December 6, 2005
VIA TELEFAX AND REGULAR MAIL
Mr. Larry Spirgel
Assistant Director
United States Securities and Exchange Commission
450 Fifth Street, N. W., Mail Stop 0407
Washington, D.C. 20549
Re: Signature Leisure, Inc.
Registration Statement on Form SB-2
Filed on July 13, 2005, as amended
File No. 333-126509
Form 10-KSB for the fiscal year ended Dec. 31, 2004
Filed April 18, 2005
Form 10-QSB for the quarter ended March 31, 2005
Filed May 23, 2005
File No. 0-49600
Dear Mr. Carnes:
At the request of the Securities and Exchange Commission we are providing
this letter in response to certain comments made in the Commission's letter
dated August 8, 2005 regarding our Registration Statement filed on July 13,
2005, as amended, our Form 10-KSB filed April 18, 2005 and Form 10-QSB -2 filed
on May 23, 2005. We hereby provided the following responses.
Prospectus Summary, Page 1
COMMENT 1: Please revise to discuss very briefly, but in more definite and
concrete terms the key aspects of your business. Your current
disclosure is too vague. In this regard, please address the
following:
o Clearly disclose how you generate revenue and the extent to
which you are currently generating revenues from your products
and services. For example, clarify what you mean by
"reestablishing" your auto dealer operations. Do you have an
operational dealership with inventory? To the extent that
these products and services are not generating revenue,
briefly disclose the steps you must take to make them
operational.
Mr. Larry Spirgel
December 6, 2005
Page 2
o We note a press release dated July 6, 2005, prior to your
filing of this registration statement, that you "entered into
the information technology services industry and has begun
servicing clients in Central Florida." Briefly describe this
business and provide sufficient information so that investors
can assess how material it is to your business. File this
agreement as an exhibit.
o Disclose your revenues and net losses for the quarter ended
March 31, 2005 and for the year ended December 31, 2004.
Please also disclose your accumulated deficit and total
assets.
o We note your discussion of your auditor's "going concern"
opinion: Please revise to quantify very briefly how much
funding you will need to raise to operate in the next twelve
months.
RESPONSE: We have revised our disclosure to disclose how we generate revenues
and clarify our disclosure regarding our auto-dealer operations and
our entry into the technology-services industry. We have also
revised our disclosure to include our revenues, net losses and how
much funding we will need to raise to operate in the next twelve
months.
The Offering, page 2
COMMENT 2: Explain how you calculate the "lowest volume weighted average
price." Further, revise to clarify, if true, that the 1 % fee is a
cash fee or discount that is retained by Katalyst Capital and that
it does not represent additional shares issued to Katalyst Capital.
RESPONSE: The lowest volume-weighted average price is obtained from Bloomberg,
LP, a stock information-gathering service. Katalyst Capital and
Signature Leisure have agreed to use the services of Bloomberg, LP
as an independent third-party source of information to determine the
lowest volume-weighted average price.
2
Mr. Larry Spirgel
December 6, 2005
Page 3
COMMENT 3. We note your disclosure in footnote 2 regarding the convertible
debentures and the compensation debenture. We also note your
disclosure in the liquidity and capital resources section regarding
the "second promissory note" issued to Katalyst Capital in Feb. 2005
and the promissory note issued to Katalyst Capital in December 2004.
In your response letter, please identify all securities of Signature
Leisure currently held by Katalyst Capital. File the relevant
agreements relating to these securities (including the instruments
defining the rights of the securities). Indicate in your response
letter whether these securities are convertible or exercisable into
other Signature Leisure securities and whether the conversion
prices, exercise prices, or formulas are based on the market price
of other Signature Leisure securities.
RESPONSE: We have not issued any convertible debentures to Katalyst Capital.
We have corrected our disclosure accordingly. Katalyst Capital
currently holds one million shares of our common stock that we
issued to Katalyst Capital as a one-time commitment fee pursuant to
the terms of the Standby Equity Distribution Agreement.
COMMENT 4: Please clarify that the sales of shares by Katalyst Capital will
likely cause the market price of your common stock, to decline,
which will require you to issue increasing numbers of shares to
Katalyst Capital. Please similarly clarify your risk factors
entitled "Management Recognizes That We Must Raise Additional
Financing ..." on page 6 and your risk factor entitled "Future Sales
by Our Stockholders ...", on page 9.
RESPONSE: We have revised our disclosure to clarify that the sale of our
shares by Katalyst Capital will likely cause the market price of our
common stock to decline and have similarly revised the risk factors
as requested.
COMMENT 5: Tell us in your response letter how Spencer-Clarke, LLC facilitated
the equity line agreement. Detail the role that Spencer-Clarke, LLC
played in bringing the parties together. Confirm that there are no
affiliations among Spencer-Clarke, LLC, Katalyst Capital Group, the
company or any of its executives.
RESPONSE: Spencer-Clarke provided due diligence information and investment
counsel to us. Spencer-Clarke also consulted with us regarding the
structure of the financing and the nature of our relationship with
the investor, Katalyst Capital. We confirm that there are no
affiliations among Spencer-Clarke, Katalyst Capital, Signature
Leisure or its executives.
3
Mr. Larry Spirgel
December 6, 2005
Page 4
COMMENT 6: Please disclose that under Section 7.2(h) of your equity line
agreement that the number of shares issuable to Katalyst Capital may
not cause Katalyst Capital to own more than 9.9% of your outstanding
shares. Revise your table on page 2 to reflect this limitation. For
example, revise the net cash to Signature column to make clear that
these amounts could be considerably less if Katalyst Capital retains
a portion of the stock that it purchases from the company.
RESPONSE: We have revised the table on page 2 by providing a footnote that
makes clear that the net cash that is being provided to us under the
Equity Distribution Agreement could be considerably less if Katalyst
Capital retains a portion of the stock that it purchases from us.
COMMENT 7: We note footnote (1) on page 3. Please revise the footnote to
indicate that up to 163,398,693 shares of your common stock may be
issued (as opposed to will be issued) due the uncertainty
surrounding the success of the offering. Carefully review the rest
of your prospectus and make conforming changes elsewhere.
RESPONSE: We have revised footnote (1) on page 3 as requested.
Risk Factors, page 6
COMMENT 8: Add a risk factor highlighting the terms of Mr. Carnes' employment
agreement. Address the uncertainty on how the company's obligations
will be funded given the company's precarious financial condition.
In addition, we note that Mr. Carnes' Employment Agreement dated
September 3, 2003 was executed on behalf of Signature Leisure by Mr.
Carnes. Discuss any potential conflict of interest concerns relating
to the execution of his employment agreement.
RESPONSE: We have added a risk factor highlighting the terms of Mr. Carnes'
employment agreement. In addition, we have discussed the potential
conflict of interest relating to the execution of Mr. Carnes'
employment agreement.
4
Mr. Larry Spirgel
December 6, 2005
Page 5
COMMENT 9: Do not present risks that could apply to any issuer in your
industry, do not reflect your current operations, are not material,
or are generic, boilerplate disclosure. Rather, tailor each risk
factor to your specific facts and circumstances. To the extent that
a risk is not material to you or your investors, consider whether
you need to include it. We note as illustrative examples the
following:
o Future Acquisitions May Disrupt Our Business..., page 7
o We Are Subject to Price Volatility..., page 8
o We May Not be Able to Compete Effectively..., page 8
o We May Not be Able to Manage Growth ..., page 8
o The Price You Pay in This Offering Will Fluctuate..., page 10
RESPONSE: We have revised our disclosure as requested by deleting those risk
factors that are not material or that could be considered generic,
boiler-plate disclosure.
Signature Has Historically Lost Money..., page 6
COMMENT 10: Disclose how much funding you will need to raise in the next twelve
months and disclose when you anticipate reaching profitability.
RESPONSE: We have revised our disclosure to provide the amount of funding we
will need to raise in the next twelve months and how we intend to
reach profitability.
Management Recognizes That we Must Raise Additional Financing. . ., page 6
COMMENT 11: Please disclose that if Signature Leisure uses funds from the equity
distribution agreement for acquisitions, Mr. Carnes will be entitled
to receive $150,000 for each acquisition. Disclose, if true, that
these bonus amounts would be funded from the equity line.
RESPONSE: We have revised the risk factor as requested.
5
Mr. Larry Spirgel
December 6, 2005
Page 6
Our common Stock May be Affected...,, page 7
COMMENT 12: Please revise your heading to clarify how the low trading volume may
affect your shareholders' ability to sell shares. Also, disclose in
the text the average daily trading volume of your stock. Please
combine your disclosure regarding price fluctuation with your risk
factor regarding price volatility on page 8.
RESPONSE: We have revised our disclosure as requested.
We Could Fail to Attract or Retain Key Personnel ..., page. 7
COMMENT 13. Move the risk factor to the beginning of this section. Revise your
caption to disclose that you have and depend on one officer, Mr.
Carnes, and that Mr. Carnes is also the CFO of another publicly
traded company and, therefore, does not devote all of his time to
Signature Leisure. In the text, highlight the risks associated with
your officer trying to develop the company's various fledgling
businesses and manage the reporting requirements of a public company
while only working part-time. Also, disclose, if true, Mr. Carnes'
lack of direct prior experience in operating the various businesses
you intend to develop.
RESPONSE: We have revised our disclosure as requested.
Existing Shareholders Will Experience Significant Dilution..., page 9
COMMENT 14. Delete the reference to "our net income per share could decrease in
future periods" since the company has never had net income.
RESPONSE: We have revised our disclosure as requested.
The Selling Stockholders Intend to Sell Their Shares ..., page 9
COMMENT 15. We note that, under the terms of your equity distribution agreement,
Katalyst Capital is permitted to sell shares corresponding to a
particular advance before those shares have been delivered. Please
disclose that Katalyst Capital can engage in short sales and cover
the position with shares issued under your equity line of credit. In
addition, please discuss what affect this will have on the market
price of your common stock.
RESPONSE: Pursuant to the terms of the Equity Distribution Agreement, Katalyst
Capital is prohibited from engaging in short sales and has
represented to Signature Leisure that neither Katalyst Capital nor
any of its affiliates will engage in short sales of our common
stock.
6
Mr. Larry Spirgel
December 6, 2005
Page 7
Our Common Stock May be Affected ..., page10
COMMENT 16. This risk factor merely repeats your risk factor regarding your
limited trading volume on page 7. Please delete.
RESPONSE: We have revised our disclosure by deleting the risk factor as
requested.
Our Common Stock is Deemed to be "Penny Stock"..., page 10
COMMENT 17. The risk you convey is unclear. It appears that the risk is that the
penny stock rules may result in fewer brokers willing to make a
market in your shares. Please revise.
RESPONSE: We have revised the risk factor as requested.
We May Not be Able to Obtain..., page
COMMENT 18. Please disclose that even though Katalyst Capital may not hold more
than 9.9% of your common stock at any one time, this restriction
does not prevent Katalyst Capital from selling some of its holdings
and then receiving additional shares.
RESPONSE: We have revised the risk factor disclosure as requested.
Selling, Stockholders..., page 13
COMMENT 19. Disclose the "Consultants and Others" and the shares that are being
registered on their behalf Disclose how those shares were acquired.
RESPONSE: We have revised the selling stockholders' table to delete any
references to other selling stockholders and consultants as the only
selling stockholder is Katalyst Capital.
7
Mr. Larry Spirgel
December 6, 2005
Page 8
Use of Proceeds, page 15
COMMENT 20. Disclose any proceeds that Mr. Carnes will be receiving from the
equity line from his accrued salary and bonuses.
RESPONSE: We have revised our disclosure to reflect that proceeds received
from the Equity Distribution Agreement may be used to pay any
accrued salaries we currently owe Mr. Carnes for his services as our
Chief Executive Officer. We have also disclosed that Signature
Leisure has not made any determination regarding the amount of
proceeds, if any, that will be used to pay accrued salary and bonus
to Mr. Carnes.
COMMENT 21: Disclose more particularly how the proceeds will be used for
business development, infrastructure and improvements and operating
capital.
RESPONSE: We have revised our disclosure to include further details regarding
our use of proceeds which we receive under the Equity Distribution
Agreement.
COMMENT 22: Please disclose the amount of proceeds that will be used to repay
amounts owed under the convertible notes that you previously
disclosed.
RESPONSE: We have no convertible notes.
COMMENT 23: Please also list the placement agent fee as a use of proceeds in
your table. In addition, please include the expenses you disclose on
page 19. In this regard, do these amounts include the escrow
agent-fees disclosed under Section 12.4(a), of the standby equity
distribution agreement? Please disclose all fees relating to the
offering in the table.
RESPONSE: The placement agent fee was paid when we executed the Placement
Agent Agreement on July 7, 2005. Therefore, the placement agent fee
should not be calculated in the use of proceeds, as we will not pay
any fees to the placement agent form the proceeds we receive under
the Equity Distribution Agreement. All of the other expenses related
to the offering have been included in the table as requested.
8
Mr. Larry Spirgel
December 6, 2005
Page 9
Standby Equity Distribution Agreement, page 17
COMMENT 24: We note your statement that "[t]here are no other significant
closing conditions to cash advances under the Equity Distribution
Agreement," Confirm to us in your response letter that there are no
other conditions to cash advances under the agreement or tell us in
your response letter all other conditions to cash advances under the
agreement.
RESPONSE: We have deleted the statement regarding the conditions to cash
advances under the Equity Distribution Agreement. The Equity
Distribution Agreement attached to this response letter as Exhibit A
contains all of the conditions to receiving cash advances.
COMMENT 25: We note the escrow agreement. Please explain to us the purpose of
this agreement. Clarify what are the conditions for release of any
funds to the company from escrow.
RESPONSE: The purpose of the Escrow Agreement is to provide for the orderly
distribution of cash proceeds to Signature Leisure and stock to
Katalyst Capital upon the satisfaction of the conditions under the
Escrow Agreement. When the escrow agent receives a joint written
direction to disburse funds that is signed by both Signature Leisure
and Katalyst Capital, then the escrow agent will disburse funds to
Signature Leisure and release the stock to Katalyst Capital. Prior
to disbursing the funds the escrow agent must have received the cash
advance from Katalyst Capital and the stock from Signature Leisure.
Plan of Distribution, page 19
COMMENT 26: Please disclose Katalyst Capital's intentions regarding short
selling and other hedging activity.
RESPONSE: Pursuant to the Equity Distribution Agreement, Katalyst Capital is
prohibited from short selling of our stock. Katalyst Capital has
represented, under the Equity Distribution Agreement, that it will
not engage in any short sales.
9
Mr. Larry Spirgel
December 6, 2005
Page 10
Management's Discussion and Analysis..., page 20
Overview, page 20
COMMENT 27. Briefly describe how you generate revenue from Parker Productions.
Also, please briefly describe the specific steps you intend to take
and the anticipated timing "to begin working towards starting to
rebuild the auto sales business..." Please also disclose when you
anticipate you will generate revenue from your auto sales business
and what "other business opportunities" you plan to pursue.
RESPONSE: We have added the disclosure to the "Overview" section of the
"Management's Discussion and Analysis of Plan of Operations."
Results of Operations for the Three Months Ended March 31, 2005...,page 20
Revenues, page 20
COMMENT 28: Please clarify whether you generated any revenue from auto sales.
RESPONSE: We have revised our disclosure to include that we have generated
revenues from auto sales.
Cost of Sales, page 21
COMMENT 29: Explain, why your cost of sales increased "primarily because of our
lack of sales."
RESPONSE: We have revised our disclosure to clarify that the cost of services
increased as a result of hiring additional consultants.
Expenses, page 21
COMMENT 30: Disclose how many employees you hired, their titles and for which of
your businesses.
RESPONSE: We have revised our disclosure to include the number of employees we
have hired, their titles and for which businesses they perform
services.
10
Mr. Larry Spirgel
December 6, 2005
Page 11
Results of Operations for the Year Ended December 31, 2004 ...,page 21
COMMENT 31: Disclose what the $1,183,019 in general and administrative costs
were in 2004. Disclosed who received the $714,100 in stock-based
compensation.
RESPONSE: We have disclosed what the $1,183,019 in general and administrative
costs were in 2004 and who received the $714,100 in stock-based
compensation.
Liquidity and Capital Resources page 22
COMMENT 32: Please revise to begin with a brief overview describing your current
financial situation, including the main categories of your present
indebtedness. In the overview, state clearly whether or not your
current assets are sufficient to meet your current liabilities and
explain the significance to investors.
RESPONSE: We have revised our disclosure as requested.
COMMENT 33: Clarify whether the note currently in default is secured. If so,
indicate whether the lender has indicated any intention to foreclose
on the note.
RESPONSE: We have clarified our disclosure to indicate that the note that we
issued to Mr. Edward Miers in exchange for a loan of $28,210 has
been retired and a new note was issued on September 22, 2005 to cure
our default.
11
Mr. Larry Spirgel
December 6, 2005
Page 12
COMMENT 34: We note your disclosure regarding your equity distribution
agreement, however, it is unclear whether this source of funding
will be sufficient to meet your funding needs in the next twelve
months. Please generally revise to explain in greater concrete
detail your specific plans to achieve profitability and to address
your auditor's going concern opinion. Also clarify for how long into
the future you expect to incur significant operating losses.
Disclose how much funding you will need to continue operations for
the next twelve months and please disclose the sources of this
funding. Provide greater detail about your definite plans for
"equity or debt financing or credit facilities" or clearly state
that you have none. These are only examples, generally revise your
Liquidity and Capital Resources discussion and consider the guidance
in Section IV of Securities Act Release No. 33-8350 (December 19,
2003).
RESPONSE: We have revised our disclosure as requested.
Description of Business, page 25
COMMENT 35: Significantly revise this section to focus on providing a clear and
concise description of your company. In this regard, please address
the following:
o Clearly disclose the nature and extent of operations for your
car dealership and modeling and event staffing operations.
Disclose, if true, that the car dealership business currently
does not generate any revenue and disclose the revenue you
have generated from the model and event staffing business.
o Describe your arrangements with your independent contractors
and how many you currently employ.
o Clearly discuss how you intend to develop each business. In
this regard, discuss the steps needed to reach each point and
the time frame and anticipated amount of funding needed to
implement each stage.
o We note your disclosure that "[m]anagement intends to pursue
and review other business opportunities ..." Please clarify
what these opportunities may be and provide the basis for
having the ability to pursue other opportunities given your
number of employees.
RESPONSE: We have revised our disclosure as requested.
12
Mr. Larry Spirgel
December 6, 2005
Page 13
Management, page 29
Employment Agreements, page 30
COMMENT 36: Please clarify how "each merger and/or acquisition and/or business
unit start-up brought to Signature" is defined under the employment
agreement so that investors understand the magnitude of the
transaction that qualifies for this bonus amount. For example, is
there a minimum value of a business to be acquired that is required
to trigger this bonus payment? Please disclose the transactions that
have qualified for the payment of this bonus and the value of those
transactions.
RESPONSE: We have revised our disclosure as requested.
Certain Relationships and Related Transactions, page 32
COMMENT 37: Please file all of your related party transaction agreements as
exhibits.
RESPONSE: We have attached all of the related party transaction agreements to
the revised registration statement and have included those
agreements in the exhibit list as requested.
COMMENT 38: Disclose the shareholder who loaned, Signature $28,210 and the
nature of the shareholder's affiliation to Signature Leisure.
Disclose whether this transaction is comparable to terms you could
have received from an unaffiliated party.
RESPONSE: We have revised our disclosure as requested.
How To Get More Information, page 35
COMMENT 39: Please note that the address of the Commission's public reference
room has changed to 100 F Street, NE, Washington, DC 20549. Please
revise. Please also disclose that investors may obtain information
on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at (800) SEC-0330.
RESPONSE: We have revised our disclosure as requested.
13
Mr. Larry Spirgel
December 6, 2005
Page 14
Part II, page II-1
Recent Sales of Unregistered Securities, page II-1
COMMENT 40: Disclose the exemption from registration you relied upon for each
issuance.
RESPONSE: We have revised our disclosure as requested.
COMMENT 41: We note your disclosure regarding the 1,700,000 shares of your
common stock issued "to consultants in exchange for business
consulting services." Please disclose the names of these consultants
and the services they provided.
RESPONSE: There are no consultants who received 1,700,000. We have corrected
this error in our disclosure.
Exhibits
COMMENT 42: Please review your Standby Equity Distribution Agreement and your
Escrow Agreement for drafting errors and refile (please attach
blacklined copies with your response letter). For example, the
placement agent is incorrectly identified a Newbridge Securities in
the forefront of the Standby Equity Distribution Agreement. The
references to the "Investor" and to the "Company" in Part 2.c of the
Escrow Agreement appear to be confused.
RESPONSE: We have revised the documents as requested and have attached them as
exhibits to this response letter.
COMMENT 43: Explain to us the reference to "free trading shares" in Section 1.2
of the Standby Equity Distribution Agreement.
Form.10-KSB for the Year Ended December 31, 2004
Form 10-OSB for the Quarter Ended March 31, 2005
RESPONSE: The term "free trading shares" refers to the shares registered under
the registration statement once they have been declared effective.
14
Mr. Larry Spirgel
December 6, 2005
Page 15
Controls and Procedures, page 28
COMMENT 44: Please revise your future periodic reports to comply with our
comments on your Form SB-2.
RESPONSE: We will revise our future periodic reports to comply with these
comments to our Form SB-2.
COMMENT 45: We note your disclosure that your officer's evaluation "was
conducted within 90 days prior to the filing of this report." Please
note that filings after August 14, 2003 must comply with the
disclosure requirements of revised Item 307. That is; you must
disclose the conclusion of your certifying officers regarding the
effectiveness of your disclosure controls and procedures as of the
end of the period covered by the report, based upon the evaluation
of these controls and procedures. Please confirm in your response
letter that your disclosure controls and procedures were effective
as of the end of the period covered by your Form 10-K and your
Form 10-Q for the quarter ended March 31, 2005. Please also revise
your future filings accordingly.
RESPONSE: We confirm that our disclosure controls and procedures were
effective as of the end of the period covered by the Form 10-KSB and
Form 10-QSB for the quarter ended March 31, 2005 and June 30, 2005.
15
Mr. Larry Spirgel
December 6, 2005
Page 16
COMMENT 46: We note your disclosure that your officer concluded that your
disclosure controls and procedures were "effective in ensuring that
all material information required to be filed in this annual report
has been made known to them in a timely fashion." Please confirm to
us in your response letter, if true, that your disclosure controls
and procedures are effective to ensure that information required to
be disclosed in the reports that you file under the Exchange Act is
recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms and are also
effective to ensure that information required to be-disclosed in the
reports that you file or submit under the Exchange Act is
accumulated and communicated to your management, including your
principal executive and principal financial officers, to allow
timely decisions regarding required disclosure. See Rule 13a-15(e)
of the Exchange Act. Alternatively, in your future filings, you may
simply state that your disclosure controls and procedures are
effective.
RESPONSE: We confirm that our disclosure controls and procedures are effective
to ensure that information required to be disclosed in the reports,
which we file under the Exchange Act, is recorded, processed,
summarized and reported, within the time periods specified in the
Commissions' rules and forms and are also effective to ensure that
information required to be disclosed is disclosed as required.
16
Mr. Larry Spirgel
December 6, 2005
Page 17
COMMENT 47: We note your disclosure that "[t]here have been no significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date the
Principal Executive Officer and Principal Financial Officer
completed their evaluation." Item 308(c) of Regulation S-B requires
the disclosure of any change in your internal control over financial
reporting identified in connection with an evaluation thereof that
occurred during your last fiscal quarter (or your fourth fiscal
quarter in the case of an annual report) that has materially
affected or is reasonably likely to materially affect, your internal
control over financial reporting. Please confirm in your response
letter, if true, that there was no change in your internal control
over financial reporting that occurred during your fourth quarter of
2004 and your first quarter ending March 31, 2005 that has
materially affected, or is reasonably likely to materially affect,
your internal control over financial reporting. Please also revise
your future filings accordingly.
RESPONSE: We confirm that there were no changes in our internal controls over
financial reporting that occurred during the fourth quarter of 2004
and the first quarter ending March 31, 2005 that materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Very truly yours,
/s/ Stephen W. Carnes
Stephen W. Carnes
President
17
EXHIBIT A
STANDBY EQUITY DISTRIBUTION AGREEMENT
AGREEMENT dated as of the 20th day of January, 2005 (the "Agreement")
between KATALYST CAPITAL GROUP LTD (the "Investor"), and SIGNATURE LEISURE,
INC., a corporation organized and existing under the laws of the State of
Colorado (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase from the
Company up to Five Million Dollars ($5,000,000) of the Company's common stock,
par value $0.001 per share (the "Common Stock"); and
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
WHEREAS, the Company has engaged Spencer Clarke LLC, 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 Marchena and Graham P.A.
Escrow Account is in receipt of the funds from the Investor and Marchena and
Graham P.A., is in possession of free trading shares from the Company and
therefore an Advance by the Investor to the Company can be made and Marchena and
Graham P.A. can release the free trading shares to the Investor. No Advance Date
shall be less than six (6) Trading Days after an Advance Notice Date.
Section 1.3. "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 six (6) Trading Days after the prior Advance Notice
Date.
Section 1.5. "Bid Price" shall mean, on any date, the closing bid price
(as reported by Bloomberg L.P.) of the Common Stock on the Principal Market or
if the Common Stock is not traded on a Principal Market, the highest reported
bid price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.6. "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.
Section 1.7. "Commitment Amount" shall mean the aggregate amount of up to
Five Million Dollars ($5,000,000) which the Investor has agreed to provide to
the Company in order to purchase the Company's Common Stock pursuant to the
terms and conditions of this Agreement.
Section 1.8. "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of Five Million
Dollars ($5,000,000), (y) the date this Agreement is terminated pursuant to
Section 2.5, or (z) the date occurring twenty-four (24) months after the
Effective Date.
Section 1.9. "Common Stock" shall mean the Company's common stock, par
value $0.001 per share.
Section 1.10. "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.11. "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13. "Escrow Agreement" shall mean the escrow agreement among the
Company, the Investor, and Marchena and Graham P.A. 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.
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Section 1.17. "Maximum Advance Amount" shall be Two Hundred Thousand
Dollars ($200,000) per Advance Notice.
Section 1.18 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.20 "Placement Agent" shall mean Spencer Clarke LLC, 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 nine percent (99%) of
the Market Price during the Pricing Period.
Section 1.24 "Registrable Securities" shall mean the shares of Common
Stock to be issued hereunder (i) in respect of which the Registration Statement
has not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") or (iii)
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
Section 1.25 "Registration Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.
Section 1.26 "Registration Statement" shall mean a registration statement
on Form S-1 or SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered there under in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
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.
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Section 1.29 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.30 "SEC Documents" shall mean Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.31 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.32 "VWAP" shall mean the volume weighted average price of the
Company's common stock as quoted by Bloomberg, LP.
ARTICLE II.
Advances
Section 2.1. Investments.
(a) Advances. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Advance Notice Date the Company may request an Advance by the Investor by the
delivery of an Advance Notice. The number of shares of Common Stock that the
Investor shall receive for each Advance shall be determined by dividing the
amount of the Advance by the Purchase Price. No fractional shares shall be
issued. Fractional shares shall be rounded to the next higher whole number of
shares. The aggregate maximum amount of all Advances that the Investor shall be
obligated to make under this Agreement shall not exceed the Commitment Amount.
Section 2.2. Mechanics.
(a) Advance Notice. At any time during the Commitment Period, the
Company may deliver an Advance Notice to the Investor, subject to the conditions
set forth in Section 7.2; provided, however, the amount for each Advance as
designated by the Company in the applicable Advance Notice, shall not be more
than the Maximum Advance Amount. The aggregate amount of the Advances pursuant
to this Agreement shall not exceed the Commitment Amount. The Company
acknowledges that the Investor may sell shares of the Company's Common Stock
corresponding with a particular Advance Notice on the day the Advance Notice is
received by the Investor. There will be a minimum of six (6) Trading Days
between each Advance Notice Date.
(b) Date of Delivery of Advance Notice. An Advance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Advance Notice may be deemed delivered, on a day
that is not a Trading Day.
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Section 2.3. Closings. On each Advance Date, which shall be six (6)
Trading Days after an Advance Notice Date, (i) the Company shall deliver to the
Investor's Counsel, 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 Marchena and Graham P.A. (the
"Escrow Agent") the amount of the Advance specified in the Advance Notice by
wire transfer of immediately available funds which shall be delivered to the
Company, or otherwise in accordance with the Escrow Agreement. In addition, on
or prior to the Advance Date, each of the Company and the Investor shall deliver
to the other through the Investor's Counsel all documents, instruments and
writings required to be delivered by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. Payment
of funds to the Company and delivery of the Company's Common Stock to the
Investor shall occur in accordance with the conditions set forth above and those
contained in the Escrow Agreement; provided, however, that to the extent the
Company has not paid the fees, expenses, and disbursements of the Investor, the
Investor's counsel and Kirkpatrick & Lockhart LLP in accordance with Section
12.4, the amount of such fees, expenses, and disbursements may be deducted by
the Investor (and shall be paid to the relevant party) from the amount of the
Advance with no reduction in the amount of shares of the Company's Common Stock
to be delivered on such Advance Date.
Section 2.4. Termination of Investment. The obligation of the Investor to
make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of fifty
(50) Trading Days, other than due to the acts of the Investor, during the
Commitment Period, and (ii) the Company shall at any time fail materially to
comply with the requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written notice from the Investor, provided,
however, that this termination provision shall not apply to any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is
declared effective by the SEC..
Section 2.5. Agreement to Advance Funds.
(a) The Investor agrees to advance the amount specified in the
Advance Notice to the Company after the completion of each of the following
conditions and the other conditions set forth in this Agreement:
(i) the execution and delivery by the Company, and the
Investor, of this Agreement, and the Exhibits hereto;
(ii) the Company's Common Stock shall have been authorized for
quotation on the National Association of Securities Dealers Inc.'s Over the
Counter Bulletin Board.
(iii) Investor's Counsel shall have received the shares of
Common Stock applicable to the Advance in accordance with Section 2.2(c) hereof;
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(iv) the Company's Registration Statement with respect to the
resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement shall have been declared effective by the SEC;
(v) the Company shall have obtained all material permits and
qualifications required by any applicable state for the offer and sale of the
Registrable Securities, or shall have the availability of exemptions therefrom.
The sale and issuance of the Registrable Securities shall be legally permitted
by all laws and regulations to which the Company is subject;
(vi) the Company shall have filed with the Commission in a
timely manner all reports, notices and other documents required of a "reporting
company" under the Exchange Act and applicable Commission regulations;
(vii) the fees as set forth in Section 12.4 below shall have
been paid or can be withheld as provided in Section 2.3; and
(viii) the conditions set forth in Section 7.2 shall have been
satisfied.
(ix) The Company shall have provided to the Investor an
acknowledgement, from Beckstead & Watts LLP as to its ability to provide all
consents required in order to file a registration statement in connection with
this transaction;
(x) The Company's transfer agent shall be DWAC eligible.
Section 2.6. Lock Up Period.
(i) During the Commitment Period, the Company shall not, issue
or sell (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.
ARTICLE III.
Representations and Warranties of Investor
Investor hereby represents and warrants to, and agrees with, the Company
that the following are true and as of the date hereof and as of each Advance
Date:
Section 3.1. Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.
6
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.
7
Section 3.7. Receipt of Documents. The Investor and its counsel has
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-KSB for the year ended year ended December 31, 2003
and Form 10-QSB for the period ended September 30, 2003 and (iv) answers to all
questions the Investor submitted to the Company regarding an investment in the
Company; and the Investor has relied on the information contained therein and
has not been furnished any other documents, literature, memorandum or
prospectus.
Section 3.8. Registration Rights Agreement and Escrow Agreement. The
parties have entered into the Registration Rights Agreement and the Escrow
Agreement, each dated the date hereof.
Section 3.9. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the shares of Common Stock offered hereby.
Section 3.10. Not an Affiliate. The Investor is not an officer, director
or a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company or any
"Affiliate" of the Company (as that term is defined in Rule 405 of the
Securities Act). Neither the Investor nor its Affiliates has an open short
position in the Common Stock of the Company, and the Investor agrees that it
will not, and that it will cause its Affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock, provided that
the Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor will sell the Shares to be issued to the Investor pursuant to the
Advance Notice, even if the Shares have not been delivered to the Investor.
Section 3.11. Trading Activities. The Investor's trading activities with
respect to the Company's Common Stock shall be in compliance with all applicable
federal and state securities laws, rules and regulations and the rules and
regulations of the Principal Market on which the Company's Common Stock is
listed or traded. Neither the Investor nor its affiliates has an open short
position in the Common Stock of the Company and, except as set forth below, the
Investor shall not and will cause its affiliates not to engage in any short sale
as defined in any applicable SEC or National Association of Securities Dealers
rules on any hedging transactions with respect to the Common Stock. Without
limiting the foregoing, the Investor agrees not to engage in any naked short
transactions in excess of the amount of shares owned (or an offsetting long
position) during the Commitment Period. The Investor shall be entitled to sell
Common Stock during the applicable Pricing Period.
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:
8
Section 4.1. Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
Section 4.2. Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent Agreement and any related agreements have
been duly executed and delivered by the Company, (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 500,000,000 shares of Common Stock, par value
$0.001 per share and 10,000,000 shares of Preferred Stock of which 12,295,414
shares of Common Stock and no shares of Preferred Stock were issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in the SEC Documents, no
shares of Common Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company. Except
as disclosed in the SEC Documents, as of the date hereof, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities (iii) there are no outstanding registration
statements other than on Form S-8 and (iv) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the Securities Act (except
pursuant to the Registration Rights Agreement). There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by this Agreement or any related agreement or the consummation of the
transactions described herein or therein. The Company has furnished to the
Investor true and correct copies of the Company's Certificate of Incorporation,
as amended and as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
9
Section 4.4. No Conflict. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which would cause a
Material Adverse Effect. Except as disclosed in the SEC Documents, neither the
Company nor its subsidiaries is in violation of any term of or in default under
its Certificate of Incorporation or By-laws or their organizational charter or
by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries. The business
of the Company and its subsidiaries is not being conducted in violation of any
material law, ordinance, regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any fact or circumstance which might
give rise to any of the foregoing.
Section 4.5. SEC Documents; Financial Statements. Since January 1, 2002,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under of the Exchange Act. The
Company has delivered to the Investor or its representatives, or made available
through the SEC's website at http://www.sec.gov, 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.
10
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 mark 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 mark 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 mark 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.
11
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.
12
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.
13
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 acceptable to the Investor 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.
14
(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.
15
Section 6.2. Listing of Common Stock. The Company shall obtain and
maintain the Common Stock's authorization for quotation on the National
Association of Securities Dealers Inc.'s Over the Counter Bulletin Board.
Section 6.3. Exchange Act Registration. The Company will cause its Common
Stock to 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.
16
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. 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) Listing of the Company's Common Stock. The Company's Common
Stock shall have been authorized for quotation on the National Association of
Securities Dealers Inc.'s Over the Counter Bulletin Board.
17
(b) Registration of the Common Stock with the SEC. The Company shall
have filed with the SEC a Registration Statement with respect to the resale of
the Registrable Securities in accordance with the terms of the Registration
Rights Agreement. As set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
the Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and the Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of
the Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first
Advance Notice Date.
(c) Authority. The Company shall have obtained all permits and
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(d) Fundamental Changes. There shall not exist any fundamental
changes to the information set forth in the Registration Statement which would
require the Company to file a post-effective amendment to the Registration
Statement.
(e) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement (including, without limitation, the
conditions specified in Section 2.5 hereof) and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(f) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(g) No Suspension of Trading in or Delisting of Common Stock. The
trading of the Common Stock 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).
(h) Maximum Advance Amount. The amount of any Advance requested by
the Company shall not exceed the Maximum Advance Amount. In addition, in no
event shall the number of shares issuable to the Investor pursuant to an Advance
cause the Investor to own in excess of nine and 9/10 percent (9.9%) of the then
outstanding Common Stock of the Company.
18
(i) No Knowledge. The Company has no knowledge of any event which
would be more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective.
(j) Other. On each Condition Satisfaction Date, the Investor shall
have received the certificate executed by an officer of the Company in the form
of Exhibit A attached hereto.
ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1. Due Diligence Review. Prior to the filing of the Registration
Statement the Company shall make available for inspection and review by the
Investor, advisors to and representatives of the Investor, any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
19
(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 Hudson County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Hudson 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:
20
If to the Company, to: Signature Leisure, Inc.
100 Candace Drive, Suite 100
Lake Mary, FL 32746
Attention: Stephen W. Carnes, President
With a copy to: Kirkpatrick & Lockhart LLP
201 South Biscayne Boulevard - Suite 2000
Miami, FL 33131-2399
Attention: Clayton E. Parker, Esq.
If to the Investor(s): Katalyst Capital Group
Leeward Highway
Providencials, Turks & Caicos Islands, B.W.I.
Attention: Jason Tribeca, Portfolio Manager
With a copy to: Marchena and Graham P.A.
233 S. Semoran Blvd.
Orlando, FL 32807
Attention: Keith Graham
Each party shall provide five (5) days' prior written notice to the other party
of any change in address.
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.
21
Section 12.4. Fees and Expenses. The Company hereby agrees to pay the
following fees:
(a) Legal Fees. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby, except that upon the execution of this Agreement the
Company will pay Five Thousand Dollars ($5,000) to Marchena and Graham P.A. for
legal, administrative, and escrow fees directly from the gross proceeds held in
escrow from the First Closing of the Convertible Debenture transaction pursuant
to the Securities Purchase Agreement dated the date hereof. Subsequently on each
advance date, the Company will pay Marchena and Graham P.A., the sum of Five
Hundred Dollars ($500) for legal, administrative and escrow fees as well as any
outstanding fees of Kirkpatrick & Lockhart 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
one percent (1%) 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 one million (1,000,000) shares of the Company's Common.
(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.
22
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]
23
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:
SIGNATURE LEISURE, INC.
By: /s/ Stephen W. Carnes
------------------------------------
Name: Stephen W. Carnes
Title: President
INVESTOR:
Katalyst Capital Group
By: /s/ Jason Tribeca
------------------------------------
Name: Jason Tribeca
Title: Portfolio Manager
24
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
SIGNATURE LEISURE, INC.
The undersigned, _______________________ hereby certifies, with respect to
the sale of shares of Common Stock of Signature Leisure, Inc. (the "Company"),
issuable in connection with this Advance Notice and Compliance Certificate dated
___________________ (the "Notice"), delivered pursuant to the Standby Equity
Distribution Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected President of the Company.
2. There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of
_________________.
Signature Leisure, Inc.
By:
------------------------------------
Name: Stephen W. Carnes
Title: President
EXHIBIT B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
January 20, 2005 by SIGNATURE LEISURE, INC., a Colorado corporation (the
"Company"); KATALYST CAPITAL GROUP LTD (the "Investor"); and MARCHENA AND
GRAHAM, P.A. (the "Escrow Agent").
BACKGROUND
WHEREAS, the Company and the Investor have entered into an Standby Equity
Distribution Agreement (the "Standby Equity Distribution Agreement") dated as of
the date hereof, pursuant to which the Investor will purchase the Company's
Common Stock, par value $0.001 per share (the "Common Stock"), at a price per
share equal to the Purchase Price, as that term is defined in the Standby Equity
Distribution Agreement, for an aggregate price of up to Five Million Dollars
($5,000,000). The Standby Equity Distribution Agreement provides that on each
Advance Date the Investor, as that term is defined in the Standby Equity
Distribution Agreement, shall deposit the Advance pursuant to the Advance Notice
in a segregated escrow account to be held by Escrow Agent and the Company shall
deposit shares of the Company's Common Stock, which shall be purchased by the
Investor as set forth in the Standby Equity Distribution Agreement, with the
Escrow Agent, in order to effectuate a disbursement to the Company of the
Advance by the Escrow Agent and a disbursement to the Investor of the shares of
the Company's Common Stock by Escrow Agent at a closing to be held as set forth
in the Standby Equity Distribution Agreement (the "Closing").
WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds
and the shares of the Company's Common Stock deposited with it in accordance
with the terms of this Agreement.
WHEREAS, in order to establish the escrow of funds and shares to effect
the provisions of the Standby Equity Distribution Agreement, the parties hereto
have entered into this Agreement.
NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as
follows:
1. Definitions. The following terms shall have the following meanings when
used herein:
a. "Escrow Funds" shall mean the Advance funds deposited with the
Escrow Agent pursuant to this Agreement.
b. "Joint Written Direction" shall mean a written direction executed
by the Investor and the Company directing Escrow Agent to disburse all or a
portion of the Escrow Funds or to take or refrain from taking any action
pursuant to this Agreement.
c. "Common Stock Joint Written Direction" shall mean a written
direction executed by the Investor and the Company directing Company's Counsel
to disburse all or a portion of the shares of the Company's Common Stock or to
refrain from taking any action pursuant to this Agreement.
2. Appointment of and Acceptance by Escrow Agent.
a. The Investor and the Company hereby appoint Escrow Agent to serve
as Escrow Agent hereunder. Escrow Agent hereby accepts such appointment and,
upon receipt by wire transfer of the Escrow Funds in accordance with Section 3
below, agrees to hold, invest and disburse the Escrow Funds in accordance with
this Agreement.
b. The Investor and the Company hereby appoint the Escrow Agent to
serve as the holder of the shares of the Company's Common Stock which shall be
purchased by the Investor. The Escrow Agent hereby accepts such appointment and,
upon receipt of the certificates representing of the shares of the Company's
Common Stock in accordance with Section 3 below, agrees to hold and disburse the
shares of the Company's Common Stock in accordance with this Agreement.
3. Creation of Escrow Account/Common Stock Account.
On or prior to the date of this Agreement the Escrow Agent shall establish an
escrow account for the deposit of the Escrow Funds entitled as follows: Marchena
and Graham P.A. as trustee for Signature Leisure, Inc./Katalyst Capital Group
Ltd. The Investor will wire funds to the account of the Escrow Agent.
Bank: SunTrust Bank
Routing #: 0 6 1 0 0 0 1 0 4
Account #: 0 7 1 3 7 1 3 0 2 6 9 8 0
Name on Account: Marchena and Graham P.A. Trust Account as trustee for
Signature Leisure, Inc./Katalyst Capital Group Ltd.
4. Deposits into the Escrow Account. The Investor agrees that it shall
promptly deliver all monies for the payment of the Common Stock to the Escrow
Agent for deposit in the Escrow Account.
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5. Disbursements from the Escrow Account.
a. At such time as Escrow Agent has collected and deposited
instruments of payment in the total amount of the Advance and has received such
Common Stock from the Company which are to be issued to the Investor pursuant to
the Standby Equity Distribution Agreement, the Escrow Agent shall notify the
Company and the Investor. The Escrow Agent will continue to hold such funds
until the Investor and Company execute and deliver a Joint Written Direction
directing the Escrow Agent to disburse the Escrow Funds pursuant to Joint
Written Direction at which time the Escrow Agent shall wire the Escrow Funds to
the Company. In disbursing such funds, Escrow Agent is authorized to rely upon
such Joint Written Direction from Company and may accept any signatory from the
Company listed on the signature page to this Agreement and any signature from
the Investor that is listed on the signature page to this agreement.
Simultaneous with delivery of the executed Joint Written Direction to the Escrow
Agent the Investor and Company shall execute and deliver a Common Stock Joint
Written Direction to the Escrow Agent directing the Escrow Agent to release via
Federal Express to the Investor the shares of the Company's Common Stock. In
releasing such shares of Common Stock the Escrow Agent is authorized to rely
upon such Common Stock Joint Written Direction from Company and may accept any
signatory from the Company listed on the signature page to this Agreement and
any signature from the Investor that is listed on the signature page to this
agreement.
In the event the Escrow Agent does not receive the amount of the Advance
from the Investor or the shares of Common Stock to be purchased by the Investor
from the Company, the Escrow Agent shall notify the Company and the Investor.
In the event that the Escrow Agent has not received the Common Stock to be
purchased by the Investor from the Company, in no event will the Escrow Funds be
released to the Company until such shares are received by the Escrow Agreement.
For purposes of this Agreement, the term "Common Stock certificates" shall mean
Common Stock certificates to be purchased pursuant to the respective Advance
Notice pursuant to the Standby Equity Distribution Agreement.
6. Deposit of Funds. The Escrow Agent is hereby authorized to deposit the
wire transfer proceeds in the Escrow Account.
7. Suspension of Performance: Disbursement Into Court.
a. Escrow Agent. If at any time, there shall exist any dispute
between the Company and the Investor with respect to holding or disposition of
any portion of the Escrow Funds or the Common Stock or any other obligations of
Escrow Agent hereunder, or if at any time Escrow Agent is unable to determine,
to Escrow Agent's sole satisfaction, the proper disposition of any portion of
the Escrow Funds or Escrow Agent's proper actions with respect to its
obligations hereunder, or if the parties have not within thirty (30) days of the
furnishing by Escrow Agent of a notice of resignation pursuant to Section 9
hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent
may, in its sole discretion, take either or both of the following actions:
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i. Suspend the performance of any of its obligations
(including without limitation any disbursement obligations) under this Escrow
Agreement until such dispute or uncertainty shall be resolved to the sole
satisfaction of Escrow Agent or until a successor Escrow Agent shall be
appointed (as the case may be); provided however, Escrow Agent shall continue to
invest the Escrow Funds in accordance with Section 8 hereof; and/or
ii. Petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in any venue convenient
to Escrow Agent, for instructions with respect to such dispute or uncertainty,
and to the extent required by law, pay into such court, for holding and
disposition in accordance with the instructions of such court, all funds held by
it in the Escrow Funds, after deduction and payment to Escrow Agent of all fees
and expenses (including court costs and attorneys' fees) payable to, incurred
by, or expected to be incurred by Escrow Agent in connection with performance of
its duties and the exercise of its rights hereunder.
iii. Escrow Agent shall have no liability to the Company, the
Investor, or any person with respect to any such suspension of performance or
disbursement into court, specifically including any liability or claimed
liability that may arise, or be alleged to have arisen, out of or as a result of
any delay in the disbursement of funds held in the Escrow Funds or any delay in
with respect to any other action required or requested of Escrow Agent.
8. Investment of Escrow Funds. The Escrow Agent shall deposit the Escrow
Funds in a non-interest bearing money market account.
If Escrow Agent has not received a Joint Written Direction at any time
that an investment decision must be made, Escrow Agent may retain the Escrow
Fund, or such portion thereof, as to which no Joint Written Direction has been
received, in a non-interest bearing money market account.
9. Resignation and Removal of Escrow Agent. Escrow Agent may resign from
the performance of its duties hereunder at any time by giving thirty (30) days'
prior written notice to the parties or may be removed, with or without cause, by
the parties, acting jointly, by furnishing a Joint Written Direction to Escrow
Agent, at any time by the giving of ten (10) days' prior written notice to
Escrow Agent as provided herein below. Upon any such notice of resignation or
removal, the representatives of the Investor and the Company identified in
Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a successor Escrow
Agent hereunder, which shall be a commercial bank, trust company or other
financial institution. Upon the acceptance in writing of any appointment of
Escrow Agent hereunder by a successor Escrow Agent, such successor Escrow Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Escrow Agent, and the retiring Escrow
Agent shall be discharged from its duties and obligations under this Escrow
Agreement, but shall not be discharged from any liability for actions taken as
Escrow Agent hereunder prior to such succession. After any retiring Escrow
Agent's resignation or removal, the provisions of this Escrow Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Escrow Agent under this Escrow Agreement. The retiring Escrow Agent shall
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transmit all records pertaining to the Escrow Funds and shall pay all funds held
by it in the Escrow Funds to the successor Escrow Agent, after making copies of
such records as the retiring Escrow Agent deems advisable and after deduction
and payment to the retiring Escrow Agent of all fees and expenses (including
court costs and attorneys' fees) payable to, incurred by, or expected to be
incurred by the retiring Escrow Agent in connection with the performance of its
duties and the exercise of its rights hereunder.
10. Liability of Escrow Agent.
a. Escrow Agent shall have no liability or obligation with respect
to the Escrow Funds except for Escrow Agent's willful misconduct or gross
negligence. Escrow Agent's sole responsibility shall be for the safekeeping,
investment, and disbursement of the Escrow Funds in accordance with the terms of
this Agreement. Escrow Agent shall have no implied duties or obligations and
shall not be charged with knowledge or notice or any fact or circumstance not
specifically set forth herein. Escrow Agent may rely upon any instrument, not
only as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein, which Escrow Agent
shall in good faith believe to be genuine, to have been signed or presented by
the person or parties purporting to sign the same and conform to the provisions
of this Agreement. In no event shall Escrow Agent be liable for incidental,
indirect, special, and consequential or punitive damages. Escrow Agent shall not
be obligated to take any legal action or commence any proceeding in connection
with the Escrow Funds, any account in which Escrow Funds are deposited, this
Agreement or the Standby Equity Distribution Agreement, or to appear in,
prosecute or defend any such legal action or proceeding. Escrow Agent may
consult legal counsel selected by it in the event of any dispute or question as
to construction of any of the provisions hereof or of any other agreement or its
duties hereunder, or relating to any dispute involving any party hereto, and
shall incur no liability and shall be fully indemnified from any liability
whatsoever in acting in accordance with the opinion or instructions of such
counsel. The Company and the Investor jointly and severally shall promptly pay,
upon demand, the reasonable fees and expenses of any such counsel and Escrow
Agent is hereby authorized to pay such fees and expenses from funds held in
escrow.
b. The Escrow Agent is hereby authorized, in its sole discretion, to
comply with orders issued or process entered by any court with respect to the
Escrow Funds, without determination by the Escrow Agent of such court's
jurisdiction in the matter. If any portion of the Escrow Funds is at any time
attached, garnished or levied upon under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property shall
be stayed or enjoined by any court order, or in any case any order judgment or
decree shall be made or entered by any court affecting such property or any part
thereof, then and in any such event, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ judgment or decree
which it is advised by legal counsel selected by it, binding upon it, without
the need for appeal or other action; and if the Escrow Agent complies with any
such order, writ, judgment or decree, it shall not be liable to any of the
parties hereto or to any other person or entity by reason of such compliance
even though such order, writ judgment or decree may be subsequently reversed,
modified, annulled, set aside or vacated.
11. Indemnification of Escrow Agent. From and at all times after the date
of this Agreement, the parties jointly and severally, shall, to the fullest
extent permitted by law and to the extent provided herein, indemnify and hold
harmless Escrow Agent and each director, officer, employee, attorney, agent and
affiliate of Escrow Agent (collectively, the "Indemnified Parties") against any
and all actions, claims (whether or not valid), losses, damages, liabilities,
costs and expenses of any kind or nature whatsoever (including without
limitation reasonable attorney's fees, costs and expenses) incurred by or
5
asserted against any of the Indemnified Parties from and after the date hereof,
whether direct, indirect or consequential, as a result of or arising from or in
any way relating to any claim, demand, suit, action, or proceeding (including
any inquiry or investigation) by any person, including without limitation the
parties to this Agreement, whether threatened or initiated, asserting a claim
for any legal or equitable remedy against any person under any statute or
regulation, including, but not limited to, any federal or state securities laws,
or under any common law or equitable cause or otherwise, arising from or in
connection with the negotiation, preparation, execution, performance or failure
of performance of this Agreement or any transaction contemplated herein, whether
or not any such Indemnified Party is a party to any such action or proceeding,
suit or the target of any such inquiry or investigation; provided, however, that
no Indemnified Party shall have the right to be indemnified hereunder for
liability finally determined by a court of competent jurisdiction, subject to no
further appeal, to have resulted solely from the gross negligence or willful
misconduct of such Indemnified Party. If any such action or claim shall be
brought or asserted against any Indemnified Party, such Indemnified Party shall
promptly notify the Company and the Investor hereunder in writing, and the and
the Company shall assume the defense thereof, including the employment of
counsel and the payment of all expenses. Such Indemnified Party shall, in its
sole discretion, have the right to employ separate counsel (who may be selected
by such Indemnified Party in its sole discretion) in any such action and to
participate and to participate in the defense thereof, and the fees and expenses
of such counsel shall be paid by such Indemnified Party, except that the
Investor and/or the Company shall be required to pay such fees and expense if
(a) the Investor or the Company agree to pay such fees and expenses, or (b) the
Investor and/or the Company shall fail to assume the defense of such action or
proceeding or shall fail, in the sole discretion of such Indemnified Party, to
employ counsel reasonably satisfactory to the Indemnified Party in any such
action or proceeding, (c) the Investor and the Company are the plaintiff in any
such action or proceeding or (d) the named or potential parties to any such
action or proceeding (including any potentially impleaded parties) include both
Indemnified Party the Company and/or the Investor and Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Company or the Investor. The Investor and the Company shall be jointly and
severally liable to pay fees and expenses of counsel pursuant to the preceding
sentence, except that any obligation to pay under clause (a) shall apply only to
the party so agreeing. All such fees and expenses payable by the Company and/or
the Investor pursuant to the foregoing sentence shall be paid from time to time
as incurred, both in advance of and after the final disposition of such action
or claim. The obligations of the parties under this section shall survive any
termination of this Agreement, and resignation or removal of the Escrow Agent
shall be independent of any obligation of Escrow Agent.
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12. Expenses of Escrow Agent. Except as set forth in Section 11 the
Company shall reimburse Escrow Agent for all of its reasonable out-of-pocket
expenses, including attorneys' fees, travel expenses, telephone and facsimile
transmission costs, postage (including express mail and overnight delivery
charges), copying charges and the like as outlined in Section 12.4 of the
Standby Equity Distribution Agreement dated the date hereof. All of the
compensation and reimbursement obligations set forth in this Section shall be
payable by the Company, upon demand by Escrow Agent. The obligations of the
Company under this Section shall survive any termination of this Agreement and
the resignation or removal of Escrow Agent.
13. Warranties.
a. The Investor makes the following representations and warranties
to the Escrow Agent and Company:
i. The Investor has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.
ii. This Agreement has been duly approved by all necessary
action of the Investor, including any necessary approval of the limited partner
of the Investor, has been executed by duly authorized officers of the Investor's
general partner, enforceable in accordance with its terms.
iii. The execution, delivery, and performance of the Investor
of this Agreement will not violate, conflict with, or cause a default under the
agreement of limited partnership of the Investor, any applicable law or
regulation, any court order or administrative ruling or degree to which the
Investor is a party or any of its property is subject, or any agreement,
contract, indenture, or other binding arrangement.
iv. Jason Tribeca has been duly appointed to act as the
representative of Investor hereunder and has full power and authority to
execute, deliver, and perform this Agreement, to execute and deliver any Joint
Written Direction, to amend, modify, or waive any provision of this Agreement,
and to take any and all other actions as the Investor's representative under
this Agreement, all without further consent or direction form, or notice to, the
Investor or any other party.
v. No party other than the parties hereto have, or shall have,
any lien, claim or security interest in the Escrow Funds or any part thereof. No
financing statement under the Uniform Commercial Code is on file in any
jurisdiction claiming a security interest in or describing (whether specifically
or generally) the Escrow Funds or any part thereof.
vi. All of the representations and warranties of the Investor
contained herein are true and complete as of the date hereof and will be true
and complete at the time of any disbursement from the Escrow Funds.
b. The Company makes the following representations and warranties to
Escrow Agent and, the Investor:
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i. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada, and has
full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder.
ii. This Agreement has been duly approved by all necessary
corporate action of the Company, including any necessary shareholder approval,
has been executed by duly authorized officers of the Company, enforceable in
accordance with its terms.
iii. The execution, delivery, and performance by the Company
of this Escrow Agreement is in accordance with the Standby Equity Distribution
Agreement and will not violate, conflict with, or cause a default under the
certificate of incorporation or bylaws of the Company, any applicable law or
regulation, any court order or administrative ruling or decree to which the
Company is a party or any of its property is subject, or any agreement,
contract, indenture, or other binding arrangement.
iv. Stephen W. Carnes has been duly appointed to act as the
representative of the Company hereunder and has full power and authority to
execute, deliver, and perform this Agreement, to execute and deliver any Joint
Written Direction, to amend, modify or waive any provision of this Agreement and
to take all other actions as the Company's Representative under this Agreement,
all without further consent or direction from, or notice to, the Company or any
other party.
v. No party other than the parties hereto shall have, any
lien, claim or security interest in the Escrow Funds or any part thereof. No
financing statement under the Uniform Commercial Code is on file in any
jurisdiction claiming a security interest in or describing (whether specifically
or generally) the Escrow Funds or any part thereof.
vi. All of the representations and warranties of the Company
contained herein are true and complete as of the date hereof and will be true
and complete at the time of any disbursement from the Escrow Funds.
14. Consent to Jurisdiction and Venue. In the event that any party hereto
commences a lawsuit or other proceeding relating to or arising from this
Agreement, the parties hereto agree that the United States District Court for
the District of Florida shall have the sole and exclusive jurisdiction over any
such proceeding. If all such courts lack federal subject matter jurisdiction,
the parties agree that the Superior Court Division of Florida, Seminole County
shall have sole and exclusive jurisdiction. Any of these courts shall be proper
venue for any such lawsuit or judicial proceeding and the parties hereto waive
any objection to such venue. The parties hereto consent to and agree to submit
to the jurisdiction of any of the courts specified herein and agree to accept
the service of process to vest personal jurisdiction over them in any of these
courts.
15. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mail, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
delivery to any overnight courier, or when transmitted by facsimile transmission
and addressed to the party to be notified as follows:
8
If to Investor, to: Katalyst Capital Group
Leeward Highway
Providencials, Turks & Caicos Islands, B.W.I.
Attention: Jason Tribeca, Portfolio Manager
Katalyst Capital Group
If to Escrow Agent, to: Marchena and Graham P.A.
233 S. Semoran Blvd.
Orlando, FL 32807
Attention: Keith Graham
Marchena and Graham P.A.
If to Company, to: Signature Leisure, Inc.
100 Candace Drive, Suite 100
Lake Mary, FL 32746
Attention: Stephen W. Carnes, President
With a copy to: Kirkpatrick & Lockhart LLP
201 South Biscayne Boulevard - Suite 2000
Miami, Florida 33131-2399
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 358-7095
Or to such other address as each party may designate for itself by like
notice.
16. Amendments or Waiver. This Agreement may be changed, waived,
discharged or terminated only by a writing signed by the parties of the Escrow
Agent. No delay or omission by any party in exercising any right with respect
hereto shall operate as waiver. A waiver on any one occasion shall not be
construed as a bar to, or waiver of, any right or remedy on any future occasion.
17. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition, or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
18. Governing Law. This Agreement shall be construed and interpreted in
accordance with the internal laws of the State of Nevada without giving effect
to the conflict of laws principles thereof.
19. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties relating to the holding, investment, and disbursement of the
Escrow Funds and sets forth in their entirety the obligations and duties of the
Escrow Agent with respect to the Escrow Funds.
9
20. Binding Effect. All of the terms of this Agreement, as amended from
time to time, shall be binding upon, inure to the benefit of and be enforceable
by the respective heirs, successors and assigns of the Investor, the Company, or
the Escrow Agent.
21. Execution of Counterparts. This Agreement and any Joint Written
Direction may be executed in counter parts, which when so executed shall
constitute one and same agreement or direction.
22. Termination. Upon the first to occur of the termination of the Standby
Equity Distribution Agreement dated the date hereof or the disbursement of all
amounts in the Escrow Funds and Common Stock into court pursuant to Section 7
hereof, this Agreement shall terminate and Escrow Agent shall have no further
obligation or liability whatsoever with respect to this Agreement or the Escrow
Funds or Common Stock.
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IN WITNESS WHEREOF the parties have hereunto set their hands and seals the
day and year above set forth.
SIGNATURE LEISURE, INC.
By: /s/ Stephen W. Carnes
-----------------------------
Name: Stephen W. Carnes
Title: President
Katalyst Capital Group
By: /s/ Jason Tribeca
-----------------------------
Name: Jason Tribeca
Title: Portfolio Manager
MARCHENA AND GRAHAM, P.A.
By: /s/ Keith Graham, Esq.
-----------------------------
Name: Keith Graham, Esq.
Title: Partner
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