferred Stock of which
_________ shares of Common Stock and ______ shares of Preferred Stock were
issued and outstanding. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in the SEC
Documents, no shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company. Except as disclosed in the SEC Documents, as of the date hereof, (i)
there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or any of
its subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries
or options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company or any of its subsidiaries,
(ii) there are no outstanding debt securities (iii) there are no outstanding
registration statements other than on Form S-8 and (iv) there are no
agreements or arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of their securities under the
Securities Act (except pursuant to the Registration Rights Agreement). There
are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by this Agreement or any related agreement
or the consummation of the transactions described herein or therein. The
Company has furnished to the Investor true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in effect
on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of
the holders thereof in respect thereto.
Section 4.4 No Conflict. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) result in a violation of the
Certificate of Incorporation, 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. The business of the Company and its subsidiaries
is not being conducted in violation of any material law, ordinance, regulation
of any governmental entity. Except as specifically contemplated by this
Agreement and as required under the Securities Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company
is required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its subsidiaries are
unaware of any fact or circumstance which might give rise to any of the
foregoing.
Section 4.5 SEC Documents; Financial Statements. Since December
2001, 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.
Section 4.6 10b-5. The SEC Documents do not include any
untrue statements of material fact, nor do they omit to state any material
fact required to be stated therein necessary to make the statements made, in
light of the circumstances under which they were made, not misleading.
Section 4.7 No Default. Except as disclosed in the SEC Documents,
the Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it
is a party or by which it is or its property is bound and neither the
execution, nor the delivery by the Company, nor the performance by the Company
of its obligations under this Agreement or any of the exhibits or attachments
hereto will conflict with or result in the breach or violation of any of the
terms or provisions of, or constitute a default or result in the creation or
imposition of any lien or charge on any assets or properties of the Company
under its Certificate of Incorporation, By-Laws, any material indenture,
mortgage, deed of trust or other material agreement applicable to the Company
or instrument to which the Company is a party or by which it is bound, or any
statute, or any decree, judgment, order, rules or regulation of any court or
governmental agency or body having jurisdiction over the Company or its
properties, in each case which default, lien or charge is likely to cause a
Material Adverse Effect on the Company's business or financial condition.
Section 4.8 Absence of Events of Default. Except for matters
described in the SEC Documents and/or this Agreement, no Event of Default, as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (as so defined), has occurred and is continuing,
which would have a Material Adverse Effect on the Company's business,
properties, prospects, financial condition or results of operations.
Section 4.9 Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all material
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. The Company and its
subsidiaries do not have any knowledge of any infringement by the Company or
its subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service xxxx
registrations, trade secret or other similar rights of others, and, to the
knowledge of the Company, there is no claim, action or proceeding being made
or brought against, or to the Company's knowledge, being threatened against,
the Company or its subsidiaries regarding trademark, trade name, patents,
patent rights, invention, copyright, license, service names, service marks,
service xxxx registrations, trade secret or other infringement; and the
Company and its subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
Section 4.10 Employee Relations. Neither the Company nor any of
its subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of
the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their employees
are good.
Section 4.11 Environmental Laws. The Company and its
subsidiaries are (i) in compliance with any and all applicable material
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval.
Section 4.12 Title. Except as set forth in the SEC
Documents, the Company has good and marketable title to its properties and
material assets owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company. Any real property and facilities
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries.
Section 4.13 Insurance. The Company and each of its
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company
and its subsidiaries are engaged. 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 4.14 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 4.15 Internal Accounting Controls. The Company and
each of its subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Section 4.16 No Material Adverse Breaches, etc. Except as
set forth in the SEC Documents, neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal restriction,
or any judgment, decree, order, rule or regulation which in the judgment of
the Company's officers has or is expected in the future to have a Material
Adverse Effect on the business, properties, operations, financial condition,
results of operations or prospects of the Company or its subsidiaries. Except
as set forth in the SEC Documents, neither the Company nor any of its
subsidiaries is in breach of any contract or agreement which breach, in the
judgment of the Company's officers, has or is expected to have a Material
Adverse Effect on the business, properties, operations, financial condition,
results of operations or prospects of the Company or its subsidiaries.
Section 4.17 Absence of Litigation. Except as set forth in
the SEC Documents, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body pending against or affecting the Company, the
Common Stock or any of the Company's subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a Material Adverse Effect on the
transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the SEC Documents, have a Material
Adverse Effect on the business, operations, properties, financial condition or
results of operation of the Company and its subsidiaries taken as a whole.
Section 4.18 Subsidiaries. Except as disclosed in the SEC
Documents, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.
Section 4.19 Tax Status. The Company and each of its
subsidiaries has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject and (unless and only to the extent that the Company and each of its
subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no basis for any
such claim.
Section 4.20 Certain Transactions. Except as set forth in
the SEC Documents none of the officers, directors, or employees of the Company
is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
Section 4.21 Fees and Rights of First Refusal. 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.
Section 4.22 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 4.23. 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 4.24 Opinion of Counsel. Investor shall receive an
opinion letter from Xxxxxx Xxxxxx, Esq., counsel to the Company on the date
hereof.
Section 4.25 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 4.26 Dilution. The Company is aware and acknowledges
that issuance of shares of the Company's Common Stock could cause dilution to
existing shareholders and could significantly increase the outstanding number
of shares of Common Stock.
ARTICLE V
Indemnification
The Investor and the Company represent to the other the following with
respect to itself:
Section 5.1 Indemnification.
a) In consideration of the Investor's execution and delivery of
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.
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,
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.
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 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 continue to be registered under Section 12(g) of the Exchange
Act, will file in a timely manner all reports and other documents required of
it as a reporting company under the Exchange Act and will not take any action
or file any document (whether or not permitted by Exchange Act or the rules
thereunder to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Exchange Act.
Section 6.4 Transfer Agent Instructions. Not later than two (2)
business days after each Advance Notice Date and prior to each Closing, the
Company will deliver instructions to its transfer agent to issue shares of
Common Stock free of restrictive legends. The Company's instructions shall be
made in reliance upon the undertaking by the Investor, set forth in Section
3.4 hereof, to deliver a prospectus in compliance with Section 5 of the
Securities Act in connection with each sale of the Common Stock.
Section 6.5 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6 Notice of Certain Events Affecting Registration;
Suspension of Right to Make an Advance. The Company will immediately notify
the Investor upon its becoming aware of the occurrence of any of the following
events in respect of a registration statement or related prospectus relating
to an offering of Registrable Securities: (i) receipt of any request for
additional information by the SEC or any other Federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the registration statement or related prospectus;
(ii) the issuance by the SEC or any other Federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration Statement,
related prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; and (v) the Company's reasonable determination
that a post-effective amendment to the Registration Statement would be
appropriate; and the Company will promptly make available to the Investor any
such supplement or amendment to the related prospectus. The Company shall not
deliver to the Investor any Advance Notice during the continuation of any of
the foregoing events.
Section 6.7 Expectations Regarding Advance Notices. Within ten
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company 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 (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.
Section 6.9 Consolidation; Merger. The Company shall not, without
ten (10) business days prior written notice to the Investor, effect any merger
or consolidation of the Company with or into, or a transfer of all or
substantially all the assets of the Company to another entity (a
"Consolidation Event") unless the resulting successor or acquiring entity (if
not the Company) assumes by written instrument the obligation to deliver to
the Investor such shares of stock and/or securities as the Investor is
entitled to receive pursuant to this Agreement.
Section 6.10 Issuance of the Company's Common Stock. The sale of
the shares of Common Stock shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state securities law.
ARTICLE VII.
Conditions for Advance and Conditions to Closing
Section 7.1 Conditions Precedent to the Obligations of the Company. The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.
a) Accuracy of the Investor's Representations and Warranties.
The representations and warranties of the Investor shall be true and correct
in all material respects.
b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement and the Registration
Rights Agreement to be performed, satisfied or complied with by the Investor
at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver an
Advance Notice and the Obligation of the Investor to Purchase Shares of Common
Stock. The right of the Company to deliver an Advance Notice and the obligation
of the Investor hereunder to acquire and pay for shares of the Company's Common
Stock incident to a Closing is subject to the fulfillment by the Company, on
(i) the date of delivery of such Advance Notice and (ii) the applicable
Advance Date (each a "Condition Satisfaction Date"), of each of the following
conditions:
a) 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.
b) 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.
c) Fundamental Changes. There shall not exist any fundamental
changes to the information set forth in the Registration Statement which would
require the Company to file a post-effective amendment to the Registration
Statement.
d) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement (including, without
limitation, the conditions specified in Section 2.5 hereof) and the
Registration Rights Agreement to be performed, satisfied or complied with by
the Company at or prior to each Condition Satisfaction Date.
e) No Injunction. 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.
f) No Suspension of Trading in or Delisting of Common Stock.
The trading of the Common Stock is not suspended by the SEC or the Principal
Market (if the Common Stock is traded on a Principal Market). The issuance of
shares of Common Stock with respect to the applicable Closing, if any, shall
not violate the shareholder approval requirements of the Principal Market (if
the Common Stock is traded on a Principal Market). The Company shall not have
received any notice threatening the continued listing of the Common Stock on
the Principal Market (if the Common Stock is traded on a Principal Market).
g) Maximum Advance Amount. The amount of the any Advance
requested by the Company shall not exceed the Maximum Advance Amount. In
addition, upon compliance by the Investor with the notice requirement setforth
in Section 2.2 (c) hereof, the number of shares issuable to the Investor
pursuant to an Advance shall not cause the Investor to own in excess of nine
and 9/10 percent (9.9%) of the then outstanding Common Stock of the Company.
h) No Knowledge. The Company has no knowledge of any event
which would be more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective.
i) Other. On each Condition Satisfaction Date, the Investor
shall have received the certificate executed by an officer of the Company in
the form of Exhibit A attached hereto.
ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1 Due Diligence Review. Prior to the filing of the Registration
Statement the Company shall make available for inspection and review by the
Investor, advisors to and representatives of the Investor, any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter
in connection with such Registration Statement (including, without limitation,
in response to all questions and other inquiries reasonably made or submitted
by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling
the Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
a) The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as
being non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such non-
public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
b) Nothing herein shall require the Company to disclose non-
public information to the Investor or its advisors or representatives, and the
Company represents that it does not disseminate non-public information to any
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested
of the Company specifically or generally during the course of due diligence by
such persons or entities), which, if not disclosed in the prospectus included
in the Registration Statement would cause such prospectus to include a
material misstatement or to omit a material fact required to be stated therein
in order to make the statements, therein, in light of the circumstances in
which they were made, not misleading. Nothing contained in this Section 8.2
shall be construed to mean that such persons or entities other than the
Investor (without the written consent of the Investor prior to disclosure of
such information) may not obtain non-public information in the course of
conducting due diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such persons or
entities, that the Registration Statement contains an untrue statement of
material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained therein,
in light of the circumstances in which they were made, not misleading.
ARTICLE IX.
Choice of Law/Jurisdiction
Section 9.1 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware without regard
to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Xxxxxx County, New Jersey, and expressly
consent to the jurisdiction and venue of the Superior Court of New Jersey,
sitting in Xxxxxx County, New Jersey and the United States District Court of
New Jersey, sitting in Newark, New Jersey, for the adjudication of any civil
action asserted pursuant to this paragraph.
ARTICLE X.
Assignment; Termination
Section 10.1 Assignment. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.
Section 10.2 Termination. The obligations of the Investor to make
Advances under Article II hereof shall terminate twenty-four (24) months after
the Effective Date.
ARTICLE XI.
Notices
Section 11.1 Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered
(i) upon receipt, when delivered personally; (ii) upon receipt, when sent
by facsimile, provided a copy is mailed by U.S. certified mail, return
receipt requested; (iii) three (3) days after being sent by U.S. certified
mail, return receipt requested, or (iv) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company, to:
Headliners Entertainment Group Inc.
000 Xxxxx Xxxx Xxxxxx Xxxxx 000
Xxxx Xxxxxx, XX 00000
Attention: Xx Xxxxxxxxx, Chairman and CEO
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx Xxxxxx, Esq,
000 0xx Xxxxxx
Xxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investor(s):
Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a Copy to:
Xxxxxx Xxxxxxxx LLP
0000 Xxxxxx Xxxxxx Xxxxx 000
Xxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide five (5) days' prior written notice to the other
party of any change in address or facsimile number.
ARTICLE XII.
Miscellaneous
Section 12.1 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page
is delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof, though failure to deliver such copies shall not affect the
validity of this Agreement.
Section 12.2 Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Investor,
the Company, their affiliates and persons acting on their behalf with respect
to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set
forth herein or therein, neither the Company nor the Investor makes any
representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than
by an instrument in writing signed by the party to be charged with
enforcement.
Section 12.3 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.
Section 12.4 Fees and Expenses. The Company hereby agrees to pay
the following fees:
a) Legal Fees. 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. 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.
b) 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
four percent (4%) 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.
Section 12.5 Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 12.6 Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to
the other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herein.
IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
COMPANY:
HEADLINERS ENTERTAINMENT GROUP INC.
By: /s/ Xx Xxxxxxxxx
-----------------------------------
Name: Xx Xxxxxxxxx
Title: Chairman and Chief Executive
Officer
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Xxxx Xxxxxx
-----------------------------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
HEADLINERS ENTERTAINMENT GROUP INC.
The undersigned, ________________hereby certifies, with respect to the sale of
shares of Common Stock of Headliners Entertainment Group 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 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____________.
HEADLINERS ENTERTAINMENT GROUP INC.
/s/ Xx Xxxxxxxxx
By: ----------------------------------
Name: Xx Xxxxxxxxx
Title: Chairman & Chief Executive Officer
SCHEDULED 2.6(b)
HEADLINERS ENTERTAINMENT GROUP INC.
The undersigned hereby agrees that for a period commencing on the date hereof
and expiring on the termination of the Agreement dated ________________
between Headliners Entertainment Group 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: _______________, 2003
Signature
Address:
City, State, Zip Code:
Print Social Security Number
or Taxpayer I.D. Number
