EXHIBIT 99.1
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STANDBY EQUITY DISTRIBUTION AGREEMENT
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THIS AGREEMENT dated as of the 19th day of November 2004 (the "Agreement")
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between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"), and FALCON NATURAL GAS CORPORATION, a corporation organized and
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existing under the laws of the State of Nevada (the "Company").
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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 Ten Million U.S. Dollars ($10,000,000) of the Company's common
stock, par value $0.00001 per share (the "Common Stock"); and
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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
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regulations promulgated thereunder (the "Securities Act"), and or upon such
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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 ▇▇▇▇▇ 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").
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NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
Section 1.1 "Advance" shall mean the portion of the Commitment Amount
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requested by the Company in the Advance Notice.
Section 1.2 "Advance Date" shall mean the date the ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Attorney
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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
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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
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to the Investor an Advance Notice requiring the Investor to advance funds to the
Company, subject to the terms of this Agreement. No Advance Notice Date shall be
less than five (5) Trading Days after the prior Advance Notice Date.
Section 1.5 "Bid Price" shall mean, on any date, the closing bid price (as
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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
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of Common Stock pursuant to Section 2.3.
Section 1.7 "Commitment Amount" shall mean the aggregate amount of up to
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Ten Million U.S. Dollars ($10,000,000) 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
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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 Ten Million
U.S. Dollars ($10,000,000), (y) the date this Agreement is terminated pursuant
to Section 2.5, or (z) the date occurring twenty-four (24) months after the
Effective Date.
Section 1.9 "Common Stock" shall mean the Company's common stock, par value
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$0.00001 per share.
Section 1.10 "Condition Satisfaction Date" shall have the meaning set forth
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in Section 7.2.
Section 1.11 "Damages" shall mean any loss, claim, damage, liability, costs
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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
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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
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Company, the Investor, and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq., dated the date hereof.
Section 1.14 "Exchange Act" shall mean the Securities Exchange Act of 1934,
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as amended, and the rules and regulations promulgated thereunder.
Section 1.15 "Material Adverse Effect" shall mean any condition,
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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
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during the Pricing Period.
Section 1.17 "Maximum Advance Amount" shall be Seven Hundred Fifty Thousand
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U.S. Dollars (US$750,000) per Advance Notice.
Section 1.18 "NASD" shall mean the National Association of Securities
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Dealers, Inc.
Section 1.19 "Person" shall mean an individual, a corporation, a
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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 ▇▇▇▇▇ Securities Corporation, a
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registered broker-dealer.
Section 1.21 "Pricing Period" shall mean the five (5) consecutive Trading
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Days after the Advance Notice Date.
Section 1.22 "Principal Market" shall mean the Nasdaq National Market, the
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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 one hundred percent (100%) of
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the Market Price during the Pricing Period.
Section 1.24 "Registrable Securities" shall mean the shares of Common Stock
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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)
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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
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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
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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
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recitals of this Agreement.
Section 1.28 "SEC" shall mean the Securities and Exchange Commission.
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Section 1.29 "Securities Act" shall have the meaning set forth in the
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recitals of this Agreement.
Section 1.30 "SEC Documents" shall mean Annual Reports on Form 10-KSB,
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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
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Stock Exchange shall be open for business.
Section 1.32 "VWAP" shall mean the volume weighted average price of the
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Company's Common Stock as quoted by Bloomberg, LP.
ARTICLE II.
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Section 2.1 Investments.
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(a) Advances. Upon the terms and conditions set forth herein
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(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.
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(a) Advance Notice. At any time during the Commitment Period, the
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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
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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
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Advance Notice Date, the Company shall credit shares of the Company's
Common Stock to the Investor's counsel's balance account with The
Depository Trust Company through its Deposit Withdrawal At Custodian
system, in an amount equal to the amount of the requested Advance divided
by the closing Bid Price of the Company's Common Stock as of the Advance
Notice Date multiplied by one point one (1.1). Any adjustments to the
number of shares to be delivered to the Investor at the Closing as a result
of fluctuations in the closing Bid Price of the Company's Common Stock
shall be made as of the date of the Closing. Any excess shares shall be
credited to the next Advance. In no event shall the number of shares
issuable to the Investor pursuant to an Advance cause the Investor to own
in excess of nine and 9/10 percent (9.9%) of the then outstanding Common
Stock of the Company.
(d) Hardship. In the event the Investor sells the Company's Common
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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 the first (1st)
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Trading Day after expiration of the applicable Pricing Period for each Advance,
(i) the Company shall deliver to the Investor's Counsel, as defined pursuant to
the Escrow Agreement, shares of the Company's Common Stock, representing the
amount of the Advance by the Investor pursuant to Section 2.1 herein, registered
in the name of the Investor which shall be delivered to the Investor, or
otherwise in accordance with the Escrow Agreement and (ii) the Investor shall
deliver to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq. (the "Escrow Agent") the amount of the Advance
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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,
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expenses, and disbursements of the Investor, the Investor's counsel, or
▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP in accordance with Section 12.4, the amount of such
fees, expenses, and disbursements may be deducted by the Investor (and shall be
paid to the relevant party) from the amount of the Advance with no reduction in
the amount of shares of the Company's Common Stock to be delivered on such
Advance Date.
Section 2.4 Termination of Investment. The obligation of the Investor to
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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,
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however, that this termination provision shall not apply to any period
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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.
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(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 shall have provided to the Investor an
acknowledgement, from ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇.▇. as to its ability to
provide all consents required in order to file a registration
statement in connection with this transaction;
(ix) The Company's transfer agent shall be DWAC eligible.
Section 2.6 Lock Up Period.
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(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.
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
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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
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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
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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
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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"
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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),
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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 have
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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 December 31, 2003 and Form
10-QSB for the period ended June 30, 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
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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
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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
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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
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Securities Act). Neither the Investor nor its Affiliates has an open short
position in the Common Stock of the Company, and the Investor agrees that it
will not, and that it will cause its Affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock, provided that
the Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor will sell the Shares to be issued to the Investor pursuant to the
Advance Notice, even if the Shares have not been delivered to the Investor.
Section 3.11 Trading Activities. The Investor's trading activities with
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respect to the Company's Common Stock shall be in compliance with all applicable
federal and state securities laws, rules and regulations and the rules and
regulations of the Principal Market on which the Company's Common Stock is
listed or traded. Neither the Investor nor its affiliates has an open short
position in the Common Stock of the Company and, except as set forth below, the
Investor shall not and will cause its affiliates not to engage in any short sale
as defined in any applicable SEC or National Association of Securities Dealers
rules on any hedging transactions with respect to the Common Stock. Without
limiting the foregoing, the Investor agrees not to engage in any naked short
transactions in excess of the amount of shares owned (or an offsetting long
position) during the Commitment Period. The Investor shall be entitled to sell
Common Stock during the applicable Pricing Period.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below, 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
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incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
Section 4.2 Authorization, Enforcement, Compliance with Other Instruments.
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(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
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stock of the Company consists of 200,000,000 shares of Common Stock, par value
$0.00001 per share and no shares of Preferred Stock of which 60,280,000 shares
of Common 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 Articles of Incorporation, as
amended and as in effect on the date hereof (the "Articles of Incorporation"),
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and the Company's By-laws, as in effect on the date hereof (the "By-laws"), and
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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
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Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Articles 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 January 1, 2003, the
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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 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
Articles of Incorporation, By-Laws, any material indenture, mortgage, deed of
trust or other material agreement applicable to the Company or instrument to
which the Company is a party or by which it is bound, or any 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.
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. 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 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 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 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.
(c) The obligations of the parties to indemnify or make contribution
under this Section 5.1 shall survive termination.
ARTICLE VI.
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the Registration
-------------------
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2 Listing of Common Stock. The Company shall 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 and the
effectiveness of the Registration Statement and resale of the Common Stock by
the Investor, the Company will deliver instructions to its transfer agent to
issue shares of Common Stock free of restrictive legends.
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, at any time after
---------------------
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially all the assets of the Company to another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument the obligation to
deliver to the Investor such shares of stock and/or securities as the Investor
is entitled to receive pursuant to this Agreement.
Section 6.10 Issuance of the Company's Common Stock. The sale of the shares
--------------------------------------
of Common Stock shall be made in accordance with the provisions and requirements
of Regulation D and any applicable state securities law.
ARTICLEVII.
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligations of the Company. The
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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 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 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, 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 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 Nevada 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:
If to the Company, to: Falcon Natural Gas Corporation
Westchase Center
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Massimiliano Pozzoni
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, 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.
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, except that the Company will pay a
structuring fee of Fifteen Thousand Dollars ($15,000) to Yorkville Advisors
Management, LLC, which shall be paid on the date hereof. Subsequently on
each Advance Date, the Company will pay Yorkville Advisors Management, LLC
a structuring fee of Five Hundred Dollars ($500) and any outstanding fees
of ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP 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
five percent (5%) of the amount of each Advance. The Company hereby
agrees that if such payment, as is described above, is not made by the
Company on the Advance Date, such payment will be made at the
direction of the Investor as outlined and mandated by Section 2.3 of
this Agreement.
(ii) Upon the execution of this Agreement the Company shall issue
to the Investor Four Hundred Thousand (400,000) shares of the
Company's Common Stock (the "Investor's Shares").
------------------
(iii) Fully Earned. The Investor's Shares shall be deemed fully
-------------
earned as of the date hereof.
(iv) Registration Rights. The Investor's Shares will have
--------------------
"piggy-back" registration rights.
Section 12.5 Brokerage. Each of the parties hereto represents that it has
---------
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 12.6 Confidentiality. If for any reason the transactions
--------------
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
[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:
FALCON NATURAL GAS CORPORATION
By: /s/ Massimiliano Pozzoni
-------------------------
Name: Massimiliano Pozzoni
Title: Vice President
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
---------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Portfolio Manager
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
FALCON NATURAL GAS CORPORATION
The undersigned, hereby certifies, with respect to
------------------------
the sale of shares of Common Stock of FALCON NATURAL GAS CORPORATION (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 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
---------
.
---------------------
FALCON NATURAL GAS CORPORATION
By:
Name:
Title:
SCHEDULE 2.6
------------
FALCON NATURAL GAS CORPORATION
------------------------------
The undersigned hereby agrees that for a period commencing on the date
hereof and expiring on the termination of the Agreement dated November 19, 2004
between Falcon Natural Gas Corporation, (the "Company"), and Cornell Capital
-------
Partners, LP, (the "Investor") (the "Lock-up Period"), he, she or it will not,
-------- --------------
directly or indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of except pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act of 1933, any securities of the Company, including
common stock or options, rights, warrants or other securities underlying,
convertible into, exchangeable or exercisable for or evidencing any right to
purchase or subscribe for any common stock (whether or not beneficially owned by
the undersigned), or any beneficial interest therein (collectively, the
"Securities").
------------
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Company's securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned's investment in
the Company.
Dated: , 2004
------------------
Signature
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Address:
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City, State, Zip Code:
-----------------------------
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Print Social Security Number
or Taxpayer I.D. Number