STANDBY EQUITY DISTRIBUTION AGREEMENT
THIS AGREEMENT dated as of the 16th day of March 2005 (the
"Agreement") between CORNELL CAPITAL PARTNERS, LP, a Delaware limited
partnership (the "Investor"), and HEADLINERS ENTERTAINMENT GROUP INC., a
Delaware Corporation (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 U.S. Dollars ($30,000,000)
of the Company's common stock, par value $.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 (the "Placement Agent"), to act as the Company's exclusive
placement agent in connection with the sale of the Company's Common Stock
to the Investor hereunder pursuant to the Placement Agent Agreement dated
the date hereof by and among the Company, the Placement Agent and the
Investor (the "Placement Agent Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Certain Definitions
Section 1.1. "Advance" shall mean the portion of the Commitment
Amount requested by the Company in the Advance Notice.
Section 1.2. "Advance Date" shall mean the date the ▇▇▇▇▇
▇▇▇▇▇▇▇▇ Attorney Trust Account is in receipt of the funds from the
Investor and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq., is in possession of free trading shares
from the Company and therefore an Advance by the Investor to the Company
can be made and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq. can release the free trading shares to
the Investor. The Advance Date shall be the first (1st) Trading Day after
expiration of the applicable Pricing Period for each Advance.
Section 1.3. "Advance Notice" shall mean a written notice to the
Investor setting forth the Advance amount that the Company requests from
the Investor and the Advance Date.
Section 1.4. "Advance Notice Date" shall mean each date the
Company delivers to the Investor an Advance Notice requiring the Investor
to advance funds to the Company, subject to the terms of this Agreement.
No Advance Notice Date shall be less than five (5) Trading Days after the
prior Advance Notice Date.
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Section 1.5. "Bid Price" shall mean, on any date, the closing
bid price (as reported by Bloomberg L.P.) of the Common Stock on the
Principal Market or if the Common Stock is not traded on a Principal
Market, the highest reported bid price for the Common Stock, as furnished
by the National Association of Securities Dealers, Inc.
Section 1.6. "Closing" shall mean one of the closings of a
purchase and sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate amount
of up to Thirty Million U.S. 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 1.8. "Commitment Period" shall mean the period
commencing on the earlier to occur of (i) the Effective Date, or (ii) such
earlier date as the Company and the Investor may mutually agree in writing,
and expiring on the earliest to occur of (x) the date on which the Investor
shall have made payment of Advances pursuant to this Agreement in the
aggregate amount of Thirty Million U.S. 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 1.9. "Common Stock" shall mean the Company's common
stock, par value $.001 per share.
Section 1.10. "Condition Satisfaction Date" shall have the
meaning set forth in Section 7.2.
Section 1.11. "Damages" shall mean any loss, claim, damage,
liability, costs and expenses (including, without limitation, reasonable
attorney's fees and disbursements and costs and expenses of expert
witnesses and investigation).
Section 1.12. "Effective Date" shall mean the date on which the
SEC first declares effective a Registration Statement registering the
resale of the Registrable Securities as set forth in Section 7.2(a).
Section 1.13. "Escrow Agreement" shall mean the escrow agreement
among the Company, the Investor, and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq., dated the date
hereof.
Section 1.14. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
Section 1.15. "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially
interfere with the ability of the Company to enter into and perform any of
its obligations under this Agreement or the Registration Rights Agreement
in any material respect.
Section 1.16. "Market Price" shall mean the lowest VWAP of the
Common Stock during the Pricing Period.
Section 1.17. "Maximum Advance Amount" shall be One Hundred Fifty
Thousand U.S. Dollars (US$150,000) per Advance Notice.
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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 (985%) 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.
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Section 1.30. "SEC Documents" shall mean Annual Reports on Form
10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and
Proxy Statements of the Company as supplemented to the date hereof, filed
by the Company for a period of at least twelve (12) months immediately
preceding the date hereof or the Advance Date, as the case may be, until
such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section 1.31. "Trading Day" shall mean any day during which the
New York Stock Exchange shall be open for business.
Section 1.32. "VWAP" shall mean the volume weighted average price
of the Company's Common Stock as quoted by Bloomberg, LP.
ARTICLE II.
Advances
Section 2.1. Investments.
(a) Advances. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on
any Advance Notice Date the Company may request an Advance by the Investor
by the delivery of an Advance Notice. The number of shares of Common Stock
that the Investor shall receive for each Advance shall be determined by
dividing the amount of the Advance by the Purchase Price. No fractional
shares shall be issued. Fractional shares shall be rounded to the next
higher whole number of shares. The aggregate maximum amount of all
Advances that the Investor shall be obligated to make under this Agreement
shall not exceed the Commitment Amount.
Section 2.2. Mechanics.
(a) Advance Notice. At any time during the Commitment
Period, the Company may deliver an Advance Notice to the Investor, subject
to the conditions set forth in Section 7.2; provided, however, the amount
for each Advance as designated by the Company in the applicable Advance
Notice, shall not be more than the Maximum Advance Amount. The aggregate
amount of the Advances pursuant to this Agreement shall not exceed the
Commitment Amount. The Company acknowledges that the Investor may sell
shares of the Company's Common Stock corresponding with a particular
Advance Notice on the day the Advance Notice is received by the Investor.
There shall be a minimum of five (5) Trading Days between each Advance
Notice Date.
(b) Date of Delivery of Advance Notice. An Advance Notice
shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior to
12:00 noon Eastern Time, or (ii) the immediately succeeding Trading Day if
it is received by facsimile or otherwise after 12:00 noon Eastern Time on a
Trading Day or at any time on a day which is not a Trading Day. No Advance
Notice may be deemed delivered on a day that is not a Trading Day.
Section 2.3. Closings. On each Advance Date, which shall be the
first (1st) Trading Day after expiration of the applicable Pricing Period
for each Advance, (i) the Company shall deliver to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
(the "Escrow Agent") 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
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Investor, or otherwise in accordance with the Escrow Agreement and (ii) the
Investor shall deliver to Escrow Agent the amount of the Advance specified
in the Advance Notice by wire transfer of immediately available funds which
shall be delivered to the Company, or otherwise in accordance with the
Escrow Agreement. In addition, on or prior to the Advance Date, each of
the Company and the Investor shall deliver to the other through the
Investor's counsel, all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein. Payment of
funds to the Company and delivery of the Company's Common Stock to the
Investor shall occur in accordance with the conditions set forth above and
those contained in the Escrow Agreement; provided, however, that to the
extent the Company has not paid the fees, expenses, and disbursements of
the Investor, the Investor's counsel, or the Company'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.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:
(a) the execution and delivery by the Company, and the
Investor, of this Agreement and the Exhibits hereto;
(b) the Escrow Agent shall have received the shares of
Common Stock applicable to the Advance in accordance with Section 2.3. Such
shares shall be free of restrictive legends.
(c) 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;
(d) 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;
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(e) 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;
(f) 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
(g) the conditions set forth in Section 7.2 shall have been
satisfied.
(h) 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 agreeing to only sell in compliance
with the volume limitation of Rule 144.
Section 2.7. Hardship. In the event the Investor sells shares
of the Company's Common Stock after receipt of an Advance Notice and the
Company fails to perform its obligations as mandated in Section 2.3, and
specifically the Company fails to deliver to the Escrow Agent on the
Advance Date the shares of Common Stock corresponding to 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.
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,
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assuming the execution and delivery hereof and acceptance thereof by the
Company, will constitute the legal, valid and binding obligations of the
Investor, enforceable against the Investor in accordance with its terms.
Section 3.2. Evaluation of Risks. The Investor has such
knowledge and experience in financial tax and business matters as to be
capable of evaluating the merits and risks of, and bearing the economic
risks entailed by, an investment in the Company and of protecting its
interests in connection with this transaction. It recognizes that its
investment in the Company involves a high degree of risk.
Section 3.3. No Legal Advice From the Company. The Investor
acknowledges that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with his or its own legal
counsel and investment and tax advisors. The Investor is relying solely on
such counsel and advisors and not on any statements or representations of
the Company or any of its representatives or agents for legal, tax or
investment advice with respect to this investment, the transactions
contemplated by this Agreement or the securities laws of any jurisdiction.
Section 3.4. Investment Purpose. The securities are being
purchased by the Investor for its own account, for investment and without
any view to the distribution, assignment or resale to others or
fractionalization in whole or in part. The Investor agrees not to assign
or in any way transfer the Investor's rights to the securities or any
interest therein and acknowledges that the Company will not recognize any
purported assignment or transfer except in accordance with applicable
Federal and state securities laws. No other person has or will have a
direct or indirect beneficial interest in the securities. The Investor
agrees not to sell, hypothecate or otherwise transfer the Investor's
securities unless the securities are registered under Federal and
applicable state securities laws or unless, in the opinion of counsel
satisfactory to the Company, an exemption from such laws is available.
Section 3.5. Accredited Investor. The Investor is an
"Accredited Investor" as that term is defined in Rule 501(a)(3) of
Regulation D of the Securities Act.
Section 3.6. Information. The Investor and its advisors (and
its counsel), if any, have been furnished with all materials relating to
the business, finances and operations of the Company and information it
deemed material to making an informed investment decision. The Investor
and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management. Neither such inquiries nor
any other due diligence investigations conducted by such Investor or its
advisors, if any, or its representatives shall modify, amend or affect the
Investor's right to rely on the Company's representations and warranties
contained in this Agreement. The Investor understands that its investment
involves a high degree of risk. The Investor is in a position regarding
the Company, which, based upon employment, family relationship or economic
bargaining power, enabled and enables such Investor to obtain information
from the Company in order to evaluate the merits and risks of this
investment. The Investor has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to this transaction.
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Section 3.7. Receipt of Documents. The Investor and its counsel
have received and read in their entirety: (i) this Agreement and the
Exhibits annexed hereto; (ii) all due diligence and other information
necessary to verify the accuracy and completeness of such representations,
warranties and covenants; (iii) the Company's Form 10-KSB for the year
ended ___________ and Form 10-QSB for the period ended ____________; 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).
Section 3.11. Trading Activities. The Investor's trading
activities with respect to the Company's Common Stock shall be in
compliance with all applicable federal and state securities laws, rules and
regulations and the rules and regulations of the Principal Market on which
the Company's Common Stock is listed or traded. Neither the Investor nor
its affiliates has an open short position in the Common Stock of the
Company, the Investor agrees that it shall 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 is permitted
to sell the shares to be issued to the Investor pursuant to the Advance
Notice during the applicable Pricing Period.
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 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
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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 _________ shares of
Common Stock, par value $0.001 per share and _________ 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
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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 Articles of Incorporation or By-laws or
their organizational charter or by-laws, respectively, or any material
contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to
the Company or its subsidiaries. The business of the Company and its
subsidiaries is not being conducted in violation of any material law,
ordinance, regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the Securities Act and
any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute, deliver
or perform any of its obligations under or contemplated by this Agreement
or the Registration Rights Agreement in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence
have been obtained or effected on or prior to the date hereof. The Company
and its subsidiaries are unaware of any fact or circumstance which might
give rise to any of the foregoing.
Section 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
▇▇▇▇://▇▇▇.▇▇▇.▇▇▇, 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
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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 ▇▇▇▇ 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 ▇▇▇▇ 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 ▇▇▇▇ 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.
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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
-12-
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. Except as disclosed in the SEC
Documents, the Company and each of its subsidiaries has made or filed all
federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and
(unless and only to the extent that the Company and each of its
subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) has paid all taxes and
other governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due
by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
Section 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
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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. 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 shall use the net
proceeds from this offering for general corporate purposes, including,
without limitation, the payment of loan incurred by the Company. However,
in no event shall the Company use the net proceeds from this offering, 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 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,
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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.
(c) The obligations of the parties to indemnify or make
contribution under this Section 5.1 shall survive termination.
ARTICLE VI.
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the
Company shall comply in all material respects with the terms thereof.
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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. Upon effectiveness of
the Registration Statement the Company shall deliver instructions to its
transfer agent to issue shares of Common Stock to the Investor free of
restrictive legends on or before each Advance Date
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. 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
-16-
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 6.8. Consolidation; Merger. The Company shall not, at
any time after the date hereof, effect any merger or consolidation of the
Company with or into, or a transfer of all or substantially all the assets
of the Company to another entity (a "Consolidation Event") unless the
resulting successor or acquiring entity (if not the Company) assumes by
written instrument the obligation to deliver to the Investor such shares of
stock and/or securities as the Investor is entitled to receive pursuant to
this Agreement.
Section 6.9. 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 issued or intends to issue a stop order with respect to
-17-
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 an Advance
requested by the Company shall not exceed the Maximum Advance Amount. In
addition, in no event shall the number of shares issuable to the Investor
pursuant to an Advance cause the aggregate number of shares of Common Stock
beneficially owned by the Investor and its affiliates to exceed nine and
9/10 percent (9.9%) of the then outstanding Common Stock of the Company.
For purposes of this section, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act.
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(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, its advisors and representatives, and any
underwriter participating in any disposition of the Registrable Securities
on behalf of the Investor pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky,
NASD or other filing, all financial and other records, all SEC Documents
and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of
such review, and cause the Company's officers, directors and employees to
supply all such information reasonably requested by the Investor or any
such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to
the Investor, its advisors, or its representatives, unless prior to
disclosure of such information the Company identifies such information as
being non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to
disclosing any non-public information hereunder, require the Investor's
advisors and representatives to enter into a confidentiality agreement in
form reasonably satisfactory to the Company and the Investor.
(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 pectus to include a material misstatement or
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to omit a material fact required to be stated therein in order to make the
statements, therein, in light of the circumstances in which they were made,
not misleading. Nothing contained in this Section 8.2 shall be construed
to mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information)
may not obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of
their opinion that based on such due diligence by such persons or entities,
that the Registration Statement contains an untrue statement of material
fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light
of the circumstances in which they were made, not misleading.
ARTICLE IX.
Choice of Law/Jurisdiction
Section 9.1. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New Jersey
without regard to the principles of conflict of laws. The parties further
agree that any action between them shall be heard in ▇▇▇▇▇▇ County, New
Jersey, and expressly consent to the jurisdiction and venue of the Superior
Court of New Jersey, sitting in ▇▇▇▇▇▇ 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:
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If to the Company, to:
Headliners Entertainment Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇ ▇▇▇▇▇▇▇▇▇, Chairman and CEO
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq,
▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor(s):
Cornell Capital Partners, LP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ -▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Portfolio Manager
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a Copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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.
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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) Structuring 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 Yorkville Advisors Management, LLC a
structuring fee of Five Hundred Dollars ($500) 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.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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/ ▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------
Name: ▇▇ ▇▇▇▇▇▇▇▇▇
Title: Chairman & Chief Executive Officer
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Portfolio Manager
-23-
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 ______________ of the
Company.
2. There are no fundamental changes to the information set forth
in the Registration Statement which would require the Company to file a post
effective amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants
and agreements to be performed by the Company on or prior to the Advance
Date related to the Notice and has complied in all material respects with
all obligations and conditions contained in the Agreement.
4. The undersigned hereby represents, warrants and covenants that
it has made all filings ("SEC Filings") required to be made by it pursuant
to applicable securities laws (including, without limitation, all filings
required under the Securities Exchange Act of 1934, which include Forms 10-Q,
10-K, 8-K, etc. All SEC Filings and other public disclosures made by the
Company, including, without limitation, all press releases, analysts
meetings and calls, etc. (collectively, the "Public Disclosures"), have been
reviewed and approved for release by the Company's attorneys and, if
containing financial information, the Company's independent certified public
accountants. None of the Company's Public Disclosures contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
5. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of
_________________.
HEADLINERS ENTERTAINMENT GROUP INC
By:
Name:
Title:
SCHEDULE 2.6
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 March __, 2005
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: _______________, 2005
Signature
Name: ____________________________________
Address:
City, State, Zip Code:
Print Social Security Number
or Taxpayer I.D. Number