SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September ___,
2005, is by and among SVC Financial Services, Inc. (formerly known as Secure
Sign, Inc.), a Colorado corporation (the "Company"), and the subscribers
identified on the signature page hereto (each a "Subscriber" and collectively
"Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to One Million Five Hundred Thousand Dollars ($1,500,000) (the
"Purchase Price") of principal amount of promissory notes of the Company ("Note"
or "Notes"), a form of which is annexed hereto as Exhibit A, convertible into
shares of the Company's common stock, no par value (the "Common Stock") at a per
share conversion price set forth in the Note ("Conversion Price"); and share
purchase warrants (the "Warrants" or the "Class A Warrants" and "Class B
Warrants"), in the form annexed hereto as Exhibit B, to purchase shares of
Common Stock (the "Warrant Shares"). The Notes, shares of Common Stock issuable
upon conversion of the Notes (the "Shares"), the Warrants and the Warrant Shares
are collectively referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby shall be held pending the respective closing in escrow
pursuant to the terms of a Funds Escrow Agreement to be executed by the parties
substantially in the form attached hereto as Exhibit C (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Closings.
(a) Initial Closing. Subject to the satisfaction or waiver of the terms
and conditions of this Agreement, on the Initial Closing Date, each Subscriber
shall purchase and the Company shall sell to each Subscriber a Note in the
principal amount designated on the signature page hereto ("Initial Closing
Notes") and Warrants as described in Section 2 of this Agreement ("Initial
Closing Warrants"). The aggregate amount of the Notes to be purchased by the
Subscribers on the Initial Closing Date shall be equal to Seven Hundred and
Fifty Thousand Dollars ($750,000) of the Purchase Price (the "Initial Closing
Purchase Price"). The "Initial Closing Date" shall be the date that the Initial
Closing Purchase Price is transmitted by wire transfer or otherwise to or for
the benefit of the Company. The consummation of the transactions contemplated
herein for all closings shall take place at the offices of Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the
satisfaction of all conditions to Closing set forth in this Agreement. Each of
the Initial Closing Date and Second Closing Date (as defined in Section 1(b)
below) is referred to herein as a "Closing Date".
(b) Second Closing. The closing date in relation to the remaining Seven
Hundred and Fifty Thousand Dollars ($750,000) of the Purchase Price (the "Second
Closing Purchase Price") shall be the fifth (5th) Business Day after the Actual
Effective Date [as defined in Section 11.1(iv)] (the "Second Closing Date").
Subject to the satisfaction or waiver of the Company's conditions to closing on
the Second Closing Date, each Subscriber shall purchase and the Company shall
sell to each Subscriber
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a Note in the principal amount designated on the signature page hereto ("Second
Closing Notes") and Warrants as described in Section 2 of this Agreement
("Second Closing Warrants"). The aggregate Purchase Price of the Second Closing
Notes for all Subscribers shall be equal to the Second Closing Purchase Price.
The Second Closing Notes shall be substantially identical to the Notes issuable
on the Initial Closing Date and have the same maturity date as the Initial
Closing Notes. The Conversion Price (defined in Section 2.1 (b) of the Note) of
the Second Closing Notes shall be the same as the Conversion Price of the
Initial Closing Notes.
(c) Conditions to Second Closing. The occurrence of the Second Closing is
expressly contingent on (i) the truth and accuracy on the Second Closing Date of
the representations and warranties of the Company and Subscriber contained in
this Agreement, (ii) continued compliance with the covenants of the Company set
forth in this Agreement, (iii) the non-occurrence of any Event of Default (as
defined in the Note), (iv) the effectiveness of the Registration Statement [as
defined in Section 11.1(iv)], and (v) the accomplishment of the milestone
described on Schedule 1(c) hereto ("Second Closing Milestone").
(d) Second Closing Deliveries. On the Second Closing Date, the Company
will deliver the Second Closing Notes and Second Closing Warrants to the Escrow
Agent and each Subscriber will deliver his portion of the Second Closing
Purchase Price to the Escrow Agent. On the Second Closing Date, the Company will
deliver a certificate ("Second Closing Certificate") signed by its chief
executive officer or chief financial officer (i) representing the truth and
accuracy of all the representations and warranties made by the Company contained
in this Agreement, as of the Initial Closing Date and the Second Closing Date,
as if such representations and warranties were made and given on all such dates,
(ii) certifying that the information contained in the schedules and exhibits
hereto is substantially accurate as of the Second Closing Date, except for
changes that do not constitute a Material Adverse Event, (iii) adopting and
renewing the covenants and representations set forth in Sections 5, 7, 8, 9, 10,
11, and 12 of this Agreement in relation to the Second Closing Date, Second
Closing Notes and Second Closing Warrants, (iv) representing the timely
compliance by the Company with the Company's registration requirements set forth
in Section 11 of this Agreement, (v) certifying that an Event of Default has not
occurred, and (vi) certifying the accomplishment of the Second Closing
Milestone. A legal opinion nearly identical to the legal opinion referred to in
Section 6 of this Agreement shall be delivered to each Subscriber at the Second
Closing in relation to the Company, Second Closing Notes, and Second Closing
Warrants ("Second Closing Legal Opinion"). The Second Closing Legal Opinion must
state that the Registration Statement has been declared effective by the
Commission and remains effective as of the Second Closing Date.
2. Warrants.
(a) Class A Warrants. On each Closing Date, the Company will issue and
deliver Class A Warrants to the Subscribers. One Class A Warrant will be issued
to each Subscriber for each Share which would be issued to such Subscriber on
any such Closing Date assuming the complete conversion of the Notes issued on
such Closing Date at the Conversion Price in effect on such Closing Date
assuming such Closing Date were a Conversion Date. The per Warrant Share
exercise price to acquire a Warrant Share upon exercise of a Class A Warrant
shall be equal to 150% of the average of the volume weighted average of the
Common Stock as reported by Bloomberg L.P. for the Principal Market [as defined
in Section 9(b)] for the five trading days preceding the Initial Closing Date.
The Class A Warrants shall be exercisable until five (5) years after each
Closing Date.
(b) Class B Warrants. On each Closing Date, the Company will issue and
deliver Class B Warrants to the Subscribers. One Class B Warrant will be issued
to each Subscriber for each Share which would be issued to such Subscriber on
any such Closing Date assuming the complete conversion of the Notes issued on
such Closing Date at the Conversion Price in effect on such Closing Date
assuming such Closing Date were a Conversion Date. The per Warrant Share
exercise price to
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acquire a Warrant Share upon exercise of a Class B Warrant shall be equal to
150% of the average of the volume weighted average of the Common Stock as
reported by Bloomberg L.P. for the Principal Market for the five trading days
preceding the Initial Closing Date. The Class B Warrants shall be exercisable
until one (1) year after the Actual Effective Date as defined in Section
11.1(iv) hereof.
3. Security Interest. The Subscribers will be granted a security interest
in assets of the Company and Subsidiaries, as defined in Section 5(a) of this
Agreement, including ownership of the Subsidiaries, to be memorialized in a
"Security Agreement", a form of which is annexed hereto as Exhibit D. Each
Subsidiary presently existing or which may come into being will execute and
deliver to the Subscribers a form of "Guaranty" annexed hereto as Exhibit E. The
Company will execute such other agreements, documents and financing statements
reasonably requested by Subscribers, which will be filed at the Company's
expense with such jurisdictions, states and counties designated by the
Subscribers. The Company will also execute all such documents reasonably
necessary in the opinion of Subscriber to memorialize and further protect the
security interest described herein. The Subscribers will appoint a Collateral
Agent to represent them collectively in connection with the security interest to
be granted to the Subscribers. The appointment will be pursuant to a "Collateral
Agent Agreement", a form of which is annexed hereto as Exhibit F.
4. Subscriber's Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) Organization and Standing of the Subscribers. If the Subscriber is an
entity, such Subscriber is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Subscriber has the requisite power and
authority to enter into and perform this Agreement and to purchase the Notes and
Warrants being sold to it hereunder. The execution, delivery and performance of
this Agreement by such Subscriber and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of such
Subscriber or its Board of Directors, stockholders, partners, members, as the
case may be, is required. This Agreement has been duly authorized, executed and
delivered by such Subscriber and constitutes, or shall constitute when executed
and delivered, a valid and binding obligation of the Subscriber enforceable
against the Subscriber in accordance with the terms thereof.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by such Subscriber of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of such Subscriber's charter documents or bylaws or other
organizational documents 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 or obligation to which
such Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber). Such Subscriber 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 this Agreement or to purchase the Notes or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Subscriber is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Information on Company. The Subscriber has been furnished with or has
had access at the XXXXX Website of the Commission to the Company's Form 10-KSB
as amended, for
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the year ended September 30, 2004, and all periodic reports subsequently filed
with the Commission (hereinafter referred to as the "Reports"). In addition, the
Subscriber has received in writing from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested in writing (such other information is collectively, the
"Other Written Information"), and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities.
(e) Information on Subscriber. The Subscriber is on the Initial Closing
Date, and will be at the Second Closing Date and at the time of the conversion
of the Notes and exercise of the Warrants, an "accredited investor", as such
term is defined in Regulation D promulgated by the Commission under the 1933
Act, is experienced in investments and business matters, has made investments of
a speculative nature and has purchased securities of United States
publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities. The Subscriber is
able to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate.
(f) Purchase of Notes and Warrants. On each Closing Date, the Subscriber
will purchase the Notes and Warrants as principal for its own account for
investment only and not with a view toward, or for resale in connection with,
the public sale or any distribution thereof.
(g) Compliance with Securities Act. The Subscriber understands and agrees
that the Securities have not been registered under the 1933 Act or any
applicable state securities laws, by reason of their issuance in a transaction
that does not require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of Subscriber contained herein),
and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. The Subscriber will comply with
regulations relating to "short sale" transactions. Each Subscriber hereby
represents that neither it nor any of its affiliates have an open short position
in the Common Stock of the Company as of the date of this Agreement, and each
Subscriber agrees that until the Actual Effective Date it shall not, and that it
will cause its affiliates not to, engage in any short sales with respect to the
Common Stock.
(h) Shares Legend. The Shares and the Warrant Shares shall bear the
following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SVC FINANCIAL SERVICES, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(i) Warrants Legend. The Warrants shall bear the following or similar
legend:
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"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO SVC FINANCIAL SERVICES,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(j) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO SVC FINANCIAL
SERVICES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(k) Communication of Offer. The offer to sell the Securities was directly
communicated to the Subscriber by the Company. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.
(l) Authority; Enforceability. This Agreement and other agreements
delivered together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and Subscriber has full corporate power and
authority necessary to enter into this Agreement and such other agreements and
to perform its obligations hereunder and under all other agreements entered into
by the Subscriber relating hereto.
(m) Restricted Securities. Subscriber understands that the Securities have
not been registered under the 1933 Act and such Subscriber will not sell, offer
to sell, assign, pledge, hypothecate or otherwise transfer any of the Securities
unless pursuant to an effective registration statement under the 1933 Act.
Notwithstanding anything to the contrary contained in this Agreement, such
Subscriber may transfer (without restriction and without the need for an opinion
of counsel) the Securities to its Affiliates (as defined below) provided that
each such Affiliate is an "accredited investor" under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this Agreement. For
the purposes of this Agreement, an "Affiliate" of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity. Affiliate
includes each subsidiary of the Company. For purposes of this definition,
"control" means the power to direct the management and policies of such person
or firm, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
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(n) No Governmental Review. Each Subscriber understands that no United
States federal or state agency or any other governmental or state agency has
passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
(o) Correctness of Representations. Each Subscriber represents as to such
Subscriber that the foregoing representations and warranties are true and
correct as of the date hereof and, unless a Subscriber otherwise notifies the
Company prior to each Closing Date shall be true and correct as of each Closing
Date.
(p) Survival. The foregoing representations and warranties shall survive
the Second Closing Date until three years after the Second Closing Date.
5. Company Representations and Warranties. The Company represents and
warrants to and agrees with each Subscriber that except as set forth in the
Reports and as otherwise qualified in the Transaction Documents:
(a) Due Incorporation. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power to own its properties and to
carry on its business is disclosed in the Reports. The Company is duly qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by it
makes such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect. For purpose of
this Agreement, a "Material Adverse Effect" shall mean a material adverse effect
on the financial condition, results of operations, properties or business of the
Company taken as a whole. For purposes of this Agreement, "Subsidiary" means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (i) the outstanding
capital stock having (in the absence of contingencies) ordinary voting power to
elect a majority of the board of directors or other managing body of such
entity, (ii) in the case of a partnership or limited liability company, the
interest in the capital or profits of such partnership or limited liability
company or (iii) in the case of a trust, estate, association, joint venture or
other entity, the beneficial interest in such trust, estate, association or
other entity business is, at the time of determination, owned or controlled
directly or indirectly through one or more intermediaries, by such entity. All
the Company's Subsidiaries as of the Initial Closing Date are set forth on
Schedule 5(a) hereto.
(b) Outstanding Stock. All issued and outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and nonassessable.
(c) Authority; Enforceability. This Agreement, the Notes, the Warrants,
the Escrow Agreement, Security Agreement, Guaranty, and Collateral Agent
Agreement, and any other agreements delivered together with this Agreement or in
connection herewith (collectively "Transaction Documents") have been duly
authorized, executed and delivered by the Company and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity. The Company has full corporate power and
authority necessary to enter into and deliver the Transaction Documents and to
perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
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Company or other equity interest in any of the Subsidiaries of the Company
except as described on Schedule 5(d). The Common stock of the Company on a fully
diluted basis outstanding as of the last trading day preceding the Initial
Closing Date is set forth on Schedule 5(d).
(e) Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its Affiliates, any Principal Market (as defined in Section 9(b) of
this Agreement), nor the Company's shareholders is required for the execution by
the Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities.
(f) No Violation or Conflict. Assuming the representations and warranties
of the Subscribers in Section 4 are true and correct, neither the issuance and
sale of the Securities nor the performance of the Company's obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or constitute a default
(or an event which with the giving of notice or the lapse of time or both would
be reasonably likely to constitute a default in any material respect) of a
material nature under (A) the articles or certificate of incorporation, charter
or bylaws of the Company, (B) to the Company's knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company
of any court, governmental agency or body, or arbitrator having jurisdiction
over the Company or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its Affiliates is a party, by which the Company or any of its Affiliates is
bound, or to which any of the properties of the Company or any of its Affiliates
is subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company, or any of its Affiliates
is a party except the violation, conflict, breach, or default of which would not
have a Material Adverse Effect; or
(ii) result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company or any of
its Affiliates, except as contemplated in the Agreement; or
(iii) result in the activation of any anti-dilution rights or a reset or
repricing of any debt or security instrument of any other creditor or equity
holder of the Company, nor result in the acceleration of the due date of any
obligation of the Company; or
(iv) result in the activation of any piggy-back registration rights of any
person or entity holding securities or debt of the Company or having the right
to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security interests, liens,
claims or other encumbrances, subject to restrictions upon transfer under the
1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and on the date of
issuance of the Shares and upon exercise of the Warrants, the Shares and Warrant
Shares will be duly and validly issued, fully paid and nonassessable or if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted);
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(iii) will not have been issued or sold in violation of any preemptive or
other similar rights of the holders of any securities of the Company;
(iv) will not subject the holders thereof to personal liability by reason
of being such holders provided Subscriber's representations herein are true and
accurate and Subscribers take no actions or fail to take any actions required
for their purchase of the Securities to be in compliance with all applicable
laws and regulations; and
(v) will not result in a violation of Section 5 under the 1933 Act.
(h) Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under the Transaction Documents.
Except as disclosed in the Reports, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect.
(i) Reporting Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934 (the "1934 Act") and has a class of common shares registered pursuant to
Section 12(g) of the 1934 Act. Pursuant to the provisions of the 1934 Act, the
Company has timely filed (subject to the use of Rule 12(b)-25) all reports and
other materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) No Market Manipulation. The Company and its Affiliates have not taken,
and will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or resold, provided,
however, that this provision shall not prevent the Company from engaging in
investor relations/public relations activities consistent with past practices.
(k) Information Concerning Company. The Reports contain all material
information relating to the Company and its operations and financial condition
as of their respective dates and all the information required to be disclosed
therein. Since the date of the most recent audited financial statements included
in the Reports ("Latest Financial Date"), and except as modified in the Other
Written Information or in the Schedules hereto, there has been no Material
Adverse Event relating to the Company's business, financial condition or affairs
not disclosed in the Reports. The Reports do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances when made.
(l) Stop Transfer. The Company will not issue any stop transfer order or
other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws and
unless contemporaneous notice of such instruction is given to the Subscriber.
(m) Defaults. The Company is not in violation of its articles of
incorporation or bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
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restraint of trade, unfair competition or similar matters, or (iii) to the
Company's knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect.
(n) Not an Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the OTC Bulletin Board ("Bulletin Board") any Principal Market which would
impair the exemptions relied upon in this Offering as defined in Section 6 or
the Company's ability to timely comply with its obligations hereunder. Nor will
the Company or any of its Affiliates take any action or steps that would cause
the offer or issuance of the Securities to be integrated with other offerings
which would impair the exemptions referred to in Section 6 hereof, relied upon
in this Offering or the Company's ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities, which would impair the exemptions referred to in Section 6 hereof,
relied upon in this Offering or the Company's ability to timely comply with its
obligations hereunder.
(o) No General Solicitation. Neither the Company, nor any of its
Affiliates, nor to its knowledge, 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 0000 Xxx) in connection with the offer or sale
of the Securities.
(p) Listing. The Company's common stock is quoted on the Bulletin Board.
The Company has not received any oral or written notice that its common stock is
not eligible nor will become ineligible for quotation on the Bulletin Board nor
that its common stock does not meet all requirements for the continuation of
such quotation. The Company satisfies all the requirements for the continued
quotation of its common stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are not
disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since the Latest
Financial Date and which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, except as disclosed on Schedule
5(q).
(r) No Undisclosed Events or Circumstances. Since the Latest Financial
Date, to the Company's knowledge, no event or circumstance has occurred or
exists with respect to the Company or its businesses, properties, operations or
financial condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the Reports. (s)
Capitalization. The authorized and outstanding capital stock of the Company as
of the date of this Agreement and the Closing Date (not including the
Securities) are set forth on Schedule 5(d). Except as set forth on Schedule
5(d), there are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or giving any right
to subscribe for any shares of capital stock of the Company or any of its
Subsidiaries. All of the outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) Dilution. The Company's executive officers and directors understand
the nature of the Securities being sold hereby and recognize that the issuance
of the Securities will have a potential dilutive effect on the equity holdings
of other holders of the Company's equity or rights to receive
9
equity of the Company. The board of directors of the Company has concluded, in
its good faith business judgment that the issuance of the Securities is in the
best interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Notes, and the Warrant
Shares upon exercise of the Warrants is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company or parties entitled to receive equity of the
Company.
(u) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers. Schedule 5(q)
contains a description of any sums due or payable, contested or otherwise, to
the Company's current and former accountants and lawyers.
(v) DTC Status. The Company's transfer agent is eligible to participate in
and the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email of the Company's transfer agent is:
Corporate Stock Transfer, 0000 Xxxxxx Xxxxx Xxxxx X., Xxxxx 000, Xxxxxx, XX
00000, phone: 000-000-0000, fax: 000-000-0000.
(w) Investment Company. Neither the Company nor any Affiliate is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(x) Subsidiary Representations. The Company makes each of the
representations contained in Sections 5(a), (b), (d), (e), (f), (h), (k), (m),
(q), (r), (u) and (w) of this Agreement, as same relate to each Subsidiary of
the Company.
(y) Company Predecessor. All representations made by or relating to the
Company of a historical or prospective nature and all undertaking described in
Sections 9(g) through 9(l) shall relate and refer to the Company, its
predecessors, and the Subsidiaries.
(z) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to each Closing Date, shall be true and correct in all
material respects as of each Closing Date.
(AA) Survival. The foregoing representations and warranties shall survive
the Second Closing Date until three years after the Second Closing Date.
6. Regulation D Offering. The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On each Closing
Date, the Company will provide an opinion reasonably acceptable to Subscriber
from the Company's legal counsel opining on the availability of an exemption
from registration under the 1933 Act as it relates to the offer and issuance of
the Securities and other matters reasonably requested by Subscribers. A form of
the legal opinion is annexed hereto as Exhibit G. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants pursuant to an effective
registration statement.
7.1. Conversion of Note.
10
(a) Upon the conversion of a Note or part thereof, the Company shall, at
its own cost and expense, take all necessary action, including obtaining and
delivering, an opinion of counsel to assure that the Company's transfer agent
shall issue stock certificates in the name of Subscriber (or its permitted
nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that the certificates
representing such shares shall contain no legend other than the usual 1933 Act
restriction from transfer legend. If and when the Subscriber sells the shares,
assuming (i) the Registration Statement (as defined below) is effective and the
prospectus, as supplemented or amended, contained therein is current and (ii)
the Subscriber confirms in writing to the transfer agent that the Subscriber has
complied with the prospectus delivery requirements, the restrictive legend can
be removed and the Shares will be free-trading, and freely transferable. In the
event that the Shares are sold in a manner that complies with an exemption from
registration, the Company will promptly instruct its counsel, at Company's
expense, to issue to the transfer agent an opinion permitting removal of the
legend (indefinitely, if pursuant to Rule 144(k) of the 1933 Act, or for 90 days
if pursuant to the other provisions of Rule 144 of the 1933 Act).
(b) Subscriber will give notice of its decision to exercise its right to
convert the Note, interest, any sum due to the Subscriber under the Transaction
Documents including Liquidated Damages, or part thereof by telecopying an
executed and completed Notice of Conversion (a form of which is annexed as
Exhibit A to the Note) to the Company via confirmed telecopier transmission or
otherwise pursuant to Section 14(a) of this Agreement. The Subscriber will not
be required to surrender the Note until the Note has been fully converted or
satisfied. Each date on which a Notice of Conversion is telecopied to the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Company will itself or cause the Company's transfer agent to transmit
the Company's Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt by such
Subscriber within three (3) business days after receipt by the Company of the
Notice of Conversion (such third day being the "Delivery Date"). In the event
the Shares are electronically transferable, then delivery of the Shares must be
made by electronic transfer provided request for such electronic transfer has
been made by the Subscriber and the Subscriber has complied with all applicable
securities laws in connection with the sale of the Common Stock, including,
without limitation, the prospectus delivery requirements. A Note representing
the balance of the Note not so converted will be provided by the Company to the
Subscriber if requested by Subscriber, provided the Subscriber delivers the
original Note to the Company. In the event that a Subscriber elects not to
surrender a Note for reissuance upon partial payment or conversion, the
Subscriber hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note. "Business day" and "trading day" as employed in the
Transaction Documents is a day that the New York Stock Exchange is open for
trading for three or more hours.
(c) The Company understands that a delay in the delivery of the Shares in
the form required pursuant to Section 7.1 hereof, or the Mandatory Redemption
Amount described in Section 7.2 hereof, respectively after the Delivery Date or
the Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty) to
the Subscriber for late issuance of Shares in the form required pursuant to
Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
business day after the Delivery Date for each $10,000 of Note principal amount
being converted of the corresponding Shares which are not timely delivered. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Subscriber, in the event that the Company fails
for any reason to effect delivery of the Shares by the Delivery Date or make
payment by the Mandatory Redemption Payment Date, the Subscriber may revoke all
or part of the relevant Notice of Conversion or rescind all or part of the
notice of Mandatory Redemption by delivery of a notice to such effect to the
Company whereupon the Company and the Subscriber shall each be restored to their
11
respective positions immediately prior to the delivery of such notice, except
that the liquidated damages described above shall be payable through the date
notice of revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.
(e) Mandatory Conversion at Company's Election. The Company may require
that the Holders of the Notes convert some or all of the remaining principal and
unpaid interest on their Notes in accordance with the terms and conditions set
forth in the Note.
7.2. Mandatory Redemption at Subscriber's Election. In the event (i) the
Company fails to timely deliver Shares on a Delivery Date, (ii) the occurrence
of any Event of Default (as defined in the Note or in this Agreement) that
continues for more than twenty (20) business days, or (iii) of the liquidation,
dissolution or winding up of the Company (the foregoing referred to as
"Mandatory Redemption Events"), then at the Subscriber's election, the Company
must pay to the Subscriber ten (10) business days after receipt of a written
request by the Subscriber, at the Subscriber's election, a sum of money
determined by multiplying up to the outstanding principal amount of the Note
designated by the Subscriber by 120%, together with accrued but unpaid interest
thereon ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must
be received by the Subscriber within fifteen (15) business days after request
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding. Liquidated damages calculated pursuant to Section 11.7(d)
hereof, that have been paid or accrued for the twenty day period prior to the
actual receipt of the Mandatory Redemption Payment by the Subscriber shall be
credited against the Mandatory Redemption Payment. For purposes of this Section
7.2, "Change in Control" shall mean (i) the Company no longer having a class of
shares publicly traded or listed on a Principal Market, (ii) the Company
becoming a Subsidiary of another entity (other than a corporation formed by the
Company for purposes of reincorporation in another U.S. jurisdiction), (iii) a
majority of the board of directors of the Company as of the Closing Date no
longer serving as directors of the Company except due to natural causes, and
(iv) the sale, lease or transfer of substantially all the assets of the Company
or Subsidiaries.
7.3. Maximum Conversion. The Subscriber shall not be entitled to convert
on a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of common stock beneficially owned by the Subscriber and its Affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
provision is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its Affiliates of more than 4.99% of the
outstanding shares of common stock of the Company on such Conversion Date.
Beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99% and aggregate conversions by the Subscriber may exceed
4.99%. The Subscriber may waive the conversion limitation described in this
Section 7.3, in whole or in part, upon and effective after 61 days prior written
notice to the Company. The Subscriber may decide whether to convert a Note or
exercise Warrants to achieve an actual 4.99% ownership position.
7.4. Injunction Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof or exercise the Warrant in whole or in part, the
Company may not refuse conversion or
12
exercise based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of such Note or exercise of all or part
of such Warrant shall have been sought and obtained by the Company and the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the outstanding principal and interest of the Note, or
aggregate purchase price of the Warrant Shares which are sought to be subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment. Notwithstanding
the foregoing, if the Company receives an order restraining it from converting
from a court or administration agency of competent jurisdiction, it shall comply
without a bond requirement.
7.5. Buy-In. In addition to any other rights available to the Subscriber,
if the Company fails to deliver to the Subscriber such shares issuable upon
conversion of a Note by the Delivery Date and if after seven (7) business days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber was entitled to receive
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
7.6. Adjustments. The Conversion Price, Warrant exercise price and amount
of Shares issuable upon conversion of the Notes and exercise of the Warrants
shall be adjusted as described in this Agreement, the Notes and Warrants.
7.7. Redemption. The Note and Warrants shall not be redeemable or
mandatorily convertible except as described in the Note and Warrants.
8. Broker/Legal Fees.
(a) Broker's Commission. The Company on the one hand, and each Subscriber
(for himself only) on the other hand, agree to indemnify the other against and
hold the other harmless from any and all liabilities to any persons claiming
brokerage commissions or Broker's other than the Xxxxxx Xxxxxxx & Co., Inc.
("Broker") 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 and arising out of such party's actions. Anything in this
Agreement to the contrary notwithstanding, each Subscriber is providing
indemnification only for such Subscriber's own actions and not for any action of
any other Subscriber. Each Subscriber's liability hereunder is several and not
joint. The Company agrees that it will pay the Broker a cash fee of $20,000
directly out of the funds held pursuant to the Escrow Agreement ("Broker's
Fees"). The Company will pay the attorney designated by the Broker in writing
the sum of $5,000 as payment of legal fees on behalf of the Broker. The Company
represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the offering described in
this Agreement except the Broker.
(b) Broker's Warrants. On the Initial Closing Date, the Company will issue
to the Broker, Warrants similar to and carrying the same rights as the Class A
Warrants issuable to the
13
Subscribers ("Broker's Warrants"). The Broker will receive 2,000,000 Broker's
Warrants. The exercise price of the Broker's Warrants will be equal to the
Conversion Price in effect on the Initial Closing Date. All the representations,
covenants, warranties, undertakings, remedies, liquidated damages,
indemnification, and other rights including but not limited to reservation and
registration rights made or granted to or for the benefit of the Subscribers are
hereby also made by the Company and granted to the holders of the Broker's
Warrants.
(c) Legal Fees. The Company shall pay to Grushko & Xxxxxxx, P.C., a
one-time cash fee of $25,000 ("Legal Fees") (of which $2,500 has been paid) as
reimbursement for services rendered to the Subscribers in connection with this
Agreement and the purchase and sale of the Notes and Warrants (the "Offering").
The Legal Fees and reimbursement for estimated UCC searches and filing fees
(less any amounts paid prior to a Closing Date) will be payable on the Initial
Closing Date out of funds held pursuant to the Escrow Agreement.
9. Covenants of the Company and the Subscribers. The Company covenants and
agrees with the Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers within four hours
after the Company receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the listing of the shares
of Common Stock and the Warrant Shares upon each national securities exchange,
or electronic or automated quotation system upon which they are or become
eligible for listing and shall maintain such listing so long as any Notes or
Warrants are outstanding. The Company will maintain the listing of its Common
Stock on the American Stock Exchange, Nasdaq SmallCap Market, Nasdaq National
Market System, Bulletin Board, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock (the "Principal Market")), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market, as applicable. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market. As of the date
of this Agreement, the Bulletin Board is the Principal Market.
(c) Market Regulations. The Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Subscribers and promptly provide copies thereof to Subscriber.
(d) Filing Requirements. From the date of this Agreement and until the
sooner of (i) two (2) years after the last Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will (A) cause its Common Stock to continue
to be registered under Section 12(b) or 12(g) of the 1934 Act, (B) comply in all
respects with its reporting and filing obligations under the 1934 Act, (C)
comply with all reporting requirements that are applicable to an issuer with a
class of shares registered pursuant to Section 12(b) or 12(g) of the 1934 Act,
as applicable, and (D) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will use its best
efforts not to take any action or file any document (whether or not permitted by
the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the last Closing Date.
Until the earlier of the resale of the Common Stock and the Warrant Shares by
14
each Subscriber or two (2) years after the Warrants have been exercised, the
Company will use its reasonable best efforts to continue the listing or
quotation of the Common Stock on a Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market. The Company agrees to timely file a
Form D with respect to the Securities under Regulation D and to make all filings
required under applicable state law. Copies of the Form D and state filings will
be delivered to Subscriber, Broker and Broker's attorneys prior to filing and
filed copies will be delivered to Subscriber, Broker and Broker's attorneys.
(e) Use of Proceeds. The proceeds of the Offering will be employed by the
Company the purposes generally set forth on Schedule 9(e) hereto. For so long as
any Notes are outstanding, except as set forth on Schedule 9(e), the Purchase
Price may not and will not be used for accrued and unpaid officer and director
salaries, payment of financing related debt, redemption of outstanding notes or
equity instruments of the Company, litigation related expenses or settlements,
brokerage fees, nor non-trade obligations outstanding on a Closing Date.
(f) Reservation. Prior to each Closing Date, the Company undertakes, to
reserve, pro rata, on behalf of the Subscribers from its authorized but unissued
common stock, a number of common shares equal to 175% of the common shares
issuable upon conversion of the Notes and one share of Common Stock for each
Warrant Share issuable upon exercise of the Warrants. Failure to have sufficient
shares reserved pursuant to this Section 9(f) and to allow conversion of all
outstanding Note amounts of principal and interest and exercise of all
outstanding Warrants for five (5) consecutive business days or fifteen (15) days
in the aggregate shall be a material default of the Company's obligations under
this Agreement and an Event of Default under the Note.
(g) Taxes. From the date of this Agreement and until the Conversion or
satisfaction of the Note in its entirety the Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.
(h) Insurance. From the date of this Agreement and until the Conversion or
satisfaction of the Note in its entirety the Company will keep its assets which
are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company's line of business, in amounts
sufficient to prevent the Company from becoming a co-insurer and not in any
event less than one hundred percent (100%) of the insurable value of the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated and to the extent available on
commercially reasonable terms.
(i) Books and Records. From the date of this Agreement and until the
Conversion or satisfaction of the Note in its entirety the Company will keep
true records and books of account in which full, true and correct entries will
be made of all dealings or transactions in relation to its business and affairs
in accordance with generally accepted accounting principles applied on a
consistent basis.
(j) Governmental Authorities. From the date of this Agreement and until
the Conversion or satisfaction of the Note, in its entirety, the Company shall
duly observe and conform in
15
all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets.
(k) Intellectual Property. From the date of this Agreement and until the
Conversion or satisfaction of the Note, in its entirety, the Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business, unless it is sold for value.
(l) Properties. From the date of this Agreement and until the Conversion
or satisfaction of the Note in its entirety the Company will keep its properties
in good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.
(m) Confidentiality/Public Announcement. From the date of this Agreement
and until the sooner of (i) two (2) years after the last Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company agrees that, except in
connection with a Form 8-K or the Registration Statement or as otherwise
required in any other Commission filing, it will not disclose publicly or
privately the identity of the Subscribers unless expressly agreed to in writing
by a Subscriber, only to the extent required by law and then only upon five days
prior notice to Subscriber. In any event and subject to the foregoing, the
Company shall file a Form 8-K or make a public announcement describing the
Offering not later than the first business day after each Closing Date. In the
Form 8-K or public announcement, the Company will specifically disclose the
amount of common stock outstanding immediately after the Closing. A form of the
proposed Form 8-K or public announcement to be employed in connection with the
Closing is annexed hereto as Exhibit H. No Form 8-K shall be filed if or to the
extent that such filing would jeopardize the exemption from registration relied
upon for the transactions contemplated herein.
(n) Further Registration Statements. Except for a registration statement
filed on behalf of the Subscribers pursuant to Section 11 of this Agreement, and
as set forth on Schedule 11.1 hereto, the Company will not file any registration
statements or amend any already filed registration statement to increase the
amount of Common Stock registered therein, including but not limited to Forms
S-8, with the Commission or with state regulatory authorities without the
consent of the Subscribers until the sooner of (i) the Registration Statement
shall have been current and available for use in connection with the resale of
the Registrable Securities (as defined in Section 11.1(i) for a period of 180
days, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by the Subscribers pursuant to the Registration Statement or are
available for resale or transfer under Rule 144, without regard to volume
limitations ("Exclusion Period"). The Exclusion Period will be tolled during the
pendency of an Event of Default as defined in the Note. As used in the
Agreement, "consent of the Subscribers" or similar verbiage means the consent of
holders of not less than 80% of the total of the following: Shares, and Shares
issuable upon conversion of outstanding Notes.
(o) Blackout. The Company undertakes and covenants that until the end of
the Exclusion Period, the Company will not enter into any acquisition, merger,
exchange or sale or other transaction that could have the effect of delaying the
effectiveness of any pending registration statement or causing an already
effective registration statement to no longer be effective or current for a
period ten (10) or more consecutive days nor more than fifteen (15) days during
any consecutive three hundred and sixty-five (365) day period.
16
(p) Non-Public Information. The Company covenants and agrees that neither
it nor any other person acting on its behalf will provide any Subscriber or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Subscriber shall have
agreed in writing to receive such information. The Company understands and
confirms that each Subscriber shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
(q) Limited Standstill. The Company will deliver to the Subscribers on or
before the Initial Closing Date and enforce the provisions of irrevocable
standstill agreements ("Limited Standstill Agreements") in the form annexed
hereto as Exhibit I, with the parties identified on Schedule 9(q) hereto.
10. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and defend
the Subscribers, the Subscribers' officers, directors, agents, Affiliates,
control persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
Company or material breach of any warranty by Company in this Agreement or in
any Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any material
breach or default in performance by the Company of any covenant or undertaking
to be performed by the Company hereunder, or any other agreement entered into by
the Company and Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company's officers, directors, agents,
Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any material breach or default in performance by such Subscriber
of any covenant or undertaking to be performed by such Subscriber hereunder, or
any other agreement entered into by the Company and Subscribers, relating
hereto.
(c) In no event shall the liability of any Subscriber or permitted
successor hereunder or under any Transaction Document or other agreement
delivered in connection herewith be greater in amount than the dollar amount of
the net proceeds actually received by such Subscriber upon the sale of
Registrable Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply to the
indemnification set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing one hundred and twenty-one
(121) days after the Initial Closing Date, but not later than two (2) years
after the Second Closing Date, upon a written request therefor from the holders
of more than 50% of the Shares issued and issuable upon conversion of the
outstanding Notes and outstanding Warrant Shares, the Company shall prepare and
file with the Commission a registration statement under the 1933 Act registering
the Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall not
include Securities which are (A) registered for resale in an effective
registration statement, (B) included for
17
registration in a pending registration statement, or (C) which have been issued
without further transfer restrictions after a sale or transfer pursuant to Rule
144 under the 1933 Act. Upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within ten (10) days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have exercised
their demand registration right under this Section 11.1(i).
(ii) If the Company at any time proposes to register any of its securities
under the 1933 Act for sale to the public, whether for its own account or for
the account of other security holders or both, except with respect to
registration statements on Forms X-0, X-0 or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the
Subscribers or Holder pursuant to an effective registration statement, each such
time it will give at least fifteen (15) days' prior written notice to the record
holder of the Registrable Securities of its intention so to do. Upon the written
request of the holder, received by the Company within ten (10) days after the
giving of any such notice by the Company, to register any of the Registrable
Securities not previously registered, the Company will cause such Registrable
Securities as to which registration shall have been so requested to be included
with the securities to be covered by the registration statement proposed to be
filed by the Company, all to the extent required to permit the sale or other
disposition of the Registrable Securities so registered by the holder of such
Registrable Securities (the "Seller" or "Sellers"). In the event that any
registration pursuant to this Section 11.1(ii) shall be, in whole or in part, an
underwritten public offering of common stock of the Company, the number of
shares of Registrable Securities to be included in such an underwriting may be
reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.
(iii) If, at the time any written request for registration is received by
the Company pursuant to Section 11.1(i), the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
1933 Act in connection with the proposed offer and sale for cash of any of its
securities for the Company's own account and the Company actually does file such
other registration statement, such written request shall be deemed to have been
given pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights
of the holders of Registrable Securities covered by such written request shall
be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission a Form SB-2 registration
statement or amend an already filed SB-2 registration statement (the
"Registration Statement") and, with regard to the Registrable Securities, less
the Second Closing Registrable Securities, both as defined below, the
"Registration Statement") (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the 1933 Act within thirty (30) calendar days after the Initial Closing Date
(the "Filing Date"), and cause such Registration Statement to be declared
effective not later than ninety (90) calendar days after the Initial Closing
Date (the "Effective Date"). The Company will register for resale after
conversion of the Notes and exercise of the Warrants and Broker's Warrants not
less than a number of shares of common stock in the aforedescribed registration
statement that is equal, in the aggregate, to 175% of the shares of Common Stock
issuable upon conversion of the Notes and 100% of the Warrant Shares issuable
upon exercise of the Warrants and Broker's Warrants (collectively the
"Registrable Securities"). The Registrable Securities shall be reserved and set
aside exclusively for the benefit of each Subscriber and Warrant holder, pro
rata, and not issued, employed or reserved for anyone other than each such
Subscriber and Warrant holder. The Registration Statement will immediately be
amended or additional registration statements will be immediately filed by the
Company as
18
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Except with the written consent of the Subscribers, or as described
on Schedule 11.1 hereto, no securities of the Company other than the Registrable
Securities will be included in the Registration Statement. It shall be deemed a
Non-Registration Event if at any time after the date the Registration Statement
is declared effective by the Commission ("Actual Effective Date") the Company
has registered for unrestricted resale on behalf of the Sellers fewer than 125%
of the amount of Common Shares issuable upon full conversion of all sums due
under the Notes and 100% of the Warrant Shares issuable upon exercise of the
Warrants.
11.2. Registration Procedures. If and whenever the Company is required by
the provisions of Section 11.1(i), 11.1(ii), or 11.1(iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:
(a) subject to the timelines provided in this Agreement, prepare and file
with the Commission a registration statement required by Section 11, with
respect to such securities and use its commercially reasonable best efforts to
cause such registration statement to become and remain effective for the period
of the distribution contemplated thereby (determined as herein provided);
promptly provide to the holders of the Registrable Securities copies of all
filings and Commission letters of comment; notify Subscribers (by telecopier
and/or by e-mail addresses provided by Subscribers) and Grushko & Xxxxxxx, P.C.
(by telecopier and/or by email to Xxxxxxxxx@xxx.xxx) on or before 6:00 PM EST on
the first business day after the day that the Company receives notice that the
Commission has no comments or no further comments on the Registration Statement;
and notify the Subscribers and their counsel in the same manner not later than
the first Business Day after the Business Day a Registration Statement has been
declared effective (or sooner than the first Business Day upon disclosure of
this information to any person who is not an officer or director or legal
counsel of the Company. Failure to timely provide notice as required by this
Section 11.2(a) shall be a material breach of the Company's obligation and an
Event of Default as defined in the Notes and a Non-Registration Event as defined
in Section 11.4 of this Agreement;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until such
registration statement has been effective for a period of two (2) years, and
comply with the provisions of the 1933 Act with respect to the disposition of
all of the Registrable Securities covered by such registration statement in
accordance with the Sellers' intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Sellers, at the Company's expense, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement or make them electronically available;
(d) use its commercially reasonable best efforts to register or qualify
the Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of New York and such jurisdictions as the Sellers
shall request in writing, provided, however, that the Company shall not for any
such purpose be required to: (i) qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction or (ii) qualify
in any jurisdiction which would require the Company to meet any merit review
criteria;
(e) if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) notify the Subscribers within four hours of the Company's becoming
aware that a prospectus relating thereto is required to be delivered under the
1933 Act, of the happening of
19
any event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing or which becomes subject to a
Commission, state or other governmental order suspending the effectiveness of
the registration statement covering any of the Shares; and
(g) provided same would not be in violation of the provision of Regulation
FD under the 1934 Act, make available for inspection by the Sellers, and any
attorney, accountant or other agent retained by the Seller or underwriter, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, attorney,
accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each registration
described in this Section 11, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company and the Subscribers agree that
the Sellers will suffer damages if the Registration Statement is not filed by
the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 11.1(i) or 11.1(ii)
is not filed within 60 days after Company receipt of written request and
declared effective by the Commission within 120 days after Company receipt of
such request, and maintained in the manner and within the time periods
contemplated by Section 11 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (A) the Registration
Statement is not filed on or before the Filing Date, (B) is not declared
effective on or before the Effective Date, (C) due to the action or inaction of
the Company the Registration Statement is not declared effective within three
(3) business days after receipt by the Company or its attorneys of a written or
oral communication from the Commission that the Registration Statement will not
be reviewed or that the Commission has no further comments, (D) if the
registration statement described in Sections 11.1(i) or 11.1(ii) is not filed
within 60 days after such written request, or is not declared effective within
120 days after such written request, or (E) any registration statement described
in Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and declared effective but
shall thereafter cease to be effective without being succeeded within fifteen
(15) business days by an effective replacement or amended registration statement
or for a period of time which shall exceed 30 business days in the aggregate per
year (defined as a period of 365 days commencing on the Actual Effective Date
(each such event referred to in clauses A through E of this Section 11.4 is
referred to herein as a "Non-Registration Event"), then the Company shall
deliver to the holder of Registrable Securities, as Liquidated Damages, an
amount calculated on a daily basis at a rate equivalent to one percent (1%) for
the first thirty (30) days or part thereof, and two percent (2%) for each thirty
(30) days or part thereof, thereafter, of the Purchase Price of the Notes
remaining unconverted and purchase price of Shares issued upon conversion of the
Notes and exercise of Warrants owned of record by such holder which are subject
to such Non-Registration Event. The Company must pay the Liquidated Damages in
cash. The Liquidated Damages must be paid within ten (10) days after the end of
each thirty (30) day period or shorter part thereof for which Liquidated Damages
are payable. In the event a Registration Statement is filed by the Filing Date
but is withdrawn prior to being declared effective by the Commission, then such
Registration Statement will be deemed to have not been filed. All oral or
written comments received from the Commission relating to the Registration
Statement must be satisfactorily responded to within fifteen (15) business days
for non-accounting comments and within twenty-two (22) business days for
accounting comments after receipt of comments from the Commission. Failure to
timely respond to Commission comments is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders of
Registrable Securities at the same rate set forth above. Notwithstanding
anything else in this Section 11.4, the Company shall not be liable to the
Subscriber under this Section
20
11.4 for any events or delays occurring as a consequence of the acts or
omissions of the Subscribers contrary to the obligations undertaken by
Subscribers in this Agreement. Liquidated Damages will not accrue nor be payable
pursuant to this Section 11.4 nor will a Non-Registration Event be deemed to
have occurred for times during which Registrable Securities are transferable by
the holder of Registrable Securities pursuant to Rule 144(k) under the 1933 Act.
11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses (if required), fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, and fees of transfer agents and registrars, are
called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities are called "Selling
Expenses." The Company will pay all Registration Expenses in connection with the
registration statement under Section 11. Selling Expenses in connection with
each registration statement under Section 11 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities under the
1933 Act pursuant to Section 11, the Company will, to the extent permitted by
law, indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made: (i) in any preliminary prospectus if the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise and the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (ii) in any
preliminary or final prospectus to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable Securities
under the 1933 Act pursuant to Section 11, each Seller severally but not jointly
will, to the extent permitted by law, indemnify and hold harmless the Company,
and each person, if any, who controls the Company within the meaning of the 1933
Act, each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the 1933 Act, against all losses, claims,
damages or liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the 1933
Act or otherwise,
21
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Securities were registered under the 1933 Act pursuant to
Section 11, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the net proceeds actually received by
the Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party, except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the event
of joint liability under the 1933 Act in any case in which either (i) a Seller,
or any controlling person of a Seller, makes a claim for indemnification
pursuant to this Section 11.6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the
22
meaning of Section 11(f) of the 0000 Xxx) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third business day being the
"Unlegended Shares Delivery Date") after the business day on which the Company
has received (i) a notice that Shares or Warrant Shares or any other Common
Stock held by a Subscriber have been sold pursuant to the Registration Statement
or Rule 144 under the 1933 Act, (ii) a representation that the prospectus
delivery requirements, or the requirements of Rule 144, as applicable and if
required, have been satisfied, and (iii) delivery to the transfer agent of the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber's broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4(h) above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the 1933
Act (the "Unlegended Shares"); and (z) cause the transmission of the
certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the submitted Shares certificate, if
any, to the Subscriber at the address specified in the notice of sale, via
express courier, by electronic transfer or otherwise on or before the Unlegended
Shares Delivery Date.
(b) In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime Broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(c) The Company understands that a delay in the delivery of the Unlegended
Shares pursuant to Section 11 hereof later than two business days after the
Unlegended Shares Delivery Date could result in economic loss to a Subscriber.
As compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company fails
to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities subject
to such default may, at its option, require the Company to redeem all or any
portion of the Shares and Warrant Shares subject to such default at a price per
share equal to 120% of the Purchase Price of such Common Stock and Warrant
Shares ("Unlegended Redemption Amount"). The amount of the aforedescribed
liquidated damages that have accrued or been paid for the twenty day period
prior to the receipt by the Subscriber of the Unlegended Redemption Amount shall
be credited against the Unlegended Redemption Amount. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.
(d) In addition to any other rights available to a Subscriber, if the
Company fails to deliver to a Subscriber Unlegended Shares as required pursuant
to this Agreement, within seven (7) business days after the Unlegended Shares
Delivery Date and the Subscriber purchases (in an open market transaction or
otherwise) shares of common stock to deliver in satisfaction of a sale by such
Subscriber of the shares of Common Stock which the Subscriber was entitled to
receive from the Company (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by
23
the Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery of Unlegended Shares
as described in Section 11.7 and the Company is required to deliver such
Unlegended Shares pursuant to Section 11.7, the Company may not refuse to
deliver Unlegended Shares based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction or temporary restraining
order from a court, on notice, restraining and or enjoining delivery of such
Unlegended Shares or exercise of all or part of said Warrant shall have been
sought and obtained and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 120% of the amount of the aggregate purchase
price of the Common Stock and Warrant Shares which are subject to the injunction
or temporary restraining order, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber's favor.
12. (a) Right of First Refusal. Until the later of one year after the
Actual Effective Date, or until the Notes have been fully paid or converted, the
Subscribers shall be given not less than seven (7) business days prior written
notice of any proposed sale by the Company of its common stock or other
securities or debt obligations, except in connection with (i) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of a corporation or
other entity which holders of such securities or debt are not granted
registration rights, (ii) the Company's issuance of securities in connection
with strategic license agreements and other partnering arrangements so long as
such issuances are not for the purpose of raising capital which holders of such
securities or debt are not granted registration rights, (iii) the Company's
issuance of Common Stock or the issuances or grants of options to purchase
Common Stock pursuant to stock option plans described on Schedule 5(d) hereto,
(iv) the Company's issuance of Common Stock or the issuances or grants of
options to purchase Common Stock pursuant to employee stock purchase or
compensation plans, provided such shares of Common stock are not included in a
registration statement for so long as any Notes are outstanding, (v) as a result
of the exercise of Warrants or conversion of Notes which are granted or issued
pursuant to this Agreement or warrants, options or notes which are outstanding
as of the date hereof and described in the Reports, all on the precise terms and
conditions in effect on the Closing Date, (vi) the payment of any interest on
the Notes and Liquidated Damages, (vii) as has been described in the Reports,
Schedule 12(a) hereto or Other Written Information filed with the Commission or
delivered to the Subscribers prior to the Closing Date, and (vii) as described
on Schedule 11.1 (collectively the foregoing are "Excepted Issuances"). The
Subscribers who exercise their rights pursuant to this Section 12(a) shall have
the right during the seven (7) business days following receipt of the notice to
purchase such offered common stock, debt or other securities in accordance with
the terms and conditions set forth in the notice of sale in the same proportion
to each other as their purchase of Notes in the Offering. In the event such
terms and conditions are modified during the notice period, the Subscribers
shall be given prompt notice of such modification and shall have the right
during the seven (7) business days following the notice of modification to
exercise the rights described in this Section 12(a). Until two years after the
Closing Date, each Subscriber may tender the Note representing up to the full
amount outstanding to such Subscriber under the Notes and other Transaction
Documents as payment for such other securities or debt of the Company as may be
acquired pursuant to this Section 12(a).
24
(b) Favored Nations Provision. Other than in connection with the Excepted
Issuances, if at any time Notes or Warrants are outstanding the Company shall
offer, issue or agree to issue any common stock or securities convertible into
or exercisable for shares of common stock (or modify any of the foregoing which
may be outstanding) to any person or entity at a price per share or conversion
or exercise price per share which shall be less than the Conversion Price in
respect of the Shares, or if less than the Warrant exercise price in respect of
the Warrant Shares, without the consent of each Subscriber holding Notes,
Shares, Warrants, or Warrant Shares, then the Company shall issue, for each such
occasion, additional shares of Common Stock to each Subscriber so that the
average per share purchase price of the shares of Common Stock issued to the
Subscriber (of only the Common Stock or Warrant Shares still owned by the
Subscriber) is equal to such other lower price per share and the Conversion
Price and Warrant exercise price shall automatically be adjusted as provided in
the Notes and the Warrants. The average Purchase Price of the Shares and average
exercise price in relation to the Warrant Shares shall be calculated separately
for the Shares and Warrant Shares. The foregoing calculation and issuance shall
be made separately for Shares received upon conversion and separately for
Warrant Shares. The delivery to the Subscriber of the additional shares of
Common Stock shall be not later than the closing date of the transaction giving
rise to the requirement to issue additional shares of Common Stock. The
Subscriber is granted the registration rights described in Section 11 hereof in
relation to such additional shares of Common Stock except that the Filing Date
and Effective Date vis-a-vis such additional common shares shall be,
respectively, the thirtieth (30th) and one hundred twentieth (120th) date after
the closing date giving rise to the requirement to issue the additional shares
of Common Stock. For purposes of the issuance and adjustment described in this
paragraph, the issuance of any security of the Company carrying the right to
convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the sooner of the written agreement to or actual
issuance of such convertible security, warrant, right or option and again at any
time upon any subsequent issuances of shares of Common Stock upon exercise of
such conversion or purchase rights if such issuance is at a price lower than the
Conversion Price or Warrant exercise price in effect upon such issuance. The
rights of the Subscriber set forth in this Section 12 are in addition to any
other rights the Subscriber has pursuant to this Agreement, the Note, any
Transaction Document, and any other agreement referred to or entered into in
connection herewith.
(c) Paid In Kind. The Subscriber may demand that some or all of the sums
payable to the Subscriber pursuant to Sections 7.1(c), 7.2, 7.5, 11.4, 11.7(c),
11.7(d) and 11.7(e) that are not paid within ten business days of the required
payment date be paid in shares of Common Stock valued at the Conversion Price in
effect at the time Subscriber makes such demand or, at the Subscriber's
election, at such other valuation described in the Transaction Documents. In
addition to any other rights granted to the Subscriber herein, the Subscriber is
also granted the registration rights set forth in Section 11.1(ii) hereof in
relation to the aforedescribed shares of Common Stock.
(d) Maximum Exercise of Rights. In the event the exercise of the rights
described in Sections 12(a), 12(b) and 12(c) would result in the issuance of an
amount of common stock of the Company that would exceed the maximum amount that
may be issued to a Subscriber calculated in the manner described in Section 7.3
of this Agreement, then the issuance of such additional shares of common stock
of the Company to such Subscriber will be deferred in whole or in part until
such time as such Subscriber is able to beneficially own such common stock
without exceeding the maximum amount set forth calculated in the manner
described in Section 7.3 of this Agreement. The determination of when such
common stock may be issued shall be made by each Subscriber as to only such
Subscriber.
(e) Offering Restrictions. Until six months after the Closing Date and
during the pendency of an Event of Default, except for the Excepted Issuances,
the Company will not enter into an agreement to nor issue any equity,
convertible debt or other securities convertible into common stock or equity of
the Company nor modify any of the foregoing which may be outstanding at anytime,
without the prior written consent of the Subscriber, which consent may be
withheld for any reason. For so long as the Notes are outstanding, the Company
will not enter into any equity line of credit or similar
25
agreement, nor issue nor agree to issue any floating or variable priced equity
linked instruments nor any of the foregoing or equity with price reset rights.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, facsimile or e-mail
address (provided such party has provided his e-mail address), addressed as set
forth below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, or by e-mail (if permitted herein) at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur or (c) three business days after deposited in the
mail if delivered pursuant to subsection (ii) above. The addresses for such
communications shall be: (i) if to the Company, to: SVC Financial Services,
Inc., 000 Xxxxxxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, XX 00000, Attn:
Xxxxxxxxxxx Xxxxx, CEO and President, telecopier: (000) 000-0000, with a copy by
telecopier only to: Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP, 0000 Xxxxxx xx
Xxxxxxxx, Xxx Xxxx, XX 00000, Attn: Xxxx Xxxx, Esq., telecopier: (000) 000-0000,
and (ii) if to the Subscriber, to: the one or more addresses and telecopier
numbers indicated on the signature pages hereto, with an additional copy by
telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxx, Xxx Xxxx 00000, telecopier number: (000) 000-0000, and (iii) if to the
Broker, to: Xxxxxx Xxxxxxx & Co., Inc., 00 Xxxxxx Xxxx, 00xx Xxxxx, Xxx Xxxx, XX
00000, Attn: Xxxxx Xxxxxxxxxx, telecopier: (000) 000-0000, with an additional
copy by telecopier only to: Ellenoff Xxxxxxxx & Schole LLP, 000 Xxxxxxxxx
Xxxxxx, Xxx Xxxx, XX 00000, Attn: Xxxxxx Xxxxxxxxx, Esq., telecopier: (212)
370-7889.
(b) Entire Agreement; Assignment. This Agreement and other documents
delivered in connection herewith represent the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by both parties. Neither the Company nor the Subscribers
have relied on any representations not contained or referred to in this
Agreement and the documents delivered herewith. No right or obligation of the
Company shall be assigned without prior notice to and the written consent of the
Subscribers.
(c) Counterparts/Execution. This Agreement may be executed in any number
of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(d) Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
conflicts of laws principles that would result in the application of the
substantive laws of another jurisdiction. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the civil or state courts of New York or in the federal
courts located in New York County. The parties and the individuals executing
this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this
26
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to one or more preliminary
and final injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity. Subject to Section 13(d) hereof, each of the Company, Subscriber
and any signator hereto in his personal capacity hereby waives, and agrees not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in New York of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Nothing in this Section shall affect
or limit any right to serve process in any other manner permitted by law.
(f) Damages. In the event the Subscriber is entitled to receive any
liquidated damages pursuant to the Transaction Documents, the Subscriber may
elect to receive the greater of actual damages or such liquidated damages.
(g) Independent Nature of Subscribers. The Company acknowledges that the
obligations of each Subscriber under the Transaction Documents are several and
not joint with the obligations of any other Subscriber, and no Subscriber shall
be responsible in any way for the performance of the obligations of any other
Subscriber under the Transaction Documents. The Company acknowledges that each
Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the Registration Statement and (ii) review by, and
consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
27
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SVC FINANCIAL SERVICES, INC.
a Colorado corporation
By:_________________________________
Name: Xxxxxxxxxxx Xxxxx
Title: President and CEO
Dated: September __, 2005
-----------------------------------------------------------------------------
SUBSCRIBER INITIAL CLOSING NOTE SECOND CLOSING NOTE
PRINCIPAL PRINCIPAL
-----------------------------------------------------------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT $375,000.00 $375,000.00
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Lichtenstein
Fax: 000-00-00000000
---------------------------------
(Signature)
By:
-----------------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SVC FINANCIAL SERVICES, INC.
a Colorado corporation
By:_________________________________
Name: Xxxxxxxxxxx Xxxxx
Title: President and CEO
Dated: September __, 2005
-----------------------------------------------------------------------------
SUBSCRIBER INITIAL CLOSING NOTE SECOND CLOSING NOTE
PRINCIPAL PRINCIPAL
-------------------------------- --------------------- ----------------------
WHALEHAVEN CAPITAL FUND LIMITED $375,000.00 $375,000.00
0xx Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
Fax: (000) 000-0000
--------------------------------
(Signature)
By:
-----------------------------------------------------------------------------
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit A Form of Note
Exhibit B Form of Warrant
Exhibit C Escrow Agreement
Exhibit D Form of Security Agreement
Exhibit E Form of Guaranty Agreement
Exhibit F Form of Collateral Agent Agreement
Exhibit G Form of Legal Opinion
Exhibit H Form of Form 8-K or Public Announcement
Exhibit I Form of Limited Standstill Agreement
Schedule 1(c) Second Closing Milestone
Schedule 5(a) Subsidiaries
Schedule 5(d) Additional Issuances / Capitalization
Schedule 5(q) Undisclosed Liabilities
Schedule 9(e) Use of Proceeds
EXHIBIT I
LIMITED STANDSTILL AGREEMENT
This AGREEMENT (the "Agreement") is made as of the ___ day of September,
2005, by the signatories hereto (each a "Holder"), in connection with his
ownership of shares of SVC Financial Services, Inc., a Colorado corporation (the
"Company").
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which consideration are hereby acknowledged, Holder agrees as
follows:
1. Background.
a. Holder is the beneficial owner of the amount of shares of the Common
Stock, no par value, of the Company ("Common Stock") and rights to purchase
Common Stock designated on the signature page hereto, some or all of which are
owned by virtue of Holder's ownership of a note convertible into Common Stock.
x. Xxxxxx acknowledges that the Company has entered into or will enter
into an agreement with each subscriber ("Subscription Agreement") to the
Company's secured convertible promissory notes and warrants (the "Subscribers"),
for the sale to the Subscribers of an aggregate of up to $1,500,000 of principal
amount of secured convertible promissory notes and warrants (the "Offering").
Holder understands that, as a condition to proceeding with the Offering, the
Subscribers have required, and the Company has agreed to obtain an agreement
from the Holder to refrain from selling any securities of the Company from the
date of the Subscription Agreement until the end of the Exclusion Period as
defined in the Subscription Agreement (the "Restriction Period").
2. Share Restriction.
a. Holder hereby agrees that during the Restriction Period, the Holder
will not sell or otherwise dispose of any shares of Common Stock or any options,
warrants or other rights to purchase shares of Common Stock or any other
security of the Company which Holder owns or has a right to acquire as of the
date hereof or acquires hereafter during the Restriction Period, other than (i)
commencing five days after the Second Closing Date (as defined in the
Subscription Agreement) in accordance with the volume limitations under Rule 144
promulgated under the Securities Act of 1933, as amended, and (ii) in connection
with an offer made to all shareholders of the Company in connection with any
merger, consolidation or similar transaction involving the Company. Holder
further agrees that the Company is authorized to and the Company agrees to place
"stop orders" on its books to prevent any transfer of shares of Common Stock or
other securities of the Company held by Holder in violation of this Agreement.
b. Any subsequent issuance to and/or acquisition of shares or the right to
acquire shares by Holder will be subject to the provisions of this Agreement.
c. Notwithstanding the foregoing restrictions on transfer, the Holder may,
at any time and from time to time during the Restriction Period, transfer the
Common Stock (i) as bona fide gifts or transfers by will or intestacy, (ii) to
any trust for the direct or indirect benefit of the undersigned or the immediate
family of the Holder, provided that any such transfer shall not involve a
disposition for value, (iii) to a partnership which is the general partner of a
partnership of which the Holder is a general partner, provided, that, in the
case of any gift or transfer described in clauses (i), (ii) or (iii), each donee
or transferee agrees in writing to be bound by the terms and conditions
contained herein in the same manner as such terms and conditions apply to the
undersigned. For purposes hereof, "immediate family" means any relationship by
blood, marriage or adoption, not more remote than first cousin.
3. Miscellaneous.
a. At any time, and from time to time, after the signing of this Agreement
Holder will execute such additional instruments and take such action as may be
reasonably requested by the Subscribers to carry out the intent and purposes of
this Agreement.
b. This Agreement shall be governed, construed and enforced in accordance
with the laws of the State of New York without regard to conflicts of laws
principles that would result in the application of the substantive laws of
another jurisdiction, except to the extent that the securities laws of the state
in which Holder resides and federal securities laws may apply. Any proceeding
brought to enforce this Agreement may be brought exclusively in courts sitting
in New York County, New York.
c. This Agreement contains the entire agreement of the Holder with respect
to the subject matter hereof.
d. This Agreement shall be binding upon Holder, its legal representatives,
successors and assigns.
e. This Agreement may be signed and delivered by facsimile and such
facsimile signed and delivered shall be enforceable.
f. The Company agrees not to take any action or allow any act to be taken
which would be inconsistent with this Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Holder has
executed this Agreement as of the day and year first above written.
HOLDER:
--------------------------------
(Signature of Holder)
---------------------------------
(Print Name of Holder)
---------------------------------
Number of Shares of Common Stock
Beneficially Owned
---------------------------------
Note Principal Owned on the date of
This Agreement
COMPANY:
SVC FINANCIAL SERVICES, INC.
By:______________________________
Schedule 9(e)
-------------
Use of Proceeds
---------------
First Tranche Expected to Take SVC Through December.
$300,000 Contractors
145,000 Marketing, advertising, travel and other launch related costs
50,000 Ongoing wireless development 20,000 Rent, telephone, office expense
35,446 Audit fees
140,000 Present accounts payable for development, marketing, advertising,
audit, etc. already stretched beyond normal terms.
$675,000 Net expected from funding.
SCHEDULE 11.1
-------------
DEBTS TO REMAIN ON BOOKS AT CLOSING
(All creditors willing to accept shares to be registered on Form S-8)
Checkprotect $ 51,000
Quality Tax 30,500
Xxxxx Xxxxxxxxx 13,500
Various Lawyers 4,500
Xxxxxxx Xxxxxx 9,000
Xxxx Xxxx 9,000
Accountants / Xxxxx Xxxxxxx 4,500
Another Washington Software Company 3,000
Xxxxxxxxx & Associates 5,000
Total: 130,000
