Exhibit 4.1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September
4, 2003, by and among New Dragon Asia Corp., a Florida 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 "SEC") 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 not less than $1,500,000 nor more than $3,400,000 (the "Purchase
Price") of shares of the Company's common stock, $.0001 par value (the "Common
Stock") at a per share Purchase Price equal to the lesser of $.50 or 85% of the
average of the closing prices of the Common Stock as reported by Bloomberg L.P.
for the American Stock Exchange ("Amex") for the twenty-two (22) trading days
preceding but not including the Closing Date, as defined in Section 13(b) of
this Agreement, and also not including the trading day immediately preceding the
Closing Date; and share purchase warrants (the "Warrants"), in the form attached
hereto as Exhibit A, to purchase shares of Common Stock (the "Warrant Shares")
(i.e. one (1) Warrant Share for each two shares of Common Stock, which shall be
purchased on the Closing Date. The shares of Common Stock to be purchased
hereunder (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 shares of Common
Stock and the Warrants contemplated hereby shall be held 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 B (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. Purchase and Sale of Shares and Warrants. Subject to the
satisfaction (or waiver) of the terms and conditions of this Agreement, each
Subscriber shall purchase shares of Common Stock in the amount designated on the
signature page hereto for the portion of the Purchase Price indicated on the
signature page hereto, and the amount of Warrants designated on the signature
page, and the Company shall sell such shares of Common Stock and Warrants to
such Subscriber.
2. Escrow Arrangements; Form of Payment. Upon execution hereof
by the parties and pursuant to the terms of the Escrow Agreement, each
Subscriber agrees to make the deliveries required of such Subscriber as set
forth in the Escrow Agreement and the Company agrees to make the deliveries
required of the Company as set forth in the Escrow Agreement.
3. Warrant Exercise Price. The per Warrant Share exercise
price to acquire a Warrant Share shall be 110% of the closing price of the
Common Stock as reported by Bloomberg L.P. for the Amex for the trading day
preceding the Closing Date. The Warrants shall be exercisable for five years
after the Issue Date (as defined in the Warrant).
4. Subscriber's Representations and Warranties. Each
Subscriber hereby represents and warrants to and agrees with the Company as to
such Subscriber that:
(a) Information on Company. The Subscriber has been
furnished with or has obtained from the XXXXX Website of the Securities and
Exchange Commission (the "Commission") the Company's Form 10-K for the year
ended December 25, 2002 as filed with the Commission on April 9, 2003, together
with all subsequently filed Forms 10-Q, 8-K, and filings made with the
Commission available at the XXXXX website (hereinafter referred to collectively
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.
(b) Information on Subscriber. The Subscriber is, and
will be at the time of the exercise of any of the Warrants, an "accredited
investor", as such term is defined in Regulation D promulgated by the Commission
under the Securities Act of 1933, as amended (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.
(c) Purchase of Shares and Warrants. On the Closing
Date, the Subscriber will purchase the Shares and Warrants as principal for its
own account and not with a view to any distribution thereof.
(d) 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. In any event, and subject
to compliance with applicable securities laws, the Subscriber may enter into
hedging transactions with third parties, which may in turn engage in short sales
of the Securities in the course of hedging the position they assume and the
Subscriber may also enter into short positions or other derivative transactions
relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other
positions or otherwise settle short sales or other transactions, or loan or
pledge the Securities, or interests in the Securities, to third parties that in
turn may dispose of these Securities.
(e) 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 NEW DRAGON ASIA CORP. THAT SUCH REGISTRATION
IS NOT REQUIRED."
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(f) Warrants Legend. The Warrants shall bear the
following
or similar legend:
"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 NEW DRAGON ASIA CORP. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(g) 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.
(h) 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.
(i) 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 the Closing Date (as hereinafter
defined), shall be true and correct as of the Closing Date. The foregoing
representations and warranties shall survive the Closing Date for a period of
three years.
5. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly
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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 on the
business, operations or financial condition of the Company.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the
Warrant, the Escrow Agreement and any other agreements delivered together with
this Agreement or in connection herewith 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; and the Company has full corporate power and authority necessary to
enter into this Agreement, the Warrant, the Escrow Agreement and such other
agreements and to perform its obligations hereunder and under all other
agreements entered into by the Company relating hereto.
(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 Company or other equity interest in any of the
subsidiaries of the Company except as described on Schedule 5(d), or the
Reports.
(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, the Amex, the National
Association of Securities Dealers, Inc., Nasdaq, SmallCap Market, the OTC
Bulletin Board nor the Company's Shareholders is required for execution of this
Agreement, and all other agreements entered into by the Company relating
thereto, including, without limitation, the issuance and sale of the Securities,
and the performance of the Company's obligations hereunder and under all such
other agreements.
(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)
under (A) the articles 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 any of its
affiliates 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 on the Company; or
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(ii) result in the creation or imposition of
any lien, charge or encumbrance upon the Securities or any of the assets of the
Company, its subsidiaries or any of its affiliates.
(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, and upon exercise of the Warrants, the
Warrant Shares will be duly and validly issued, fully paid and nonassessable
(and if registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted, provided that each
Subscriber complies with the prospectus delivery requirements of the 1933 Act
and any state securities laws);
(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; and
(iv) will not subject the holders thereof to
personal liability by reason of being such holders.
(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 this
Agreement, and all other agreements entered into by the Company relating hereto.
Except as disclosed in the Reports, 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 which litigation if adversely
determined could have a material adverse effect on the Company.
(i) Reporting Company. The Company is a publicly-held
company subject to reporting obligations pursuant to Sections 15(d) and 13 of
the Securities Exchange Act of 1934, as amended (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 all reports and
other materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) No Market Manipulation. The Company has 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 of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued or resold.
(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 which information is required
to be disclosed therein. Since the date of the financial statements included in
the Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no material adverse change in 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.
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(l) Stop Transfer. The Securities, when issued, will
be restricted securities. 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.
The Company will not issue any stop transfer or other order impeding the sale,
resale or delivery of the Securities 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 on the Company, (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, restraint of trade, unfair
competition or similar matters, or (iii) to its knowledge in violation of any
statute, rule or regulation of any governmental authority which violation would
have a material adverse effect on the Company.
(n) No 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 Amex, nor will the Company or any of its affiliates or subsidiaries take any
action or steps that would cause the offer of the Securities to be integrated
with other offerings. 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.
(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 listed for
trading on the Amex. The Company has not received any oral or written notice
that its common stock will be delisted from the Amex nor that its common stock
does not meet all requirements for the continuation of such quotation and the
Company satisfies the requirements for the continued listing of its common stock
on the Amex.
(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 December
25, 2002 and which, individually or in the aggregate, would reasonably be
expected to have a material adverse effect on the Company's financial condition,
other than as set forth in Schedule 5(q).
(r) No Undisclosed Events or Circumstances. Since
December 25, 2002, 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.
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(s) Capitalization. The authorized and outstanding capital stock
of the Company as of the date of this Agreement and the Closing Date are set
forth on Schedule 5(s). Except as set forth in the Reports and Other Written
Information and 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. 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 have
studied and fully understand the nature of the Securities being sold hereby and
recognize that they have a potential dilutive effect on the interests of other
holders of the Company's securities. The board of directors of the Company has
concluded, in its good faith business judgment, that such issuance is in the
best interests of the Company.
(u) S-3 Eligibility. The Company currently meets, and will use its
best efforts to take all necessary action to continue to meet, the "registrant
requirements" set forth in the general instruction 1A to Form S-3.
(v) 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, will be true and correct as of the Closing Date
in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date for a period of three years.
6. Regulation D Offering. This Offering 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 the 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. A form of the legal opinion is
annexed hereto as Exhibit C. The Company will provide, at the Company's expense,
such other legal opinions in the future as are reasonably necessary for the
exercise of the Warrants and resale of the Warrant Shares.
7. Reissuance of Securities. The Company agrees to reissue certificates
representing the Shares and the Warrant Shares without the legends set forth in
Sections 4(e) and 4(f) above at such time as (a) the holder thereof is permitted
to and disposes of the Securities pursuant to Rule 144(d) and/or Rule 144(k)
under the 1933 Act in the opinion of counsel reasonably satisfactory to the
Company, or (b) upon resale subject to an effective registration statement after
the Shares and the Warrant Shares are registered under the 1933 Act. The Company
agrees to cooperate with each Subscriber in connection with all resales pursuant
to Rule 144(d) and Rule 144(k) and provide legal opinions at the Company's
expense necessary to allow such resales provided the Company and its counsel
receive reasonably requested written representations from each Subscriber and
selling broker, if any. Provided each Subscriber provides required
certifications and representation letters, if any, if the Company fails to
remove any legend as required by this Section 7 (a "Legend Removal Failure"),
then beginning on the tenth (10th) day following the date that each Subscriber
has requested the removal of the legend and delivered all items reasonably
required by the Company to be delivered by each Subscriber, that the Company
continues to fail to remove such legend, the Company shall pay to each
Subscriber or assignee holding Shares or Warrant Shares, subject to a Legend
Removal Failure, as liquidated damages and not a penalty an amount equal to ten
percent (10%) of the purchase price of the Shares and Warrant Shares subject to
a Legend Removal Failure
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for each 15-day period or part thereof that such failure continues. If during
any twelve (12) month period, the Company fails to remove any legend as required
by this Section 7 for an aggregate of thirty (30) days, each Subscriber or
assignee holding Securities subject to a Legend Removal Failure may, at its
option, require the Company to purchase all or any portion of the Shares and
Warrant Shares subject to a Legend Removal Failure held by each Subscriber or
assignee at a price per share equal to 130% of the purchase price of such Shares
and Warrant Shares.
8. Broker's Fee/Legal Fee/Escrow Agent.
(a) Legal Fee. The Company shall pay to Grushko &
Xxxxxxx, P.C., a fee of $20,000 ("Legal Fees") (of which $5,000 has previously
been paid) as reimbursement for services rendered to Alpha Capital
Aktiengesellschaft in connection with this Agreement and the purchase and sale
of the shares of Common Stock and the Warrants (the "Offering") and acting as
Escrow Agent for the Offering. The Legal Fees will be payable out of funds held
pursuant to the Escrow Agreement.
(b) Broker. The Company on the one hand, and each
Subscriber 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 Commission other than Berry-Shino Securities, 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. The Company agrees
that it will pay Broker a cash fee equal to 10% of the Purchase Price on the
Closing Date (as defined herein) directly out of the funds held pursuant to the
Escrow Agreement ("Broker's Commissions"). 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.
9. Covenants of the Company. The Company covenants
and agrees with the Subscribers as follows:
(a) Stop Orders. The Company will advise the
Subscribers, promptly after it 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. If applicable, the Company shall
promptly secure the listing of the shares of Common Stock to be purchased
hereunder and the Warrant Shares upon each national securities exchange, or
automated quotation system, if any, upon which shares of common stock are then
listed (subject to official notice of issuance) and shall maintain such listing
so long as any Securities are outstanding. The Company will maintain the listing
of its Common Stock on the American Stock Exchange, Nasdaq SmallCap Market,
Nasdaq National Market System, OTC 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 Closing Date, the Amex will be the Principal Market.
(c) Market Regulations. If required, the Company
shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements,
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if any, 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) Reporting Requirements. From the Closing Date and
until at least two (2) years after the actual effective date of the Registration
Statement described in Section 11.1(iv) hereof, the Company will (i) cause its
Common Stock to continue to be registered under Section 12(b) or 12(g) of the
1934 Act, (ii) comply in all respects with its reporting and filing obligations
under the 1934 Act, (iii) 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 (iv) 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 the later of
two (2) years after the actual effective date of the Registration Statement
described in Section 11.1(iv) hereof. Until the earlier of the resale of the
Shares and the Warrant Shares by each Subscriber or at least two (2) years after
the Warrants have been exercised, the Company will use its best efforts to
continue the listing or quotation of the Common Stock on 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.
(e) Use of Proceeds. The Purchase Price will be used
by the Company for working capital and may not and will not be used for accrued
and unpaid officer and director salaries, payment of financing related debt,
redemption of redeemable notes or equity instruments of the Company nor
non-trade obligations outstanding on the Closing Date.
(f) Reservation of Common Stock. The Company
undertakes to reserve from its authorized but unissued common stock, at all
times that Warrants remain outstanding, a number of common shares equal to the
amount of common shares issuable upon exercise of the Warrants.
(g) Taxes. For a period of two (2) years after the
date hereof, 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. For a period of two (2) years after
the date hereof, 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 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. For a period of two (2) years
after the date hereof, the Company will keep true records and books of account
in which full, true and correct entries will be
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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. For a period of two (2)
years after the date hereof, the Company shall duly observe and conform in 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. For a period of two (2)
years after the date hereof, 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.
(l) Properties. For a period of two (2) years after
the date hereof, 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 needful 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. For a period of two (2) years
after the date hereof, the Company agrees that it will not disclose publicly or
privately the identity of the Subscribers unless expressly agreed to in writing
by a Subscriber or only to the extent required by law and then only upon ten
days prior notice to Subscriber.
(n) Blackout. The Company undertakes and covenants
that until the first to occur of (i) the registration statement described in
Section 11.1(iv) having been effective for one hundred and eighty (180) business
days, or (ii) until all the Shares and Warrant Shares have been resold pursuant
to said registration statement, 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, causing an
already effective registration statement to no longer be effective or current,
or require the filing of an amendment to an already effective registration
statement.
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 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 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
10
and/or cure periods, any 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 Subscribes relating hereto.
(c) The procedures set forth in Section 11.6 shall
apply to the indemnifications 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 91 days
after the Closing Date, but not later than three years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any record
holder or holders of more than 50% of the Shares issued in the Offering and
Warrant Shares (collectively "Registrable Securities"), shall prepare and file
with the Commission a registration statement under the 1933 Act covering the
Shares and Warrant Shares which are the subject of such request. For purposes of
Sections 11.1(i) and 11.1(ii), Registrable Securities shall not include
Securities which are included in an effective registration statement or included
for registration in a pending registration statement. In addition, 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 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 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 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"). 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)
11
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 not
later than thirty (30) days after the Closing Date (the "Filing Date"), and use
its reasonable commercial efforts to cause to be declared effective within
ninety (90) days after the Closing Date (the "Effective Date"), a Form S-3
registration statement (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. The Company will register not less
than a number of shares of common stock in the aforedescribed registration
statement that is equal to the number of the Shares and Warrant Shares. The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber, and not issued, employed or reserved for anyone
other than each Subscriber. Such Registration Statement will immediately be
amended or additional registration statements will be immediately filed by the
Company as 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. No securities of the Company other than the Registrable
Securities will be included in the registration statement described in this
Section 11.1(iv) except as disclosed on Schedule 11.1, without the written
consent of Subscriber.
11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any shares of 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 best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of Registrable Securities (the "Sellers")
copies of all filings and Commission letters of comment;
(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 Seller's intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Seller, 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;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller, provided,
however, that the Company shall not for any such purpose be required to 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;
(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;
12
(f) immediately notify the Seller when a prospectus
relating thereto is required to be delivered under the 1933 Act, of the
happening of 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; 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 Seller, 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, the 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 Seller will suffer damages if any registration statement required
under Section 11.1(iv) above 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 written request and declared effective by the Commission within 120 days
after 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 (i) the registration
statement on Form S-3 or such other form described in Section 11.1(iv) is not
filed on or before the Filing Date or is not declared effective on or before the
sooner of the Effective Date, or within ten (10) business days of receipt by the
Company of a written or oral communication from the Commission that the
registration statement described in Section 11.1(iv) will not be reviewed, (ii)
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 (iii) 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
immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate per
year or more than 20 consecutive days (defined as a period of 365 days
commencing on the date the Registration Statement is declared effective) (each
such event referred to in clauses (i), (ii) and (iii) 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 equal to two percent (2%) for each thirty days or part thereof, of the
greater of the (i) market value based on the average of the Closing Prices, or
(ii) Purchase Price of the Shares; and actually paid "Purchase Price" (as
defined in the Warrants) issued or issuable upon exercise of the Warrants, for
each thirty (30) days or part thereof during the pendency of such
Non-Registration Event, for the Registrable Securities owned of record by such
holder as of or subsequent to the occurrence of such Non-Registration Event
during each such thirty (30) day period or part thereof. Payments to be made
pursuant to this Section 11.4 shall be payable in cash and due and payable
within ten (10) business days after the end of each thirty (30) day period or
part thereof.
11.5. Expenses. All expenses incurred by the Company in
complying with Section 11, including, without limitation, all registration and
filing fees, printing expenses, 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
13
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance and fee of one counsel for
all Sellers are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any additional counsel to the Seller, 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 in any preliminary prospectus if (i) 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, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) 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, the Seller
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, 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
14
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 gross proceeds 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 other than under this
Section 11.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 11.6(c), 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) the Seller, or any controlling person of the 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 offered by it pursuant to such registration statement; and (z) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the 0000 Xxx) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
15
11.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third
business day, the "Delivery Date") after the business day on which the Company
has received (i) a notice that Registrable Securities have been sold, (ii) a
representation that the prospectus delivery requirements, if applicable, have
been satisfied, and (iii) the original share certificates representing the
shares of Common Stock that have been sold, the Company at its expense, (i)
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, for the delivery of unlegended shares of Common Stock
issuable pursuant to any effective and current registration statement described
in Section 11 of this Agreement (the "Unlegended Shares"); and (ii) cause the
transmission of the certificates representing the Unlegended Shares together
with a legended certificate representing the balance of the unsold shares of
Common Stock, 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 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 and its compliance with the
provisions contained in this paragraph, so long as the certificates therefore 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.
(c) The Company understands that a delay in the
delivery of the Unlegended Shares pursuant to Section 11 hereof beyond the
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 shares of Common Stock delivered to
the Company for reissuance as Unlegended Shares. 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
within ten (10) calendar days after the 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 anticipated receiving 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 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.
16
12. (a) Right of First Refusal. Until 180 days after the
registration statement to be filed with the Commission pursuant to Section
11.1(iv) hereof is actually declared effective by the Commission (the "Exclusion
Period"), 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) employee
stock options or compensation plans, (ii) as full or partial consideration in
connection with any merger, consolidation or purchase of substantially all of
the securities or assets of any corporation or other entity, or (iii) as may
have been described in the Reports or Other Written Information prior to the
Closing Date or on Schedule 12(a) hereto (collectively "Excepted Issuances").
The Subscriber shall have the right during the seven (7) business days following
the notice to agree 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 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 original notice period or for a period of seven
(7) business days following the notice of modification, whichever is longer, to
exercise such right.
(b) Offering Restrictions. Except as disclosed in the
Reports or Other Written Information filed with the Commission or made available
to the Subscriber prior to the Closing Date, or in connection with Excepted
Issuances, the Company will not issue any equity, convertible debt or other
securities convertible into common stock on any terms more favorable to such
other investor than any of the terms of the Offering, until after the Exclusion
Period without the prior written consent of the Subscriber, which consent may be
withheld for any reason.
(c) Favored Nations Provision. If during the
Exclusion Period, except for the Excepted Issuances, the Company shall offer,
issue or agree to issue any Common Stock or securities convertible into or
exercisable for shares of Common Stock to any person, firm or corporation at a
price per share or conversion or exercise price per share which shall be less
than the per share purchase price of the Shares, without the consent of
Subscriber still holding Shares, then the Company shall issue, for each such
occasion, additional shares of Common Stock to the Subscriber so that the
average per share purchase price of the shares of Common Stock issued to the
Subscriber is equal to such other lower price per share. 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 sixtieth (60th) and one
hundred and 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
issuance of such convertible security, warrant, right or option and again 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 then
purchase price per share of the shares of Company Stock.
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, or
facsimile, addressed as set forth below or to such other address as such party
17
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, 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. The addresses for such communications shall be: (i) if to the
Company, to: New Dragon Asia Corp., Room 1304, 13th Floor, Wing On Centre, 000
Xxxxxxxxx Xxxx Xxxxxxx, Xxxxxx Xxx, Xxxx Xxxx, Attn: Xxxxxx Xxx, CFO,
telecopier: 011-852-2815-9839, with a copy by telecopier only to: Loeb & Loeb,
00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000, Xxx Xxxxxxx, XX 00000-0000, Attn:
Xxxxx X. Xxxxxxxx, Esq., telecopier: (000) 000-0000, (ii) if to the Subscribers,
to: the address and telecopier number indicated on the signature page hereto,
with a 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: Berry-Shino Securities, Inc., 00 Xxxxxxxx, 0xx
Xxxxx, Xxx Xxxx, XX 00000, Attn: Xxxxx Brand, telecopier: (000) 000-0000.
(b) Closing. The consummation of the transactions
contemplated herein 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. The closing date shall be
the date that subscriber funds representing the net amount due the Company from
the Purchase Price of the Offering is transmitted by wire transfer or otherwise
to the Company (the "Closing Date").
(c) 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
either party shall be assigned by that party without prior notice to and the
written consent of the other party.
(d) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.
(e) 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 principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements 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
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.
18
(f) 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 an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
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 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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
19
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.
NEW DRAGON ASIA CORP.
A Florida Corporation
By:_________________________________
Name:
Title:
Dated: August _____, 2003
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
SUBSCRIBER PURCHASE PRICE SHARES WARRANTS
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
$500,000.00 1,000,000 500,000
----------------------------------------
(Signature)
ALPHA CAPITAL AKTIENGESELLSCHAFT
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Lichtenstein
Fax: 000-00-00000000
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
20
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.
NEW DRAGON ASIA CORP.
A Florida Corporation
By:______________________
Name:
Title:
Dated: August _____, 2003
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
SUBSCRIBER PURCHASE PRICE SHARES WARRANTS
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
$250,000.00 500,000 250,000
----------------------------------------
(Signature)
PLATINUM PARTNERS VALUE ARBITRAGE FUND
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
21
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)
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.
NEW DRAGON ASIA CORP.
A Florida Corporation
By:_________________________________
Name:
Title:
Dated: August _____, 2003
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
SUBSCRIBER PURCHASE PRICE SHARES WARRANTS
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
$250,000.00 500,000 250,000
----------------------------------------
(Signature) PALISADES MASTER FUND, LP C/o Beacon Fund Advisors Xxxxxxx Xxxxx
Xxxxxxxxxx Xxxxx Xxxx Xxxx, Xxxxxxx, B.V.I Fax: (000) 000-0000
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
22
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (D)
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.
NEW DRAGON ASIA CORP.
A Florida Corporation
By:_________________________________
Name:
Title:
Dated: August _____, 2003
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
SUBSCRIBER PURCHASE PRICE SHARES WARRANTS
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
$250,000.00 500,000 250,000
----------------------------------------
(Signature) CRESCENT INTERNATIONAL LTD. X/x XxxxxXxxxx (Xxxxxxxxxxx) XX 00,
Xxxxxx Xxxxx-Xxxxx XX 1216 Cointrin, Geneva Switzerland Attn: Xxx Xxxx/Maxi
Brezzi Fax: 000-00-00-000-0000
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
23
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (E)
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.
NEW DRAGON ASIA CORP.
A Florida Corporation
By:_________________________________
Name:
Title:
Dated: August _____, 2003
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
SUBSCRIBER PURCHASE PRICE SHARES WARRANTS
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
$100,000.00 200,000 100,000
----------------------------------------
(Signature) XXXXX INTERNATIONAL LTD.
53rd Street Urbanizacion Obarrio
Swiss Tower, 16th Floor, Panama
Republic of Panama
Fax: (000) 000-0000
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
24
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (F)
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.
NEW DRAGON ASIA CORP.
A Florida Corporation
By:_________________________________
Name:
Title:
Dated: August _____, 2003
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
SUBSCRIBER PURCHASE PRICE SHARES WARRANTS
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
$350,000.00 700,000 350,000
----------------------------------------
(Signature)
BRISTOL INVESTMENT FUND, LTD.
Caledonian House, Xxxxxxx Street
Georgetown, Grand Cayman
Cayman Islands
Fax: 000-000-0000
--------------------------------------------------------------- ---------------------- -------------------- ---------------------
25
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Warrant
Exhibit B Escrow Agreement
Exhibit C Form of Legal Opinion
Schedule 5(d) Additional Issuances
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 11.1 Other Securities to be Registered
Schedule 12(a) Other Excepted Issuances
26
EXHIBIT A to the SUBSCRIPTION AGREEMENT - FORM OF WARRANT
EXHIBIT B to the SUBSCRIPTION AGREEMENT - ESCROW AGREEMENT
EXHIBIT C to the SUBSCRIPTION AGREEMENT - FORM OF LEGAL OPINION
SCHEDULE 5(d) to the SUBSCRIPTION AGREEMENT - ADDITIONAL ISSUANCES
SCHEDULE 5(q) to the SUBSCRIPTION AGREEMENT - UNDISCLOSED LIABILITIES
SCHEDULE 5(s) to the SUBSCRIPTION AGREEMENT - CAPITALIZATION
SCHEDULE 11.1 to the SUBSCRIPTION AGREEMENT - OTHER SECURITIES TO BE REGISTERED
SCHEDULE 12(a) to the SUBSCRIPTION AGREEMENT - OTHER EXCEPTED ISSUANCES
27
