SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date set forth on
the signature page hereof between Sparta Commercial Services, Inc., a Nevada
corporation having a place of business at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇ (the "Company"), and the undersigned (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Company desires to sell up to $3,000,000.00 of common stock,
par value $0.001 per share (the "Common Stock" or the "Securities") at a
purchase price of $0.195 per share; and
WHEREAS, the Company has granted the placement agent an option (to be
exercised at the joint discretion of the Company and such placement agent) to
sell up to an additional $500,000.00 of Common Stock solely to cover
over-allotments, if any.
WHEREAS, the Company is offering (the "Offering") the Common Stock to a
limited number of "accredited investors" (as that term is defined by Rule 501(a)
of Regulation D ("Regulation D") of the Securities Act of 1933, as amended (the
"Act")); and
WHEREAS, the Subscriber desires to purchase the number of shares of Common
Stock equal to the investment amount set forth on the signature page hereof on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and the mutual
representations and covenants hereinafter set forth, the parties hereto do
hereby agree as follows:
ARTICLE I.
SUBSCRIPTION FOR COMMON STOCK AND REPRESENTATIONS BY SUBSCRIBER
1.1. Subject to the terms and conditions hereinafter set forth (including
Section 1.18 hereof), Subscriber hereby subscribes for and agrees to purchase
from the Company, and the Company agrees to sell to Subscriber, the number of
shares of Common Stock at a purchase price of $0.195 per share for the
investment amount set forth upon the signature page hereof against payment made
by personal or business check, or money order made payable to "American Stock
Transfer & Trust Company" (the "Escrow Agent"), F/B/O Sparta Commercial
Services, Inc., at the address set forth in Section 3.1, contemporaneously with
the execution and delivery of this Agreement. Subscriber may also pay by wire
transfer of immediately available funds to:
▇.▇. ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇
▇/▇ # ▇▇▇ ▇▇▇▇▇▇
▇▇▇ # 021 000 021
American Stock Transfer & Trust Company
As Agent for SPARTA COMMERCIAL SERVICES, INC.
The shares of Common Stock to be issued to the Subscriber in connection with its
purchase hereunder shall be delivered by the Company to Subscriber within 10
days following the applicable Closing (as defined in Section 3.1) relating to
the purchase and sale of the Common Stock by Subscriber.
1.2. The Subscriber recognizes that the purchase of the Common Stock
involves a high degree of risk including, but not limited to, the following: (i)
an investment in the Company is highly speculative, and only investors who can
afford the loss of their entire investment should consider investing in the
Company and the Common Stock; (ii) the Subscriber may not be able to liquidate
his, her or its investment; (iii) transferability of Securities is extremely
limited; and (iv) in the event of a disposition of the Securities, the
Subscriber could sustain the loss of his, her or its entire investment.
1.3. The Subscriber represents that the Subscriber is an "accredited
investor", as indicated by the Subscriber's responses to the questions contained
in ARTICLE VII hereof. If the Subscriber is a natural person, the Subscriber has
reached the age of majority in the state or other jurisdiction in which the
Subscriber resides. In addition, the Subscriber represents that the Subscriber
has adequate means of providing for the Subscriber's current financial needs and
contingencies, is able to bear the substantial economic risks of an investment
in the Securities for an indefinite period of time, has no need for liquidity in
such investment and, at the present time, could afford a complete loss of such
investment.
1.4. The Subscriber hereby acknowledges and represents that (i) the
Subscriber has prior investment experience, including investment in securities
which are non-listed, unregistered and/or not traded on the Nasdaq National or
SmallCap Market, a national stock exchange or on the National Association of
Securities Dealers, Inc. (the "NASD") automated quotation system for actively
traded stocks ("Nasdaq"), or the Subscriber has employed the services of an
investment advisor, attorney and/or accountant to read all of the documents
furnished or made available by the Company to the Subscriber and to all other
prospective purchasers of Common Stock and to evaluate the merits and risks of
such an investment on the Subscriber's behalf; (ii) the Subscriber recognizes
the highly speculative nature of this investment; and (iii) the Subscriber is
able to bear the economic risk which the Subscriber hereby assumes.
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1.5. The Subscriber hereby acknowledges that it has been furnished with,
or has had an opportunity to acquire and carefully review, (i) the Company's
Annual Report on Form 10-KSB for the fiscal year ended April 30, 2005 (the
"10-KSB"), (ii) the Company's Quarterly Reports on Form 10-QSB for the quarters
ended July 31, 2005 and October 31, 2005 (the "10-QSBs"), (iii) the Company's
Current Reports on Form 8-K filed with the Securities and Exchange Commission
(the "SEC") on July 28, 2005 and August 03, 2005 (the "8-Ks"), (iv) such other
reports on filed by the Company with the SEC subsequent to December 19, 2005
("Additional Reports" and together with the 10-KSB, the 10-QSBs and the 8-Ks,
the "SEC Documents"), and (iv) the Confidential Private Placement Memorandum
describing the terms of the Offering (the "Confidential Private Placement
Memorandum"). The Subscriber further represents that the Subscriber has been
furnished by the Company during the course of this transaction with all
information regarding the Company which the Subscriber, his, her or its
investment advisor, attorney and/or accountant has requested or desired to know,
has been afforded the opportunity to ask questions of and receive answers from
duly authorized officers or other representatives of the Company concerning the
terms and conditions of the Offering, and has received any additional
information which the Subscriber has requested. The SEC Documents, this
Agreement and the Confidential Private Placement Memorandum are collectively
referred to herein as the "Offering Documents."
1.6. (a) The Subscriber has relied solely upon the information provided by
the Company in making the Subscriber's decision to invest in the Common Stock.
The Subscriber is familiar with and understands the terms of the Offering,
including the rights to which the Subscriber is entitled under this Agreement
and the Securities. The Subscriber has been furnished with and has carefully
read the Offering Documents. In evaluating the suitability of an investment in
the Company, the Subscriber has not relied upon any representation or other
information (whether oral or written) from the Company, or any agent, employee
or affiliate of the Company or any other third party other than as set forth in
the Offering Documents and the results of Subscriber's own independent
investigation. To the extent necessary, the Subscriber has retained, at
his/her/its sole expense, and relied upon appropriate professional advice
regarding the investment, tax and legal merits and consequences of this
Agreement and the purchase of the Common Stock hereunder.
(b) The Subscriber represents that no shares of Common Stock were offered
or sold to it by means of any form of general solicitation or general
advertising, and in connection therewith the Subscriber did not: (A) receive or
review any advertisement, article, notice or other communication published in a
newspaper or magazine or similar media or broadcast over television or radio
whether closed circuit, or generally available; or (B) attend any seminar
meeting or industry investor conference whose attendees were invited by any
general solicitation or general advertising.
1.7. The Subscriber hereby represents that the Subscriber, either by
reason of the Subscriber's business or financial experience or the business or
financial experience of the Subscriber's professional advisors (who are
unaffiliated with, and who are not compensated by, the Company or any affiliate
or selling agent of the Company, including Maxim Group LLC (the "Placement
Agent") or any selected dealers, directly or indirectly), has the capacity to
protect the Subscriber's own interests in connection with the transaction
contemplated hereby. The Subscriber acknowledges that the Placement Agent is
acting as placement agent for the
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Securities being offered hereby and will be compensated by the Company for
acting in such capacity. The Subscriber further acknowledges that the Placement
Agent has acted solely as agent of the Company in connection with the offering
of the Common Stock by the Company, that the information and data provided to
the Subscriber in connection with the transactions contemplated hereby have not
been subjected to independent verification by the Placement Agent, and that the
Placement Agent makes no representation or warranty with respect to the accuracy
or completeness of such information, data or other related disclosure material.
1.8. The Subscriber hereby acknowledges that the Offering has not been
reviewed by the SEC or any state securities regulatory authority or other
governmental body or agency since the Offering is intended to be exempt from the
registration requirements of Section 5 of the Act pursuant to Regulation D
promulgated under the Act. The Subscriber shall not sell or otherwise transfer
the Securities unless they are registered under the Act or unless an exemption
from such registration is available. The Subscriber understands that if required
by the laws or regulations or any applicable jurisdictions, the Offering
contemplated hereby will be submitted to the appropriate authorities of such
state(s) for registration of exemption therefrom.
1.9. The Subscriber understands that the Securities have not been
registered under the Act by reason of a claimed exemption under the provisions
of the Act which depends, in part, upon the Subscriber's investment intention.
In this connection, the Subscriber hereby represents that the Subscriber is
purchasing the Securities for the Subscriber's own account for investment
purposes only and not with a view toward the resale or distribution to others
and has no contract, undertaking, agreement or other arrangement, in existence
or contemplated, to sell, pledge, assign or otherwise transfer the Securities to
any other person. The Subscriber, if an entity, also represents that it was not
formed for the purpose of purchasing the Securities.
1.10. The Subscriber understands that Rule 144 promulgated under the Act
("Rule 144") requires, among other conditions, a minimum holding period of
one-year prior to the resale (in limited amounts) of securities acquired in a
non-public offering without having to satisfy the registration requirements
under the Act. The Subscriber understands and hereby acknowledges that the
Company is under no obligation to register the Securities under the Act or any
state securities or "blue sky" laws or to assist the Subscriber in obtaining an
exemption from various registration requirements, other than as set forth in
ARTICLE V herein. The Subscriber agrees to hold the Company and its directors,
officers, employees, controlling persons and agents (including the Placement
Agent and its managers, members, officers, directors, employees, counsel,
controlling persons and agents) and their respective heirs, representatives,
successors and assigns harmless from and to indemnify them against all
liabilities, costs and expenses incurred by them as a result of (i) any
misrepresentation made by the Subscriber contained in this Agreement (including
the Confidential Investor Questionnaire contained in ARTICLE VII herein), (ii)
any sale or distribution by the Subscriber in violation of the Act or any
applicable state securities or "blue sky" laws or (iii) any untrue statement of
a material fact made by the Subscriber and contained herein.
1.11. The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Securities substantially as set
forth below, that such Securities have not been registered under the Act or any
state securities or "blue sky" laws and setting forth or referring to the
restrictions on transferability and sale thereof contained in this Agreement.
The Subscriber is aware that the Company will make a notation in its appropriate
records with respect to the restrictions on the transferability of the
Securities.
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
1.12. The Subscriber agrees to supply the Company, within five (5) days
after the Subscriber receives the request therefor from the Company, with such
additional information concerning the Subscriber as the Company deems necessary
or advisable.
1.13. The Subscriber hereby represents that the address of the Subscriber
furnished by Subscriber on the signature page hereof is the Subscriber's
principal residence, if Subscriber is an individual, or its principal business
address, if it is a corporation or other entity.
1.14. The Subscriber represents that the Subscriber has full power and
authority (corporate, statutory and otherwise) to execute, deliver, and perform
this Agreement and to purchase the Securities. This Agreement constitutes the
legal, valid and binding obligation of the Subscriber, enforceable against the
Subscriber in accordance with its terms.
1.15. If the Subscriber is a corporation, partnership, limited liability
company, trust, employee benefit plan, individual retirement account, ▇▇▇▇▇
Plan, or other entity (a) it is authorized and qualified to become an investor
in the Company and the person signing this Agreement on behalf of such entity
has been duly authorized by such entity to do so and (b) it is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
1.16. The Subscriber acknowledges that if he or she is a Registered
Representative of an NASD member firm, he or she must give such firm the notice
required by the NASD Rules of Fair Practice, receipt of which must be
acknowledged by such firm in Section 7.4 below.
1.17. The Subscriber acknowledges and agrees that it shall not be entitled
to seek any remedies with respect to the Offering from any party other than the
Company.
1.18. The Subscriber understands, acknowledges and agrees with the Company
that this subscription (the "Subscription") may be rejected, in whole or in
part, by the Company, in the sole and absolute discretion of the Company, at any
time before the applicable Closing with respect to the shares of Common Stock
subscribed for by the Subscriber, notwithstanding prior receipt by the
Subscriber of notice of acceptance of the Subscriber's Subscription.
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1.19. The Subscriber understands, acknowledges and agrees with the Company
that, except as otherwise set forth herein, the subscription hereunder is
irrevocable by the Subscriber, that, except as required by law, the Subscriber
is not entitled to cancel, terminate or revoke this Agreement or any agreements
of the Subscriber hereunder and that this Agreement and such other agreements
shall survive the death or disability of the Subscriber and shall be binding
upon and inure to the benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and permitted assigns. If the
Subscriber is more than one person, the obligations of the Subscriber hereunder
shall be joint and several and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and his/her heirs, executors, administrators, successors,
legal representatives and permitted assigns.
1.20. The Subscriber understands, acknowledges and agrees with the Company
that the Offering is intended to be exempt from registration under the Act by
virtue of Section 4(2) of the Act and the provisions of Regulation D thereunder,
which is in part dependent upon the truth, completeness and accuracy of the
statements made by the Subscriber.
1.21. The Subscriber understands, acknowledges and agrees with the Company
that there can be no assurance that the Subscriber will be able to sell or
dispose of the Securities. It is understood that in order not to jeopardize the
Offering's exempt status under Section 4(2) of the Act and Regulation D, any
transferee may, at a minimum, be required to fulfill the investor suitability
requirements thereunder.
1.22. The Subscriber understands that all information regarding the
Offering is confidential and represents that it will not be used for any purpose
other than in connection with his, her or its consideration of a purchase of the
Securities and agrees to treat it in a confidential manner. The Subscriber has
not, during the last thirty (30) days prior to the date hereof, directly or
indirectly, nor has any party acting on behalf of or pursuant to any
understanding with such Subscriber, effected or agreed to effect any short sale,
whether or not against the box, established any "put equivalent position" (as
defined in Rule 16(a)-1(h) under the Exchange Act) with respect to the Common
Stock, granted any other right (including, without limitation, any put or call
option) with respect to the Common Stock or with respect to any security that
includes, relates to, or derives any significant part of its value from the
Common Stock or otherwise sought to hedge its position in the Company's
securities. For the purposes of this Section 1.22, short sales and hedging
activities include, without limitation, all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, short sales, swaps, and
similar arrangements (including on a total return basis), and sales and other
transactions through non-U.S. broker-dealers or foreign regulated brokers having
the effect of hedging the securities or investment made under this Agreement.
The Subscriber acknowledges and agrees that in order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to any
shares of the Common Stock or securities exchangeable, convertible or
exercisable for shares of the Common Stock.
1.23. The Subscriber acknowledges that the information contained in the
Offering Documents or otherwise made available to the Subscriber is confidential
and non-public and agrees that all such information shall be kept in confidence
by the Subscriber and neither be used by the Subscriber for the Subscriber's
personal benefit (other than in connection with this
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Subscription) nor disclosed to any third party for any reason, notwithstanding
that the Subscriber's Subscription may not be accepted by the Company; provided,
however, that this obligation shall not apply to any such information that (i)
is part of the public knowledge or literature and readily accessible as of the
date hereof, (ii) becomes part of the public knowledge or literature and readily
accessible by publication (except as a result of a breach of this provision), or
(iii) is received from third parties (except third parties who disclose such
information in violation of any confidentiality agreements or obligations,
including, without limitation, any subscription or other similar agreement
entered into with the Company).
1.24. If the Subscriber is purchasing the Common Stock in a fiduciary
capacity for another person or entity, including without limitation a
corporation, partnership, trust or any other entity, the Subscriber has been
duly authorized and empowered to execute this Agreement and all other
subscription documents, and such other person fulfills all the requirements for
purchase of the Common Stock as such requirements are set forth herein, concurs
in the purchase of the Common Stock and agrees to be bound by the obligations,
representations, warranties and covenants contained herein. Upon request of the
Company, the Subscriber will provide true, complete and current copies of all
relevant documents creating the Subscriber, authorizing its investment in the
Company and/or evidencing the satisfaction of the foregoing.
1.25. No authorization, approval, consent or license of any person is
required to be obtained for the purchase of the Common Stock by the Subscriber,
other than those that have been obtained and are in full force and effect. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, result in any violation of or
constitute a default under any material agreement or other instrument to which
the Subscriber is a party or by which the Subscriber or any of its properties
are bound, or to the best of the Subscriber's knowledge, any permit, franchise,
judgment, order, decree, statute, rule or regulation to which the Subscriber or
any of its businesses or properties is subject.
1.26. The representations, warranties and agreements of the Subscriber
contained herein and in any other writing delivered in connection with the
transactions contemplated hereby shall be true and correct in all respects on
and as of the Closing Date of the sale of the Common Stock to the Subscriber as
if made on and as of such date and shall survive the execution and delivery of
this Agreement and the purchase of the Common Stock.
1.27. The Subscriber acknowledges that the Placement Agent (including any
of its members, managers, employees, agents or representatives) has not made any
representations or warranties to the Subscriber concerning the Company and its
Subsidiary and their respective businesses, condition (financial or otherwise)
or prospects.
1.28. The Placement Agent shall be entitled to rely upon the
representations, warranties and covenants of the Subscriber set forth in this
Agreement.
1.29. The Subscriber understands that (i) the Offering is contingent upon
the sale of shares of Common Stock representing at least $1,000,000 for the
initial closing to occur (the "Minimum Offering"), and the Company may not close
on the Subscriber's Subscription unless it receives subscriptions for the
Minimum Offering, (ii) following the initial closing, the Company may complete
additional closings from time to time until it has sold the maximum number of
shares of Common Stock pursuant to the Offering and (iii) the Company is under
no obligation to, and there can be no assurance that, the Company will receive
or accept subscriptions for the aggregate number of Common Stock that may be
sold by the Company pursuant to the Offering.
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ARTICLE II.
REPRESENTATIONS BY AND COVENANTS OF THE COMPANY
The Company hereby represents and warrants to the Subscriber that, except
as set forth in the Schedules hereto:
2.1. Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of Nevada, and the Company
has the requisite corporate power and authority to own or lease its properties
and to carry on its business as now being conducted. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the property owned or leased by it or the nature of
the business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or in good standing could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" shall
mean, as to any entity, any material adverse effect on the business, operations,
conditions (financial or otherwise), assets, results of operations or prospects
of the Company and its Subsidiary (as defined below) as a whole.
2.2. Capitalization; Organizational Documents; Subsidiary.
(a) The authorized capital stock of the Company consists of 350,000,000
shares of capital stock, of which (i) 340,000,000 are classified as Common
Stock, and (ii) 10,000,000 are classified as "blank check" preferred stock, par
value $.001 per share, of which, 35,850 are designated as Series A Convertible
Preferred Stock. As of the date of the Confidential Private Placement
Memorandum, 88,084,921 shares of Common Stock and 35,850 shares of Series A
Convertible Preferred Stock and no other shares of capital stock of the Company
(other than the securities described in the Confidential Private Placement
Memorandum) are or will be issued and outstanding. Other than the Series A
Preferred Stock, there are no other shares of Preferred Stock authorized for
issuance or outstanding. As of the date of the Confidential Private Placement
Memorandum, the Company has reserved 38,134,992 shares of Common Stock for
issuance upon the exercise or conversion of outstanding convertible securities.
All of the outstanding shares of capital stock have been duly and validly issued
and are fully paid and nonassessable and have been issued in accordance with all
applicable federal and state securities laws. No shares of capital stock are
subject to preemptive rights or any other similar rights or any liens suffered
or permitted by the Company. Except as disclosed in the Offering Documents, as
of the date hereof, there are no outstanding options, warrants, scrips, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company, or contracts, commitments, understandings or arrangements by which the
Company is or may become bound to issue additional shares of capital stock.
There are no preemptive rights or rights of first refusal or similar rights
which are binding on the Company permitting any person to subscribe for or
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purchase from the Company shares of its capital stock pursuant to any provision
of law, the Articles of Incorporation (as defined below) or the By-laws (as
defined below) or by agreement or otherwise. There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities. The Company has made available to
the Subscriber true and correct copies of the Company's Articles of
Incorporation, as amended and as in effect on the date hereof (the "Articles of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"). The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Company are as set forth in the Articles of Incorporation,
and all such designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and enforceable against the
Company and in accordance with all applicable laws, rules and regulations.
Except as set forth in the Confidential Private Placement Memorandum and
pursuant to the Offering, no person holds any right to require the Company to
register any securities of the Company under the Act or to participate in any
such registration.
(b) Upon issuance of the Securities and payment of the purchase price
therefor in accordance with the terms of this Agreement, the shares of Common
Stock will be duly authorized, validly issued, fully paid and nonassessable, and
free and clear of any restrictions on transfer and any taxes, claims, liens,
pledges, options, security interests, purchase rights, preemptive rights,
trusts, encumbrances or other rights or interests of any other person (other
than any restrictions under the Act).
(c) The sole subsidiary of the Company, Sparta Commercial Services, LLC
(the "Subsidiary"), has been duly organized, is validly existing and in good
standing under the laws of the jurisdiction of its organization, has the power
and authority to own its properties and to conduct its business and is duly
qualified and authorized to transact business and is in good standing in each
jurisdiction in which the conduct of its business or the nature of its
properties requires such qualification or authorization, except where the
failure to be so qualified or authorized and in good standing could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. All of the issued and outstanding capital stock of the
Subsidiary is owned, directly or indirectly, by the Company, in each case, free
and clear of any liens, and has been duly authorized and validly issued, and is
non-assessable. Except for the Subsidiary, the Company does not presently own or
control, directly or indirectly, any interest in any other subsidiary,
corporation, association or other business entity. The Company is not a party to
any joint venture, partnership or similar arrangement.
2.3. Authorization; Enforcement. (a) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the subscription agreements with the other Subscribers (together
with the Subscriber, the "Subscribers") and any other documents to be entered
into in connection with the Offering (collectively, the "Offering Agreements")
and to issue and sell the Securities and perform its obligations with respect
thereto and under the Offering Agreements in accordance with the terms hereof
and thereof, (b) the execution and delivery of the Offering Agreements by the
Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of the Company and
no further consent or authorization is required by the Company, the Board of
Directors of the Company or its respective stockholders, and (c) this Agreement
has been duly executed and delivered by the Company and the other Offering
Agreements, when
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executed and delivered by the Company, will be duly executed and delivered by
the Company. No corporate proceedings on the part of the Company are necessary
to approve and authorize the execution and delivery of this Agreement or the
other Offering Agreements and the issuance of the Securities. This Agreement
constitutes, and the other Offering Agreements, when executed and delivered by
the Company, will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
2.4. No Conflicts. The execution, delivery and performance of this
Agreement and the other Offering Agreements by the Company, and the consummation
by the Company of the transactions contemplated hereby and thereby will not (a)
result in a violation of the Articles of Incorporation, the By-laws or the
certificate of incorporation, by-laws or other organizational documents of any
Subsidiary, or (b) violate or conflict with, or result in a breach of, any
provision of, 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, or result in the
creation of any lien on or against any of the properties of the Company or any
Subsidiary pursuant to, any note, bond, mortgage, agreement, license, indenture
or instrument to which the Company or any Subsidiary is a party, or result in a
violation of any statute, law, rule, regulation, writ, injunction, order,
judgment or decree applicable to the Company or any Subsidiary or by which any
property or asset of the Company or any Subsidiary is bound or affected, except
where such violation, conflict, breach or other consequence would not have a
Material Adverse Effect. Except as disclosed in the Offering Documents, neither
the Company nor any Subsidiary is in violation of any term of or in default
under its certificate of incorporation, by-laws or other organizational
documents or in violation of any material term of, or in default under, any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or any Subsidiary. Except as specifically contemplated by this Agreement
and the consummation of the transactions contemplated hereby and thereby, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental or regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by this Agreement in accordance with the terms
hereof, other than (i) filings pursuant to federal and state securities laws in
connection with the sale of the Common Stock and (ii) the registration of the
Registrable Securities (as defined in Section 5.1(h)) with the SEC and filings
pursuant to state securities laws. All consents, authorizations, orders, filings
and registrations that the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof, and those which are required to be made after the Closing and which will
be duly made on a timely basis.
2.5. SEC Documents; Financial Statements.
(a) Since February 27, 2004, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (all of the foregoing, and all other documents
and registration statements heretofore filed by the Company with the SEC being
hereinafter referred to as the "SEC Filed Documents"). None of
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the SEC Filed Documents, at the time they were filed with the SEC (except those
SEC Filed Documents that were subsequently amended), contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included (or
incorporated by reference) in the SEC Filed Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto (except those SEC Filed Documents that were subsequently
amended). Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (a) as may be otherwise indicated in such financial
statements or the notes thereto, or (b) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company and its Subsidiary as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). As of
the date hereof, the Company has, on a timely basis, made all filings required
to be made by the Company with the SEC.
(b) Except as set forth in the Offering Documents, neither the Company nor
any Subsidiary has incurred any material liabilities of any kind, whether
accrued, absolute, contingent or otherwise or entered into any material
transactions except in the ordinary course of business. The other historical
financial and statistical information with respect to the Company included in
the SEC Documents presents fairly in all material respects the information shown
therein on a basis consistent with the audited and unaudited financial
statements of the Company included in the SEC Documents. The Company does not
know of any facts, circumstances or conditions materially adversely affecting
its operations, earnings or prospects which have not been fully disclosed in the
Offering Documents.
(c) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ LLP has expressed its opinion
with respect to the audited financial statements which form a part of the
Company's Annual Report on Form 10-KSB for the fiscal year ended April 30, 2005,
and are independent accountants as required by the Act and the rules and
regulations thereunder.
(d) In particular, each of the SEC Documents as of its date (or date of
filing with the SEC, as applicable), did not contain an untrue statement of a
material fact or omit or will omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were or will be made, not misleading.
2.6. Securities Law Exemption. Assuming the truth and accuracy of the
Subscriber's representations and warranties in this Agreement and the truth and
accuracy of each of the other Subscribers' representations and warranties set
forth in the subscription agreements executed by such other Subscribers, the
offer, sale and issuance of the Common Stock as contemplated by this Agreement
and the other subscription agreements are exempt from the registration
requirements of the Act and applicable state securities laws, and neither the
Company nor any authorized agent acting on its behalf has taken or will take any
action hereafter that would cause the loss of such exemption.
-11-
2.7. Litigation.
(a) All actions, suits, arbitrations or other proceedings or, to the
Company's best knowledge, investigations pending or threatened against the
Company or any Subsidiary that would have a Material Adverse Effect on the
Company, are disclosed in the Offering Documents. There is no action, suit,
proceeding or, to the Company's knowledge, investigation that questions this
Agreement or the right of the Company to execute, deliver and perform its
obligations hereunder or under any of the other Offering Agreements.
(b) There are no actions, proceedings, claims or investigations before or
by any court or governmental authority (or any state of facts which management
of the Company has concluded could give rise thereto) pending or, to the best
knowledge of the Company, threatened, against the Company's or any Subsidiary's
officers or directors which, if determined adversely to such officer or
director, could have a Material Adverse Effect or adversely affect the
transactions contemplated by this Agreement or the enforceability thereof or
which are required to be disclosed to the Subscriber and the other subscribers
of the Securities under the Act, the Exchange Act or any SEC rules or
regulations promulgated thereunder or are material to an investor's evaluation
of the Company.
2.8. Intellectual Property. Except as set forth in the Offering Documents,
each of the Company and the Subsidiary owns or possesses adequate and
enforceable rights to use all material patents, patent applications, trademarks,
service marks, trade names, logos, corporate names, copyrights, trade secrets,
processes, mask works, licenses, inventions, formulations, technology and
know-how and other intangible property used or proposed to be used in the
conduct of its business as described in or contemplated by the Offering
Documents (the "Proprietary Rights"). Except as set forth in the Offering
Documents, each of the Company or the Subsidiary or the entities from whom the
Company or the Subsidiary has acquired rights has taken all necessary action to
protect all of the Proprietary Rights. Except as set forth in the Offering
Documents, neither the Company nor any Subsidiary has received any notice of,
and there are not any facts known to the Company or any Subsidiary which
indicate the existence of (i) any infringement or misappropriation by any third
party of any of the Proprietary Rights, (ii) any claim by a third party
contesting the validity of any of the Proprietary Rights or (iii) any
infringement, misappropriation or violation by the Company or any Subsidiary or
any of their employees of any Proprietary Rights of third parties. To the best
of the Company's knowledge, neither the Company, the Subsidiary nor any of their
employees has infringed, misappropriated or otherwise violated any Proprietary
Rights of any third parties. To the Company's best knowledge, neither the
Proprietary Rights, products or services currently sold by the Company or any
Subsidiary or currently under development by the Company or any Subsidiary nor
the conduct of the Company's or any Subsidiary's business as currently
contemplated infringe, illicit, copy, misappropriate or violate any intellectual
property rights of any third party. Except as set forth in the Offering
Documents, the Company is not aware that any of its or any Subsidiary's
employees are obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of the employee's best efforts to promote the interests of the Company
or that would conflict with the Company's or any Subsidiary's business as
currently conducted or as proposed to be conducted. To the Company's best
knowledge, neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's or any Subsidiary's business by the employees of
the Company or any Subsidiary, nor the conduct of the Company's or any
Subsidiary's business, as currently conducted or as proposed to be conducted,
will conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument under
which any such employee is now obligated.
-12-
2.9. Title to Property and Assets. Each of the Company and the Subsidiary
has good and marketable title to or, in the case of leases and licenses, has
valid and subsisting leasehold interests or licenses in, all of its properties
and assets (whether real or personal, tangible or intangible) free and clear of
any liens or other encumbrances, except for liens or other encumbrances that do
not, individually or in the aggregate, have a Material Adverse Effect. With
respect to property leased by the Company or any Subsidiary, each of the Company
and the Subsidiary, as the case may be, has a valid leasehold interest in such
property pursuant to leases which are in full force and effect, and each of the
Company and the Subsidiary, as the case may be, is in compliance in all material
respects with the provisions of such leases.
2.10. Compliance with Laws. Except as set forth in the Offering Documents,
each of the Company and the Subsidiary is and has been in compliance in all
material respects with all laws, rules, regulations, orders, judgments or
decrees that are applicable to it, the conduct of its business as presently
conducted and as proposed to be conducted, and the ownership of its property and
assets (including, without limitation, all Environmental Laws (as defined
below), laws related to occupational safety, health, wage and hour, and
employment discrimination), and neither the Company nor any Subsidiary is aware
of any state of facts, events, conditions or occurrences which may now or
hereafter constitute or result in a violation of any of such laws, rules,
regulations, orders, judgments or decrees or which may give rise to the
assertion of any such violation, except where such violation or violations do
not have a Material Adverse Effect. All required reports and filings with
governmental authorities have been properly made as and when required, except
where the failure to report or file would not, individually or in the aggregate,
have a Material Adverse Effect. In addition, the Company is in compliance in all
material respects with the provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002.
"Environmental Laws" means all federal, state, local and foreign laws,
ordinances, treaties, rules, regulations, guidelines and permit conditions
relating to contamination or pollution of the environment (including ambient
air, surface water, ground water, land surface or subsurface strata) or the
protection of human health and worker safety, including, without limitation,
laws and regulations relating to transportation, storage, use, manufacture,
disposal or release of, or exposure of employees or others to, Hazardous
Materials (as defined below) or emissions, discharges, releases or threatened
releases of Hazardous Materials. "Hazardous Materials" means any substance that
has been designated by any governmental entity or by applicable Environmental
Laws to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, urea
formaldehyde and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, or defined as a hazardous waste pursuant to the Resource
Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to Environmental Laws, but excluding office and janitorial
supplies maintained in accordance with Environmental Laws.
2.11. Licenses and Permits.
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(a) Each of the Company and the Subsidiary has obtained and maintains all
federal, state, local and foreign licenses, permits, consents, approvals,
registrations, authorizations and qualifications required to be maintained in
connection with the operations of the Company and the Subsidiary as presently
conducted and as proposed to be conducted, except where the failure to obtain or
maintain such licenses, permits, consents, approvals, registrations,
authorizations and qualifications could not have a Material Adverse Effect.
Neither the Company nor any Subsidiary is in default in any material respect
under any of such licenses, permits, consents, approvals, registrations,
memberships, authorizations and qualifications.
(b) To the best of the Company's knowledge, the conduct of its and its
Subsidiary's business as presently and proposed to be conducted is not presently
subject to continuing oversight, supervision, regulation or examination by any
governmental official or body of the United States or any other jurisdiction
wherein the Company or its Subsidiary conducts or proposes to conduct such
business, except as described in the Offering Documents and except such
regulation as is applicable to commercial enterprises generally.
2.12. Changes. Since April 30, 2005, except as set forth in the Offering
Documents, each of the Company and its Subsidiary has operated its business in
the ordinary course of business and, to the best knowledge of the Company, there
has not been, or the Company has not (as the case may be):
(a) any Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by insurance,
which would have a Material Adverse Effect;
(c) any waiver or compromise by the Company or any Subsidiary of a
valuable right or of a material debt owed it;
(d)sold, encumbered, assigned or transferred any material assets or
properties of the Company or any Subsidiary, other than in the ordinary course
of business;
(e) incurred any liability, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, other than (i) in the ordinary
course of business or (ii) liabilities that are not, individually or in the
aggregate, material to the business, operations, condition (financial or
otherwise), assets, results of operations or prospects of the Company or any
Subsidiary;
(f) created, incurred, assumed or guaranteed any indebtedness or subjected
any of its assets to any lien or encumbrance, except for indebtedness, liens or
encumbrances that are not, individually or in the aggregate, material to the
business, operations, condition (financial or otherwise), assets, results of
operations or prospects of the Company or any Subsidiary;
(g) declared, set aside or paid any dividends or made any other
distributions in cash or property on the Company's or any Subsidiary's capital
stock;
(h) directly or indirectly redeemed, purchased or otherwise acquired any
shares of capital stock of the Company or any Subsidiary;
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(i) suffered any resignation or termination of employment of any key
officers or employees;
(j) except in the ordinary course of business, materially increased the
compensation payable or to become payable by the Company or any Subsidiary to
any of its officers, employees or directors or materially increased any bonus,
insurance, pension or other employee benefit plan, payment or arrangement made
by the Company or any Subsidiary for or with any such officers, employees or
directors;
(k) made any direct or indirect loan to any stockholder, employee, officer
or director of the Company or any Subsidiary, other than advances made in the
ordinary course of business;
(l) changed any agreement to which it is a party which would have a
Material Adverse Effect; or
(m) entered into any agreement or commitment to do any of the things
described in this Section 2.12.
2.13. Employee Benefit Plans. All "employee benefit plans," as such term
is defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), to which the Company or any Subsidiary has any liability or
obligation, contingent or otherwise, comply in all material respects and have
been maintained and administered in material compliance with ERISA, the Internal
Revenue Code of 1986, as amended (the "Code"), and all other statutes, orders
and governmental rules and regulations applicable to such employee benefit
plans. To the Company's best knowledge, neither the Company nor any Subsidiary
has incurred any liability pursuant to ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans (as defined in ERISA),
and no event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such liability by the
Company or any Subsidiary, or in the imposition of any lien on any of the
rights, properties or assets of the Company or any Subsidiary pursuant to ERISA
or to such penalty or excise tax provisions of the Code. Neither the Company nor
any Subsidiary maintains or contributes to, nor has it maintained or contributed
to, any "multiemployer plan," as such term is defined in ERISA.
2.14. Taxes. Each of the Company and its Subsidiary has timely filed all
tax returns and reports (federal, state and local) required to be filed and
these returns and reports are true and correct in all material respects. Each of
the Company and the Subsidiary has paid all taxes and other assessments shown to
be due on such returns or reports. Neither the Internal Revenue Service nor any
state or local taxing authority has, during the past three (3) years, examined
or informed the Company or any Subsidiary that it is in the process of examining
any such tax returns and reports. The provision for taxes of the Company and its
Subsidiary, as shown on the financial statements included in the most recent
Offering Documents, is adequate for taxes due or accrued as of the date thereof
and since that date each of the Company and the Subsidiary has provided adequate
accruals in accordance with generally accepted accounting principals in its
financial statements for any taxes incurred that have not been paid, whether or
not shown as being due on any tax returns. Neither the Company nor any
Subsidiary has elected, pursuant to
-15-
the Code, to be treated as a collapsible corporation pursuant to Section 341(f)
of the Code, nor has it made any other elections pursuant to the Code (other
than elections that relate solely to methods of accounting, depreciation or
amortization) that would have a Material Adverse Effect.
2.15. Insurance. The Company and its Subsidiary does not presently have in
full force and effect fire, casualty and liability insurance policies, with
extended coverage, sufficient in amount (subject to reasonable deductibles) to
allow the Company and its Subsidiary to replace any of its properties that might
be damaged or destroyed to the extent and in the manner customary for companies
in similar business similarly situated.
2.16. Employees.
(a) Neither the Company nor any Subsidiary has any collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company's best knowledge, threatened with respect to
the Company or any Subsidiary. To the Company's best knowledge, no officer or
key employee intends to terminate their employment with the Company or any
Subsidiary, nor does the Company or any Subsidiary have a present intention to
terminate the employment of any of the foregoing. All material employment
arrangements existing or proposed to exist with the Company's or any
Subsidiary's officers and prospective officers have been fully disclosed in the
Offering Documents, provided that, with respect to arrangements with prospective
officers, definitive employment agreements have not yet been executed and such
arrangements are subject to change based on any further negotiation with such
prospective officers.
(b) To the best knowledge of the Company, none of the Company's full-time
employees has entered into any non-competition, non-disclosure, confidentiality
or other similar agreement with any party other than the Company or any
Subsidiary, such employee is neither in violation thereof nor is expected to be
in violation thereof as a result of the business conducted or expected to be
conducted by the Company or any Subsidiary as described in the Offering
Documents or such person's performance of his or her obligations to the Company
or any Subsidiary; and neither the Company nor any Subsidiary has received
notice that any consultant or scientific advisor of the Company or any
Subsidiary is in violation of any non-competition, non-disclosure,
confidentiality or similar agreement.
2.17. Material Contracts. All contracts, agreements, instruments, leases,
licenses, arrangements, understandings or other documents to which each of the
Company or any Subsidiary is a party or by which it may be bound which are
required to be filed as exhibits to the SEC Filed Documents have been so filed
(the "Material Contracts"). The Material Contracts that have been filed as
exhibits are complete and correct copies of the contracts, agreements,
instruments, leases, licenses, arrangement, understanding or other documents of
which they purport to be copies. The Material Contracts are valid and in full
force and effect as to the Company and the Subsidiary, and, to the Company's
best knowledge, to the other parties thereto. Except as otherwise disclosed in
the Offering Documents, neither the Company nor any Subsidiary is in violation
of, or default under (and there does not exist any event or condition which,
after notice or lapse of time or both, would constitute such a default under),
the Material Contracts, except to the extent that such violations or defaults,
individually or in the aggregate, could not reasonably be expected to (a) affect
the validity of this Agreement or the other
-16-
Offering Documents, (b) have a Material Adverse Effect, or (c) impair the
ability of the Company or any Subsidiary to perform fully on a timely basis any
material obligation which the Company or any Subsidiary has or will have under
this Agreement or any other Offering Documents. To the Company's best knowledge,
except as set forth in the Offering Documents, none of the other parties to any
Material Contract are in violation of or default under any Material Contract in
any material respect. Neither the Company nor any Subsidiary has received any
notice of cancellation or any written communication threatening cancellation of
any Material Contract by any other party thereto. Neither the Company nor any
Subsidiary is a party to and is bound by any contract, agreement or instrument,
or subject to any restriction under its certificate of incorporation, by-laws or
other governing documents that would have a Material Adverse Effect.
2.18. Customers and Suppliers. Except as set forth in the Offering
Documents, no customer or supplier that was material to the Company or the
Subsidiary during the previous twenty-four (24) months has terminated,
materially reduced or threatened to terminate or material reduce its purchases
from or provision of products or services to the Company or the Subsidiary.
2.19. Disclosure. This Agreement, the Schedules and Exhibits hereto
(including, without limitation, the Offering Documents) and all other documents
delivered to the Subscriber in connection herewith at the Closing, do not
contain any untrue statement of a material fact, or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. There are no facts that,
individually or in the aggregate, would have a Material Adverse Effect that have
not been disclosed in the Offering Documents (including the Schedules and
Exhibits thereto) or any other documents delivered to the Subscriber in
connection herewith or therewith at the Closing.
2.20. No Integrated Offering. Except for the private placement described
in the Offering Documents (which offering was made solely to accredited
investors), neither the Company, the Subsidiary nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales in any security or solicited any offers to buy any security
under circumstances that would require registration under the Securities Act of
the issuance of the Shares to the Investors. Except for the private placement
described in the Offering Documents (which offering was made solely to
accredited investors), the issuance of the Shares to the Investors will not be
integrated with any past issuance of the Company's securities for purposes of
the Securities Act. Except for the private placement described in the Offering
Documents (which offering was made solely to accredited investors), the Company
has not sold or issued any shares of Common Stock, convertible notes or warrants
during the past six months, including sales pursuant to Rule 144A, Regulation D
or Regulation S under the Act, other than shares issued pursuant to employee
benefit plans, if any.
2.21. Offering Documents.
(a) Each of the Offering Documents has been diligently prepared by the
Company, in conjunction with its legal counsel, and is in compliance, in all
material respects, with Regulation D, the Act and the requirements of all other
rules and regulations of the SEC relating to offerings of the type contemplated
by the Offering, and the applicable securities laws
-17-
and the rules and regulations of those jurisdictions wherein the Securities are
to be offered and sold. The Securities will be offered and sold pursuant to the
registration exemption provided by Rule 506 under Regulation D and Section 4(2)
and/or Section 4(6) of the Act as a transaction not involving a public offering
and the requirements of any other applicable state securities laws and the
respective rules and regulations thereunder in those jurisdictions in which the
Securities are being offered for sale. The Offering Documents describe all
material aspects, including attendant risks, of an investment in the Company.
Neither the Company nor any Subsidiary has taken nor will it take any action
which conflicts with the conditions and requirements of, or which would make
unavailable with respect to the Offering, the exemption(s) from registration
available pursuant to Regulation D or Section 4(2) and/or Section 4(6) of the
Act and knows of no reason why any such exemption would be otherwise unavailable
to it. None of the Company, the Subsidiary or their predecessors or affiliates
has been subject to any order, judgment or decree of any court of competent
jurisdiction temporarily, preliminarily or permanently enjoining such persons
for failing to comply with Section 503 of Regulation D.
(b) None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact which the Company has not disclosed to the Subscriber in
writing and of which the Company is aware which has or could have a Material
Adverse Effect.
(c) Neither the Company nor any Subsidiary has distributed and will not
distribute prior to the Closing Date any offering material in connection with
the Offering other than the Offering Documents or any amendment or supplement
thereto.
2.22. Finders. Except for the amounts due and owing to the Placement Agent
pursuant to the Placement Agency Agreement referred to in Section 6.11(b) of
this Agreement, the Company is not obligated to pay a finder's or origination
fee or similar fee in connection with the Offering and agrees to indemnify the
Subscriber from any such claim made by any other person.
2.23. Transfer Taxes. On the applicable Closing Date, all stock transfer
or other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to the
Subscriber hereunder will be, or will have been, fully paid or provided for by
the Company and all laws imposing such taxes will be or will have been complied
with.
2.24. Contributions. Neither the Company nor any Subsidiary has directly
or indirectly, (i) made any unlawful contribution to any candidate for public
office, or failed to disclose fully where required by law any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
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2.25. Investment Company. The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.
2.26. Related Party Transactions. No transaction has occurred between or
among the Company or any Subsidiary and any of their affiliates, officers or
directors or any affiliate or affiliates of any such officer or director that is
required to be described in the Offering Documents that is not so described.
2.27. Books and Records. The books, records and accounts of the Company
and the Subsidiary accurately and fairly reflect, in reasonable detail, the
transactions in, and dispositions of, the assets of, and the results of
operations of, the Company and the Subsidiary, all to the extent required by
generally accepted accounting principles.
2.28 Internal Controls. The Company and the Subsidiary maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. the Company has established disclosure controls and
procedures (as defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including the Subsidiary, is made known to
the certifying officers by others within those entities, particularly during the
period in which the Company's most recently filed period report under the 1934
Act, as the case may be, is being prepared. The Company's certifying officers
have evaluated the effectiveness of its controls and procedures as of a date
within 90 days prior to the filing date of the most recently filed periodic
report under the 1934 Act (such date, the "Evaluation Date"). The Company
presented in its most recently filed periodic report under the 1934 Act the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in the
Company's internal controls (as such term is defined in Item 307(b) of
Regulation S-K) or, to the Company's knowledge, in other factors that could
significantly affect the Company's internal controls. The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP and the applicable requirements of the 1934
Act.
ARTICLE III.
TERMS OF SUBSCRIPTION
3.1. The minimum subscription by any single Subscriber shall be 51,282
shares of Common Stock; provided that the Company reserves the right to accept,
at the discretion of the Company and the Placement Agent, subscriptions for a
lesser number of shares of Common Stock. The Offering shall terminate at the
earlier of (i) 11:59 p.m. New York City time on March 31, 2006 (subject to
extension at the Company's discretion without notice to Subscriber
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until April 30, 2006) or (ii) such other date on which all of the shares of
Common Stock to be issued in the Offering are sold. The Company may conduct an
initial closing upon receipt of a properly executed copy of this Agreement from
the Subscriber or such other subscriber and the purchase price for the number of
shares of Common Stock being purchased by the Subscriber or such other
subscriber representing in the aggregate the Minimum Offering amount. The
initial closing of the purchase and sale of Common Stock pursuant to the
Offering shall be referred to herein as the "Initial Closing". The Company may
conduct additional closings (each, an "Additional Closing"; each Additional
Closing and the Initial Closing are referred to herein as a "Closing") until all
of the shares of Common Stock, including those subject to the over-allotment
option, are sold pursuant to the Offering (the date of each such Closing, the
"Closing Date"). In the event the Company shall not have obtained subscriptions
(including this subscription) for purchases of the Minimum Offering amount on or
before the termination date set forth above, then this subscription shall be
void and all funds paid hereunder by the Subscriber, without interest, shall be
returned to the Subscriber as set forth in Section 3.4.
3.2. Pending the sale of the Common Stock, all funds paid hereunder shall
be deposited by the Company in escrow with the Escrow Agent, having a branch at
▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇.
3.3. The Subscriber hereby authorizes and directs the Company to deliver
the Securities to be issued to the Subscriber pursuant to this Agreement to the
residential or business address indicated on the signature page hereto or to any
customer account maintained with the Placement Agent.
3.4. The Subscriber hereby authorizes and directs the Company to return,
without interest, any funds for unaccepted subscriptions (including any
subscriptions that were not accepted as a result of the termination of the
Offering) to the same account from which the funds were drawn, including any
customer account maintained with the Placement Agent.
3.5. The Company's agreement with each Subscriber is a separate agreement
and the sale of Common Stock to each Subscriber is a separate sale.
ARTICLE IV.
CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBER
4.1. The Subscriber's obligation to purchase Securities at the Closing is
subject to the fulfillment on or prior to the Closing of the following
conditions, which conditions may be waived at the option of the Subscriber to
the extent permitted by law:
(a) Representations and Warranties Correct. The representations and
warranties made by the Company in ARTICLE II hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date.
(b) Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to such purchase shall have
been performed or complied with in all material respects.
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(c) No Legal Order Pending. There shall not then be in effect any legal or
other order enjoining or restraining the transactions contemplated by this
Agreement.
(d) No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person which shall not have been
obtained to issue the Securities (except as otherwise provided in this
Agreement).
(e) Legal Opinion. The Investors shall have received a legal opinion from
the Company's counsel covering such matters as reasonably requested by the
Placement Agent.
ARTICLE V.
REGISTRATION RIGHTS
5.1. As used in this Agreement, the following terms shall have the
following meanings:
(a) "Affiliate" shall mean, with respect to any Person (as defined below),
any other Person controlling, controlled by or under direct or indirect common
control with such Person (for the purposes of this definition "control," when
used with respect to any specified Person, shall mean the power to direct the
management and policies of such Person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the
foregoing).
(b) "Business Day" shall mean a day Monday through Friday on which banks
are generally open for business in New York.
(c) "Holders" shall mean the Subscriber, all other subscribers for the
Securities, and any Person holding Registrable Securities or any Person to whom
the rights under ARTICLE V have been transferred in accordance with Section 5.10
hereof.
(d) "Person" shall mean any person, individual, corporation, limited
liability company, partnership, trust or other nongovernmental entity or any
governmental agency, court, authority or other body (whether foreign, federal,
state, local or otherwise).
(e) The terms "register," "registered" and "registration" refer to the
registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
(f) "Registrable Securities" shall mean the Common Stock sold hereunder;
provided, however, that securities shall only be treated as Registrable
Securities if and only for so long as they (A) have not been disposed of
pursuant to a registration statement declared effective by the SEC; (B) have not
been sold in a transaction exempt from the registration and prospectus delivery
requirements of the Act so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of such sale; (C)
are held by a Holder or a permitted transferee pursuant to Section 5.10; or (D)
have not become eligible for sale pursuant to Rule 144(k) (or any successor
thereto) under the Act.
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(g) "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Section 5.2 and 5.3 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and expenses of counsel for the Company, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration, and the fees of legal counsel for the Holders and the
Placement Agent up to $5,000 in the aggregate.
(h) "Registration Period" shall have the meaning ascribed to such term in
Section 5.2.
(i) "Registration Statement" shall mean any registration statement of the
Company filed under the Act that covers the resale of any of the Registrable
Securities pursuant to the provisions of this Agreement, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
(j) "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and, except to the
extent set forth in the definition of Registration Expenses, all fees and
expenses of legal counsel for any Holder.
5.2. Initial Registration. Subject to the terms herein, the Company will,
as soon as practicable but not later than thirty (30) days following the final
Closing (the thirtieth (30th) day following the final Closing is referred to as
the "Initial Filing Date"; provided that in the event the Initial Filing Date
shall fall within thirty (30) days of the due date of the Company's 10-KSB or
10-QSB, then the Initial Filing Date shall be extended for thirty (30) days (but
in no event shall the Initial Filing Date be longer than sixty (60) days
following the final Closing), (1) file with the SEC a Registration Statement
under the Act on the appropriate form of registration statement as is then
available to effect a registration for resale of the Registrable Securities by
the Holders and use its best efforts to have such Registration Statement
declared effective by the SEC within one hundred and twenty (120) days of the
final Closing (the "Effective Date"); and (2) cause such Registration Statement
to remain effective (the "Registration Period") until the earlier of (i) such
date as the holders of the Registrable Securities have completed the
distribution described in such Registration Statement or (ii) at such time that
all such shares have become eligible for sale pursuant to Rule 144(k) (or any
successor thereto) under the Act. To the extent permissible, such Registration
Statement also shall cover, to the extent allowable under the Act and the rules
promulgated thereunder (including Rule 416 under the Act), such indeterminate
number of additional shares of Common Stock resulting from stock splits, stock
dividends or similar transactions with respect to such Registrable Securities.
If a Registration Statement covering such Registrable Securities is not filed
with the SEC on or prior to the Initial Filing Date, then the Company shall pay
to each Holder of Registrable Securities a cash payment equal to 1.0% of the
aggregate purchase price paid by such Holder for such Registrable Securities for
each thirty (30) day period (or partial period, as the case may be) following
the Initial Filing Date that such Registration Statement is not filed with the
SEC. In the event the
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Registration Statement covering the Registrable Securities is not declared
effective by the SEC prior to the Effective Date and the Company has not
responded to any comment letter received from the SEC in connection with the
Registration Statement within thirty (30) days of receipt of such letter, the
Company shall pay each Holder of Registrable Securities a cash payment (in
addition to any increase resulting from the failure to file the Registration
Statement by the Initial Filing Date) equal to 1.0% of the aggregate purchase
price paid by such Holder for such Registrable Securities for each thirty (30)
day period (or partial period, as the case may be) following the Effective Date.
In addition, after the SEC has declared such Registration Statement effective,
in the event such Registration Statement does not remain effective (or the
Holders are unable to sell the Registrable Securities under such Registration
Statement) for a total of 60 days during any 12 month period, then the Company
shall pay each Holder of Registrable Securities a cash payment equal to 1.0% of
the aggregate purchase price paid by such Holder for such Registrable Securities
for each thirty (30) day period (or partial period, as the case may be) (or the
Holders are unable to sell the Registrable Securities under such Registration
Statement). The payments contemplated by this paragraph 5.2 shall be in partial
compensation to the Holders, and shall not constitute the Holders' exclusive
remedies for such events and the Holders shall have the remedy of specific
performance.
5.3. Piggyback Registrations. (a) If, at any time prior to the end of the
Registration Period, the Company proposes to register under the Act, for its own
account or the account of others, any of its equity securities (other than on
Form S-4 or Form S-8 or their then equivalents) and a Registration Statement
covering the Registrable Securities is not then effective, the Company shall
send to the Holders written notice of its intention to register such equity
securities, and if, within 30 days after the date of such notice, a Holder shall
so request in writing, the Company shall include in such registration all or any
part of the Registrable Securities such Holder requests to be registered.
Notwithstanding the foregoing, in the event that, in connection with any
underwritten public offering, the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in such
registration because, in such underwriter(s)' judgment, marketing or other
factors dictate such limitation is necessary to facilitate public distribution,
then the Company shall be obligated to include in such registration only such
limited portion of the Registrable Securities with respect to which the Holder
has requested inclusion hereunder as the underwriter shall permit; provided,
however, that (i) after giving effect to the immediately preceding proviso, any
such exclusion of Registrable Securities shall be made pro rata among the
Holders seeking to include Registrable Securities and the holders of other
securities having the contractual right to inclusion of their securities in such
registration by reason of demand registration rights, in proportion to the
number of Registrable Securities or other securities, as applicable, sought to
be included by each such Holder or other holder, and (ii) no such reduction
shall reduce the amount of Registrable Securities included in the registration
below twenty-five (25%) of the total amount of securities included in such
registration. No right to registration of Registrable Securities under this
Section 5.3 shall be construed to limit any registration required under ARTICLE
V hereof. If an offering in connection with which the Holder is entitled to
registration under this Section 5.3 is an underwritten offering, then each
Holder whose Registrable Securities are included in such registration statement
shall, unless otherwise agreed by the Company, offer and sell such Registrable
Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. The number of requests by the Holders permitted by this Section 5.3
shall be unlimited. Notwithstanding the foregoing, this Section 5.3 shall not
apply in the event there is an effective Registration Statement of the Company,
with a current prospectus available, providing for the resale of all of the
Registrable Securities of the Holders.
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(b) The Company shall have the right to terminate or withdraw any
registration contemplated under this Section 5.3 prior to the effectiveness of
such registration, whether or not any Holder of Registrable Securities has
elected to include securities in such registration.
5.4. Registration Expenses. All Registration Expenses incurred in
connection with any registration, qualification, exemption or compliance
pursuant to Section 5.2 and Section 5.3 shall be borne by the Company. All
Selling Expenses relating to the sale of securities registered by or on behalf
of Holders shall be borne by such Holders; provided that the Company shall pay
the reasonable expenses of legal counsel to the Holders not to exceed an
aggregate of $5,000 in connection with such legal counsel's review of the
Registration Statement
5.5. Registration Procedures. In the case of the registration,
qualification, exemption or compliance effected by the Company pursuant to this
Agreement, the Company shall, upon reasonable request, inform each Holder as to
the status of such registration, qualification, exemption and compliance. At its
expense the Company shall:
(a) use its best efforts to keep such registration, and any qualification,
exemption or compliance under state or federal securities laws which the Company
determines to obtain, continuously effective until the termination of the
Registration Period; and
(b) advise the Holders as soon as practicable:
(i) when such Registration Statement or any amendment thereto has been
filed with the Commission and when such Registration Statement or any
post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements to
such Registration Statement or the prospectus included therein or for additional
information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of such Registration Statement or the initiation of any
proceedings for such purpose;
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities included therein
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and
(v) of the happening of any event that requires the making of any changes
in such Registration Statement or the prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state a material fact
required to be stated therein or necessary to make the statements therein (in
the case of the prospectus, in the light of the circumstances under which they
were made) not misleading;
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(c) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of any Registration Statement at the earliest
possible time;
(d) furnish to each Holder, without charge, at least one copy of such
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those incorporated by reference) in the form filed with
the Commission;
(e) during the applicable Registration Period, make available to each
Holder, without charge, as many copies of the prospectus included in such
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request or cause the prospectus delivery requirements under the
Act to be satisfied; and the Company consents to the use, consistent with the
provisions hereof, of the prospectus or any amendment or supplement thereto by
each of the selling Holders of Registrable Securities in connection with the
offering and sale of the Registrable Securities covered by the prospectus or any
amendment or supplement thereto. In addition, upon the reasonable request of the
Holder and subject in all cases to confidentiality protections reasonably
acceptable to the Company, the Company will meet with a Holder or a
representative thereof at the Company's headquarters to discuss all information
relevant for disclosure in such registration statement covering the Registrable
Securities, and will otherwise cooperate with any Holder conducting an
investigation for the purpose of reducing or eliminating such Holder's exposure
to liability under the Act, including the reasonable production of information
at the Company's headquarters;
(f) prior to any public offering of Registrable Securities pursuant to any
Registration Statement, register or qualify or obtain an exemption for offer and
sale under the securities or blue sky laws of such jurisdictions as any such
Holders reasonably request in writing, provided 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, and do any and
all other acts or things reasonably necessary or advisable to enable the offer
and sale in such jurisdictions of the Registrable Securities covered by such
Registration Statement;
(g) cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to any Registration Statement free of any restrictive legends to the extent not
required, subject to transfer agent procedures and receipt of appropriate
representations from the Holders, at such time and in such denominations and
registered in such names as Holders may request at least five (5) business days
prior to sales of Registrable Securities pursuant to such registration
statement;
(h) upon the occurrence of any event contemplated by Section 5.5(b)(v)
above, the Company shall promptly prepare a post-effective amendment to such
Registration Statement or a supplement to the related prospectus, or file any
other required document so that the prospectus will not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and
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(i) use its best efforts to comply with all applicable rules and
regulations of the SEC, and use its best efforts to make generally available to
the Holders not later than 45 days (or 90 days if the fiscal quarter is the
fourth fiscal quarter) after the end of its fiscal quarter in which the first
anniversary date of the effective date of such Registration Statement occurs, an
earnings statement satisfying the provisions of Section 11(a) of the Act.
5.6. No Right To Enjoin. The Holders shall have no right to take any
action to restrain, enjoin or otherwise delay any registration pursuant to this
ARTICLE V as a result of any controversy that may arise with respect to the
interpretation or implementation of this Agreement.
5.7. Indemnification.
(a) To the extent permitted by law, the Company shall indemnify each
Holder, each underwriter of the Registrable Securities and each person
controlling such Holder within the meaning of Section 15 of the Act, with
respect to which any registration, qualification or compliance has been effected
pursuant to this Agreement, against all claims, losses, damages and liabilities
(or action in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section 5.7(c)
below), arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in such Registration Statement, or any
amendment or supplement thereof, incident to any such registration,
qualification or compliance, or based on any 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 in which
they were made, and will reimburse each Holder, each underwriter of the
Registrable Securities and each person controlling such Holder, for reasonable
legal and other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action as incurred;
provided that the Company will not be liable in any such case to the extent that
any untrue statement or omission or allegation thereof is made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such Holder and stated to be specifically for use in preparation of
such Registration Statement, prospectus or offering circular; provided, further,
that the Company will not be liable in any such case where the claim, loss,
damage or liability arises out of or is related to the failure of the Holder to
comply with the covenants and agreements contained in this Agreement respecting
sales of Registrable Securities.
(b) Each Holder will severally, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter of the Registrable Securities and
each person who controls the Company within the meaning of Section 15 of the
Act, against all claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened (subject to Section 5.7(c) below), arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus or offering
circular, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not
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misleading, in light of the circumstances in which they were made, and will
reimburse the Company, such directors and officers, each underwriter of the
Registrable Securities and each person controlling the Company for reasonable
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action as
incurred, in each case to the extent, but only to the extent, that such untrue
statement or omission or allegation thereof is made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such Holder and stated to be specifically for use in preparation of such
registration statement, prospectus or offering circular; provided that the
indemnity shall not apply to the extent that such claim, loss, damage or
liability results from the fact that a current copy of the prospectus was not
made available to the Holder and such current copy of the prospectus would have
cured the defect giving rise to such loss, claim, damage or liability.
Notwithstanding the foregoing, in no event shall a Holder be liable for any such
claims, losses, damages or liabilities in excess of the net proceeds received by
such Holder in the offering, except in the event of fraud by such Holder.
(c) Each party entitled to indemnification under this Section 5.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
is materially prejudicial to the Indemnifying Party in defending such claim or
litigation. An Indemnifying Party shall not be liable for any settlement of an
action or claim effected without its written consent (which consent will not be
unreasonably withheld).
(d) If the indemnification provided for in this Section 5.7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Notwithstanding
the foregoing, in no event shall a Holder be liable for any such claims, losses,
damages or liabilities pursuant to this paragraph 5.7(d) in excess of the net
proceeds received by such Holder in the Offering, except in the event of fraud
by such Holder.
5.8. Obligations of Holders.
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(a) Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event requiring the preparation of a supplement or
amendment to a prospectus relating to Registrable Securities so that such
prospectus shall not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, each Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration Statement
contemplated by either of Section 5.2 or Section 5.3 until its receipt of copies
of the supplemented or amended prospectus from the Company, such prospectus to
be made available promptly to the Subscriber by the Company or effectively cause
the prospectus delivery requirements under the Act to be satisfied, and, if so
directed by the Company, each Holder shall deliver to the Company all copies,
other than permanent file copies then in such Holder's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
(b) Each Holder shall suspend, upon request of the Company, any
disposition of Registrable Securities pursuant to a registration statement
contemplated by either of Section 5.2 or Section 5.3 during (i) any period not
to exceed two 30-day periods within any one 12-month period the Company requires
in connection with a primary underwritten offering of equity securities and (ii)
any period, not to exceed one 60-day period within any one 12-month period, when
the Company determines in good faith that offers and sales pursuant thereto
should not be made by reason of the presence of material undisclosed
circumstances or developments with respect to which the disclosure that would be
required in such a prospectus is premature, would have an adverse effect on the
Company or is otherwise inadvisable.
(c) As a condition to the inclusion of its Registrable Securities, each
Holder shall furnish to the Company such information regarding such Holder and
the distribution proposed by such Holder as the Company may reasonably request
in writing or as shall be required in connection with any registration,
qualification or compliance referred to in this ARTICLE V.
(d) Each Holder hereby covenants with the Company not to make any sale of
the Registrable Securities without effectively causing the prospectus delivery
requirements under the Act to be satisfied.
(e) Each Holder acknowledges and agrees that the Registrable Securities
sold pursuant to a Registration Statement described in this ARTICLE V are not
transferable on the books of the Company unless the stock certificate submitted
to the transfer agent evidencing such Registrable Securities is accompanied by a
certificate reasonably satisfactory to the Company to the effect that (i) the
Registrable Securities have been sold in accordance with such Registration
Statement and (ii) the requirement of delivering a current prospectus has been
satisfied.
(f) Each Holder agrees not to take any action with respect to any
distribution deemed to be made pursuant to a Registration Statement which would
constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.
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(g) At the end of the period during which the Company is obligated to keep
a Registration Statement current and effective as described above, the Holders
of Registrable Securities included in such Registration Statement shall
discontinue sales of shares pursuant to such Registration Statement upon receipt
of notice from the Company of its intention to remove from registration the
shares covered by such Registration Statement which remain unsold, and such
Holders shall notify the Company of the number of shares registered which remain
unsold immediately upon receipt of such notice from the Company.
5.9. Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which at any time
permit the sale of the Registrable Securities to the public without
registration, the Company shall use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable Securities,
furnish to such Holder, upon any reasonable request, a written statement by the
Company as to its compliance with Rule 144 under the Act, and of the Exchange
Act, a copy of the most recent annual or quarterly report of the Company, and
such other reports and documents of the Company as such Holder may reasonably
request in availing itself of any rule or regulation of the Commission allowing
a Holder to sell any such securities without registration.
5.10. Assignment of Rights. The rights to cause the Company to register
Registrable Securities granted to the Holders by the Company under this ARTICLE
V may be assigned in full by a Holder in connection with a transfer by such
Holder of its Registrable Securities, provided, however, that (i) such transfer
may otherwise be effected in accordance with applicable securities laws; (ii)
such Holder gives prior written notice to the Company; and (iii) such transferee
agrees to comply with the terms and provisions of this Agreement, and such
transfer is otherwise in compliance with this Agreement. Except as specifically
permitted by this Section 5.10, the rights of a Holder with respect to
Registrable Securities as set out herein shall not be transferable to any other
Person, and any attempted transfer shall cause all rights of such Holder therein
to be forfeited.
5.11. Listing of Shares. The Company shall use its best efforts to cause
all Registrable Securities covered by a Registration Statement to be listed on
each securities exchange, interdealer quotation system or other market on which
similar securities issued by the Company are then listed.
5.12. Waivers. With the written consent of the Company and the Holders
holding at least a majority of the Registrable Securities that are then
outstanding, any provision of this ARTICLE V may be waived (either generally or
in a particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended. Upon the effectuation of
each such waiver or amendment, the Company shall promptly give written notice
thereof to the Holders, if any, who have not previously received notice thereof
or consented thereto in writing.
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ARTICLE VI.
MISCELLANEOUS
6.1. Notices. Any notice or other communication to the Company given
hereunder shall be deemed sufficient if in writing and sent by registered or
certified mail, return receipt requested, or delivered by hand against written
receipt therefore. Notices shall be deemed to have been given or delivered on
the date of mailing, except notices of change of address, which shall be deemed
to have been given or delivered when received.
The address for such notices and communications shall be as follows:
If to the Company:
Sparta Commercial Services, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, CEO
Facsimile:
With a copy to:
Sichenzia ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
If to a Subscriber:
To the address set forth under such Subscriber's name on the
signature pages hereto.
6.2. Except as provided in Section 5.12 above, this Agreement shall not be
changed, modified or amended except by a writing signed by the parties to be
charged, and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be charged.
6.3. Subject to the provisions of Section 5.10 and Section 6.13, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and to their respective heirs, legal representatives, successors and assigns.
This Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of any and every nature among them.
6.4. Upon the execution and delivery of this Agreement by the Subscriber,
this Agreement shall become a binding obligation of the Subscriber with respect
to the purchase of Common Stock as herein provided; subject, however, to the
right hereby reserved to the Company to revoke this subscription in accordance
with Section 1.18.
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6.5. NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY
OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND
PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. IN
THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE EXCLUSIVE FORUMS FOR
RESOLVING DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT ARE EITHER THE
SUPREME COURT OF THE STATE OF NEW YORK IN AND FOR THE COUNTY OF NEW YORK OR THE
FEDERAL COURTS FOR SUCH STATE AND COUNTY, AND ALL RELATED APPELLATE COURTS, THE
PARTIES HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF SUCH COURTS AND AGREE
TO SAID VENUE.
6.6. The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect. If any
provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part, such provision shall be interpreted so as to remain enforceable to the
maximum extent permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provisions shall be deemed dependent upon any other covenant
or provision unless so expressed herein.
6.7. It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party.
6.8. The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
6.9. This Agreement may be executed in two or more counterparts each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
6.10. (a) The Subscriber agrees not to issue any public statement with
respect to the Subscriber's investment or proposed investment in the Company or
the terms of any agreement or covenant between them and the Company without the
Company's prior written consent, except such disclosures as may be required
under applicable law or under any applicable order, rule or regulation.
(b) The Company agrees not to disclose the names, addresses or any other
information about the Subscriber, except as required by law and to satisfy its
obligations under ARTICLE V.
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6.11. (a) The Subscriber represents and warrants that it has not engaged,
consented to nor authorized any broker, finder or intermediary to act on its
behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. The Subscriber
hereby agrees to indemnify and hold harmless the Company from and against all
fees, commissions or other payments owing to any such person or firm acting on
behalf of the Subscriber hereunder.
(b) The Company has engaged, consented to and authorized the Placement
Agent to act as a agent for the Company in connection with the transactions
contemplated by this Agreement. The Company shall pay the Placement Agent a
commission and reimburse the Placement Agent's expenses in accordance with the
Placement Agency Agreement between the Company and the Placement Agent, and the
Company shall indemnify and hold harmless the Subscriber from and against all
fees, commissions or other payments owing by the Company to the Placement Agent
or any other person or firm acting on behalf of the Company hereunder.
6.12. Nothing in this Agreement shall create or be deemed to create any
rights in any person or entity not a party to this Agreement, except (a) for the
holders of Registrable Securities and (b) for the Placement Agent pursuant to
ARTICLE V herein.
6.13. The Company acknowledges and agrees that irreparable damage would
occur in the event that any of the provisions of ARTICLE V of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached and that such damage would not be compensable in money damages and that
it would be extremely difficult or impracticable to measure the resultant
damages. Accordingly, the Subscriber shall be entitled to an injunction or
injunctions with respect to the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which it may be entitled at law or in equity, and the Company expressly waives
any defense that a remedy in damages would be adequate and expressly waives any
requirement in an action for specific performance for the posting of a bond by
the Subscriber bringing such action.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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ARTICLE VII.
CONFIDENTIAL INVESTOR QUESTIONNAIRE
7.1. The Subscriber represents and warrants that he, she or it comes
within one category marked below, and that for any category marked, he, she or
it has truthfully set forth, where applicable, the factual basis or reason the
Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO THIS
SECTION WILL BE KEPT STRICTLY CONFIDENTIAL except as otherwise required by law.
The undersigned agrees to furnish any additional information which the Company
deems necessary in order to verify the answers set forth below.
Category A The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net
worth with his or her spouse, presently exceeds $1,000,000.
Explanation. In calculating net worth you may include
equity in personal property and real estate, including
your principal residence, cash, short-term investments,
stock and securities. Equity in personal property and
real estate should be based on the fair market value of
such property less debt secured by such property.
Category B The undersigned is an individual (not a partnership,
corporation, etc.) who had an income in excess of $200,000 in
each of the two most recent years, or joint income with his or
her spouse in excess of $300,000 in each of those years (in
each case including foreign income, tax exempt income and full
amount of capital gains and losses but excluding any income of
other family members and any unrealized capital appreciation)
and has a reasonable expectation of reaching the same income
level in the current year.
Category C The undersigned is a director or executive officer of the
Company which is issuing and selling the Securities.
Category D The undersigned is a bank; a savings and loan association;
insurance company; registered investment company; registered
business development company; licensed small business
investment company ("SBIC"); or employee benefit plan within
the meaning of Title 1 of ERISA and (a) the investment
decision is made by a plan fiduciary which is either a bank,
savings and loan association, insurance company or registered
investment advisor, or (b) the plan has total assets in excess
of $5,000,000 or (c) is a self directed plan with investment
decisions made solely by persons that are accredited
investors. (describe entity)
--------------------------------------------------------------
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Category E The undersigned is a private business development company as
defined in section 202(a)(22) of the Investment Advisors Act
of 1940. (describe entity)
Category F The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit organization
within the meaning of Section 501(c)(3) of the Internal
Revenue Code, in each case not formed for the specific purpose
of acquiring the Securities and with total assets in excess of
$5,000,000.(describe entity)
--------------------------------------------------------------
Category G The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Securities, where the purchase is directed by a
"sophisticated investor" as defined in Regulation
506(b)(2)(ii) under the Act.
Category H The undersigned is an entity (other than a trust) in which all
of the equity owners are "accredited investors" within one or
more of the above categories. If relying upon this Category
alone, each equity owner must complete a separate copy of this
Agreement. (describe entity)
--------------------------------------------------------------
Category I The undersigned is not within any of the categories above and
is therefore not an accredited investor.
The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the Closing Date in the event that the representations and
warranties in this Agreement shall cease to be true, accurate and complete.
7.2. SUITABILITY (please answer each question)
(a) For an individual Subscriber, please describe your current employment,
including the company by which you are employed and its principal business:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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(b) For an individual Subscriber, please describe any college or graduate
degrees held by you:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(c) For all Subscribers, please state whether you have you participated in
other private placements before:
YES_______ NO_______
(d) If your answer to question (d) above was "YES", please indicate
frequency of such prior participation in private placements of:
Public Private Public or Private
Companies Companies Financing Companies
Frequently
----------------- ----------------- -----------------
Occasionally
----------------- ----------------- -----------------
Never
----------------- ----------------- -----------------
(e) For individual Subscribers, do you expect your current level of income
to significantly decrease in the foreseeable future:
YES_______ NO_______
(f) For trust, corporate, partnership and other institutional Subscribers,
do you expect your total assets to significantly decrease in the foreseeable
future:
YES_______ NO_______
(g) For all Subscribers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:
YES_______ NO_______
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(h) For all Subscribers, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?
YES_______ NO_______
(i) For all Subscribers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?
YES_______ NO_______
7.3. MANNER IN WHICH TITLE IS TO BE HELD (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of
Survivorship (both parties must sign)
(d) Partnership*
(e) Tenants in Common
(f) Company*
(g) Trust*
(h) Other
*If Securities are being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.
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7.4. NASD AFFILIATION.
Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
__________________________________
Name of NASD Member Firm
By: ______________________________
Authorized Officer
Date: ____________________________
7.5. The undersigned is informed of the significance to the Company of the
foregoing representations and answers contained in the Confidential Investor
Questionnaire contained in this Section 7 and such answers have been provided
under the assumption that the Company will rely on them.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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[Signature Page]
______________________________________ x $0.195 = $_______________________________
Number of subscribed shares of Common Stock Investment Amount = "Purchase Price"
______________________________________ ___________________________________
Signature Signature (if purchasing jointly)
______________________________________ ___________________________________
Name Typed or Printed Name Typed or Printed
______________________________________ ___________________________________
Entity Name Entity Name
______________________________________ ___________________________________
Address Address
______________________________________ ___________________________________
City, State and Zip Code City, State and Zip Code
______________________________________ ___________________________________
Telephone-Business Telephone--Business
______________________________________ ___________________________________
Telephone-Residence Telephone--Residence
______________________________________ ___________________________________
Facsimile-Business Facsimile--Business
______________________________________ ___________________________________
Facsimile-Residence Facsimile--Residence
______________________________________ ___________________________________
Tax ID # or Social Security # Tax ID # or Social Security #
Name in which securities should be issued: ___________________________________
Dated: _____________________ , 200__
This Subscription Agreement is agreed to and accepted as of ___________ , 200__.
SPARTA COMMERCIAL SERVICES, INC.
By:____________________________________
Name:
Title:
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CERTIFICATE OF SIGNATORY
(To be completed if Securities are
being subscribed for by an entity)
I,____________________________, am the____________________________ of
__________________________________________ (the "Entity").
I certify that I am empowered and duly authorized by the
Entity to execute and carry out the terms of the Subscription Agreement and to
purchase and hold the Securities, and certify further that the Subscription
Agreement has been duly and validly executed on behalf of the Entity and
constitutes a legal and binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this _____ day of _______________,____.
______________________________________
(Signature)
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