STANDBY EQUITY DISTRIBUTION AGREEMENTDistribution Agreement |
|
|
You are currently viewing: This Distribution Agreement involves
SMARTIRE SYSTEMS INC | CORNELL CAPITAL PARTNERS, LP. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here. |
|
|
|
Search Distribution Agreement by:
Exhibit 10.1
STANDBY EQUITY DISTRIBUTION AGREEMENT
-------------------------------------
THIS AGREEMENT dated as of the 23rd day of June, 2005 (the "Agreement")
between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"), and SMARTIRE SYSTEMS INC., a corporation organized and existing
under the laws of the Yukon Territory (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 One Hundred Sixty Million U.S. Dollars ($160,000,000) of the
Company's common stock, no par value (the "Common Stock");
WHEREAS, such investments will be made in reliance upon the provisions of:
(i) 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; and
(ii) Multilateral Instrument 45-103 adopted by the British Columbia
Securities Commission (the "BCSC"); and
WHEREAS, the Company has engaged Newbridge Securities, Inc. (the
"Placement Agent"), to act as the Company's exclusive placement agent in
connection with the sale of the Company's Common Stock to the Investor hereunder
pursuant to the Placement Agent Agreement dated the date hereof by and among the
Company, the Placement Agent and the Investor (the "Placement Agent Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Certain Definitions
Section 1.1. "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.2. "Advance Date" shall mean the date the David Gonzalez
Attorney Trust Account is in receipt of the funds from the Investor and David
Gonzalez, Esq., is in possession of free trading shares from the Company and
therefore an Advance by the Investor to the Company can be made and David
Gonzalez, Esq. can release the free trading shares to the Investor. The Advance
Date shall be the first (1st) Trading Day after expiration of the applicable
Pricing Period for each Advance.
Section 1.3. "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date.
<PAGE>
Section 1.4. "Advance Notice Date" shall mean each date the Company
delivers to the Investor an Advance Notice requiring the Investor to advance
funds to the Company, subject to the terms of this Agreement. No Advance Notice
Date shall be less than five (5) Trading Days after the prior Advance Notice
Date.
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
One Hundred Sixty Million U.S. Dollars ($160,000,000) 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 One Hundred
Sixty Million U.S. Dollars ($160,000,000), (y) the date this Agreement is
terminated pursuant to Section 2.4, or (z) the date occurring twenty four (24)
months after the Effective Date or sixty (60) months after the Effective Date
provided the Company files either an amendment to the then effective
registration statement or a new registration statement is declared effective
after the twenty fourth (24th) and forty eighty (48th) month after the date
hereof.
Section 1.9. "Common Stock" shall mean the Company's common stock, no par
value.
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 David Gonzalez, Esq., dated the date hereof.
Section 1.14. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
2
<PAGE>
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 closing Bid Price of
the Common Stock during the Pricing Period.
Section 1.17. "Maximum Advance Amount" shall be Three Million U.S. Dollars
(US$3,000,000) per Advance Notice.
Section 1.18. "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19. "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.20. "Placement Agent" shall mean Newbridge Securities Inc., a
registered broker-dealer.
Section 1.21. "Pricing Period" shall mean the five (5) consecutive Trading
Days after the Advance Notice Date.
Section 1.22. "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board
or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.23. "Purchase Price" shall be set at ninety eight percent (98%)
of the Market Price during the Pricing Period.
Section 1.24. "Registrable Securities" shall mean the shares of Common
Stock to be issued hereunder (i) in respect of which the Registration Statement
has not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") or (iii)
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
Section 1.25. "Registration Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.
Section 1.26. "Registration Statement" shall mean a registration statement
on Form S-1 or SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
3
<PAGE>
Section 1.27. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.28. "SEC" shall mean the Securities and Exchange Commission
Section 1.29. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.30. "SEC Documents" shall mean Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.31. "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
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. No fractional shares
shall be issued; fractional shares shall be rounded to the next higher whole
number of shares. The Company acknowledges that the Investor may sell shares of
the Company's Common Stock corresponding with a particular Advance Notice on the
day the Advance Notice is received by the Investor. There shall be a minimum of
five (5) Trading Days between each Advance Notice Date.
4
<PAGE>
(b) Date of Delivery of Advance Notice. An Advance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Advance Notice may be deemed delivered on a day
that is not a Trading Day.
Section 2.3. Closings. On each Advance Date, which shall be the first
(1st) Trading Day after expiration of the applicable Pricing Period for each
Advance, (i) the Company shall deliver to David Gonzalez, Esq. (the "Escrow
Agent") shares of the Company's Common Stock, representing the amount of the
Advance by the Investor pursuant to Section 2.1 herein, registered in the name
of the Investor which shall be delivered to the Investor, or otherwise in
accordance with the Escrow Agreement and (ii) the Investor shall deliver to
Escrow Agent the amount of the Advance specified in the Advance Notice by wire
transfer of immediately available funds which shall be delivered to the Company,
or otherwise in accordance with the Escrow Agreement. In addition, on or prior
to the Advance Date, each of the Company and the Investor shall deliver to the
other through the Investor's counsel, all documents, instruments and writings
required to be delivered by either of them pursuant to this Agreement in order
to implement and effect the transactions contemplated herein. Payment of funds
to the Company and delivery of the Company's Common Stock to the Investor shall
occur in accordance with the conditions set forth above and those contained in
the Escrow Agreement; provided, however, that to the extent the Company has not
paid the fees, expenses, and disbursements of the Investor in accordance with
Section 12.4, the amount of such fees, expenses, and disbursements may be
deducted by the Investor from the amount of the Advance with no reduction in the
amount of shares of the Company's Common Stock to be delivered on such Advance
Date.
Section 2.4. Termination of Investment. The obligation of the Investor to
make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of fifty
(50) Trading Days, other than due to the acts of the Investor, during the
Commitment Period, and (ii) the Company shall at any time fail materially to
comply with the requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written notice from the Investor, provided,
however, that this termination provision shall not apply to any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is
declared effective by the SEC.
Section 2.5. Agreement to Advance Funds. The Investor agrees to advance
the amount specified in the Advance Notice to the Company after the completion
of each of the following conditions and the other conditions set forth in this
Agreement:
(a) the execution and delivery by the Company, and the Investor, of
this Agreement and the Exhibits hereto;
5
<PAGE>
(b) the Escrow Agent shall have received the shares of Common Stock
applicable to the Advance in accordance with Section 2.3. Such shares shall be
free of restrictive legends.
(c) the Company's Registration Statement with respect to the resale
of the Registrable Securities in accordance with the terms of the Registration
Rights Agreement shall have been declared effective by the SEC;
(d) the Company shall have obtained all material permits and
qualifications required by any applicable U.S. state or Canadian province 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;
(e) the Company shall have filed with the Commission in a timely
manner all reports, notices and other documents required of a "reporting
company" under the Exchange Act and applicable Commission regulations;
(f) the fees as set forth in Section 12.4 below shall have been paid
or can be withheld as provided in Section 2.3; and
(g) the conditions set forth in Section 7.2 shall have been
satisfied.
Section 2.6. Lock Up Period.
(i) On the date hereof, the Company shall obtain from each
executive officer and director a lock-up agreement, as defined below, in the
form annexed hereto as Schedule 2.6 agreeing to only sell in compliance with the
volume limitation of Rule 144.
Section 2.7. Hardship. In the event the Investor sells shares of the
Company's Common Stock after receipt of an Advance Notice and the Company fails
to perform its obligations as mandated in Section 2.3, and specifically the
Company fails to deliver to the Escrow Agent on the Advance Date the shares of
Common Stock corresponding to the applicable Advance, the Company acknowledges
that the Investor shall suffer financial hardship and therefore shall be liable
for any and all losses, commissions, fees, or financial hardship caused to the
Investor.
ARTICLE III.
Representations and Warranties of Investor
Investor hereby represents and warrants to, and agrees with, the Company
that the following are true and as of the date hereof and as of each Advance
Date:
Section 3.1. Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
6
<PAGE>
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.
Section 3.2. Evaluation of Risks. The Investor has such knowledge and
experience in financial tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk. The Investor acknowledges that it shall pay any and all
withholding taxes assessed in connection with the transactions contemplated by
this Agreement.
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
and, in Multilateral Instrument 45 103 adopted by the BCSC.
Section 3.6. Reliance on Exemptions. The Investor understands that the
Common Stock is being offered and sold to it pursuant to this Agreement in
reliance on specific exemptions from registration requirements of United States
and federal, state, and provincial securities laws and that the Company is
relying in part upon the truth and accuracy of, and the Investor's compliance
with, the representations, warranties, acknowledgements and understandings of
the Investor set forth herein and in the questionnaires in order to determine
7
<PAGE>
the availability of such exemptions and the eligibility of the Investor to
acquire such securities. The Company has advised the Investor that the Company
is relying on an exemption from the requirements to provide the Investor with a
prospectus and that sales of the Common Stock in Canada must be made through a
person registered to sell securities under the Securities Act (British Columbia)
(the "B.C. Act").
Section 3.7. Information. The Investor and its advisors (and its counsel),
if any, have been furnished with all materials relating to the business,
finances and operations of the Company and information it deemed material to
making an informed investment decision. The Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in this Agreement. The Investor
understands that its investment involves a high degree of risk. The Investor is
in a position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Investor to
obtain information from the Company in order to evaluate the merits and risks of
this investment. The Investor has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to this transaction.
Section 3.8. Receipt of Documents. The Investor and its counsel have
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-KSB for the year ended July 31, 2004 and Form 10-QSB
for the periods ended January 31, 205 and October 31, 2004; and (iv) answers to
all questions the Investor submitted to the Company regarding an investment in
the Company; and the Investor has relied on the information contained therein
and has not been furnished any other documents, literature, memorandum or
prospectus.
Section 3.9. 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 3.10. 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 3.11. Not an Affiliate. The Investor is not an officer, director
or a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company or any
"Affiliate" of the Company (as that term is defined in Rule 405 of the
Securities Act).
Section 3.12. Trading Activities. The Investor's trading activities with
respect to the Company's Common Stock shall be in compliance with all applicable
federal and state securities laws, rules and regulations and the rules and
regulations of the Principal Market on which the Company's Common Stock is
listed or traded. Neither the Investor nor its affiliates has an open short
position in the Common Stock of the Company, the Investor agrees that it shall
8
<PAGE>
not, and that it will cause its affiliates not to, engage in any short sales of
or hedging transactions with respect to the Common Stock, provided that the
Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor is permitted to sell the shares to be issued to the Investor pursuant
to the Advance Notice during the applicable Pricing Period.
Section 3.13. British Columbia Resale Restrictions.
a. The Investor acknowledges that the Common Stock is subject to
resale restrictions in British Columbia and may not be traded in British
Columbia except as permitted by the B.C. Act and the rules made there under.
b. Pursuant to Multilateral Instrument 45-102, as adopted by the
BCSC a subsequent trade in Common Stock will be a distribution subject to the
Prospectus and registration requirements of applicable Canadian Securities
legislation (including the B.C. Act) unless certain conditions are met,
including the following:
i. at least four (4) months (the "Canadian Hold Period") shall
have elapsed from the date on which the Common Stock was issued to the Investor;
ii. during the currency of the Canadian Hold Period, any
certificate representing the Common Stock is imprinted with a legend (the
"Canadian Legend") stating:
"Unless permitted under securities legislation,
the holder of the securities shall not trade the
securities before [insert the date that is four
months and a day after the distribution date]."
iii. The trade is not a control distribution (as defined in
Multilateral Instrument 45-102);
iv. No unusual effort is made to prepare the market or to
create a demand for the Common Stock that is the subject of the trade;
v. No extraordinary commission or consideration is paid to a
person or company in respect of the trade; and
vi. If the selling security holder is an insider or officer of
the Company, the selling security holder has no reasonable grounds to believe
that the Company is in default of securities legislation; and
9
<PAGE>
c. By executing and delivering this Agreement, the Investor will
have directed the Company not to include the Canadian Legend on any certificates
representing the Common Stock to be issued to the Investor,
d. As a consequence, the Investor will not be able to rely on the
resale provisions of Multilateral Instrument 45-102, and any subsequent trade in
the Conversion Shares during or after the Canadian Hold Period will be
distribution subject to the prospectus and registration of Canadian securities
legislation, to the extent that the trade is subject to any such Canadian
securities legislation.
ARTICLE IV.
Representations and Warranties of the Company
Except as stated below, on the disclosure schedules attached hereto or in
the SEC Documents (as defined herein), the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
Section 4.1. Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so 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.
10
<PAGE>
Section 4.3. Capitalization. As of June 23, 2005, the authorized capital
stock of the Company consists of an unlimited number of shares of Common Stock,
no par value and one hundred thousand (100,000) shares of Preferred Stock of
which two hundred seventy four million five hundred