Exhibit 4.37
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of January
____, 2005, by and among Bravo! Foods International Corp., a Delaware
corporation (the "Company"), and the subscribers identified on the signature
page hereto (each a "Subscriber" and collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate,
shall purchase up to $2,000,000 (the "Purchase Price") of principal amount
of promissory notes of the Company ("Note" or "Notes") convertible into
shares of the Company's common stock, $.001 par value (the "Common Stock"),
and share purchase warrants (the "Warrants"), in the form attached hereto as
Exhibit A, to purchase shares of Common Stock (the "Warrant Shares"). One
Million Dollars ($1,000,000) of the Purchase Price shall be payable on the
Initial Closing Date ("Initial Closing Purchase Price"). Up to One Million
Dollars ($1,000,000) of the Purchase Price will be payable within five (5)
business days after the actual effectiveness ("Actual Effective Date") of
the Registration Statement as defined in Section 11.1(iv) of this Agreement
("Second Closing Purchase Price"). The Notes, shares of Common Stock
issuable upon conversion of the Notes (the "Shares"), the Warrants and the
Warrant Shares are collectively referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the
Warrants contemplated hereby shall be held in escrow pursuant to the terms
of a Funds Escrow Agreement to be executed by the parties substantially in
the form attached hereto as Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers
hereby agree as follows:
1. Initial Closing. Subject to the satisfaction or waiver
of the terms and conditions of this Agreement, on the Initial Closing Date,
each Subscriber shall purchase and the Company shall sell to each Subscriber
a Note in the principal amount designated on the signature page hereto
("Initial Closing Notes"). The aggregate amount of the Notes to be
purchased by the Subscribers on the Initial Closing Date shall, in the
aggregate, be equal to the Initial Closing Purchase Price. The "Initial
Closing Date" shall be the date that subscriber funds representing the net
amount due the Company from the Initial Closing Purchase Price of the
Offering is transmitted by wire transfer or otherwise to or for the benefit
of the Company.
2. Second Closing.
(a) Second Closing. The closing date in relation to the
Second Closing Purchase Price shall be the fifth (5th) business day after
the Actual Effective Date (the "Second Closing Date"). Subject to the
satisfaction or waiver of the terms and conditions of this Agreement on the
Second Closing Date, each Subscriber shall purchase and the Company shall
sell to each Subscriber a Note in the principal amount designated on the
signature page hereto ("Second Closing Notes"). The aggregate Purchase
Price of the Second Closing Notes for all Subscribers shall be equal to the
Second Closing
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Purchase Price. The Second Closing Note shall be identical to the Note
issuable on the Initial Closing Date except that the maturity date of such
Notes shall be two (2) years after the Second Closing Date. The Maximum
Base Price (defined in Section 2.1 (6) of the Note) shall be equitably
adjusted to offset the effect of stock splits, stock dividends, pro rata
distributions of property or equity interests to the Company's shareholders
after the Initial Closing Date.
(b) Conditions to Second Closing. The occurrence of the
Second Closing is expressly contingent on (i) the truth and accuracy, on the
Effective Date, Actual Effective Date and the Second Closing Date of the
representations and warranties of the Company and Subscriber contained in
this Agreement, (ii) continued compliance with the covenants of the Company
set forth in this Agreement, (iii) the non-occurrence of any Event of
Default (as defined in the Note) or other default by the Company of its
obligations and undertakings contained in this Agreement, (iv) the delivery
on the Second Closing Date of Second Closing Notes for which the Company
Shares issuable upon conversion have been included in the Registration
Statement, which must be effective as of the Second Closing Date, and (v)
the delivery of the Second Closing Warrants for which the Warrant Shares
issuable upon exercise have been included in the Registration Statement
which must be effective as of the Second Closing Date. The exercise prices
of the Warrants issuable on the Second Closing Date shall be adjusted to
offset the effect of stock splits, stock dividends, pro rata distributions
of property or equity interests to the Company's shareholders after the
Initial Closing Date.
(c) Second Closing Deliveries. On the Second Closing
Date, the Company will deliver the Second Closing Notes and Second Closing
Warrants to the Escrow Agent and each Subscriber will deliver his portion of
the respective Purchase Price to the Escrow Agent. On the Second Closing
Date, the Company will deliver a certificate ("Second Closing Certificate")
signed by its chief executive officer or chief financial officer (i)
representing the truth and accuracy of all the representations and
warranties made by the Company contained in this Agreement, as of the
Initial Closing Date, the Actual Effective Date, and the Second Closing
Date, as if such representations and warranties were made and given on all
such dates, (ii) adopting the covenants and conditions set forth in Sections
9, 10, 11, and 12 of this Agreement in relation to the Second Closing Notes
and Second Closing Warrants, (iii) representing the timely compliance by the
Company with the Company's registration requirements set forth in Section 11
of this Agreement, and (iv) certifying that an Event of Default has not
occurred. A legal opinion nearly identical to the legal opinion referred to
in Section 6 of this Agreement shall be delivered to each Subscriber at the
Second Closing in relation to the Company, Second Closing Notes, and Second
Closing Warrants ("Second Closing Legal Opinion"). The Second Closing Legal
Opinion must also state that all of the Registrable Securities have been
included for registration in an effective registration statement effective
as of the Actual Effective Date and Second Closing Date.
3. Warrants. On each Closing Date the Company will issue and
deliver Warrants to the Subscribers. One (1) Warrant will be issued for
each Share which would be issued on each Closing Date assuming the complete
conversion of the Notes issued on each such Closing Date at the Conversion
Price then in effect. The per Warrant Share exercise price to acquire a
Warrant Share upon exercise of a Class A Warrant shall be the lesser of (i)
$0.16, or (ii) 101% of the closing bid price of the Common Stock as reported
by Bloomberg L.P. for the OTC Bulletin Board ("Bulletin Board") for the
trading day preceding the Closing Date. The Warrants shall be exercisable
until five (5) years after the issue date of the Warrants.
4. Subscriber's Representations and Warranties. Each
Subscriber hereby represents and warrants to and agrees with the Company
only as to such Subscriber that:
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(a) Information on Company. The Subscriber has been
furnished with or has had access at the XXXXX Website of the Commission to
the Company's Form 10-KSB for the year ended December 31, 2003 as filed with
the Commission, together with all subsequently filed Forms 10-QSB, 8-K, and
filings made with the Commission available at the XXXXX website (hereinafter
referred to collectively as the "Reports"). In addition, the Subscriber has
received in writing from the Company such other information concerning its
operations, financial condition and other matters as the Subscriber has
requested in writing (such other information is collectively, the "Other
Written Information"), and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities.
(b) Information on Subscriber. The Subscriber is, and
will be at the time of the conversion of the Notes and exercise of any of
the Warrants, an "accredited investor", as such term is defined in
Regulation D promulgated by the Commission under the 1933 Act, is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-
owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and
other business matters as to enable the Subscriber to utilize the
information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the
Securities. The Subscriber is able to bear the risk of such investment for
an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Notes and Warrants. On each Closing
Date, the Subscriber will purchase the Notes and Warrants as principal for
its own account for investment only and not with a view toward, or for
resale in connection with, the public sale or any distribution thereof.
(d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under
the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933
Act (based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held
indefinitely unless a subsequent disposition is registered under the 1933
Act or any applicable state securities laws or is exempt from such
registration. In any event, and subject to compliance with applicable
securities laws, the Subscriber may enter into lawful hedging transactions
with third parties, which may in turn engage in short sales of the
Securities in the course of hedging the position they assume and the
Subscriber may also enter into short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their
short or other positions or otherwise settle short sales or other
transactions, or loan or pledge the Securities, or interests in the
Securities, to third parties that in turn may dispose of these Securities.
(e) Shares Legend. The Shares and the Warrant Shares
shall bear the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
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SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants shall bear the
following or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(g) Note Legend. The Note shall bear the following
legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO BRAVO! FOODS
INTERNATIONAL CORP. THAT SUCH REGISTRATION IS NOT REQUIRED."
(h) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber by the Company. At
no time was the Subscriber presented with or solicited by any leaflet,
newspaper or magazine article, radio or television advertisement, or any
other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(i) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith
have been duly authorized, executed and delivered by the Subscriber and are
valid and binding agreements enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights generally and to general principles of equity;
and Subscriber has full corporate power and authority necessary to enter
into this Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Subscriber
relating hereto.
(j) Restricted Securities. Subscriber understands that
the Securities have not been registered under the 1933 Act and such
Subscriber will not sell, offer to sell, assign, pledge, hypothecate or
otherwise transfer any of the Securities unless pursuant to an effective
registration
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statement under the 1933 Act or an exemption from registration for such
transfer is available. Notwithstanding anything to the contrary contained
in this Agreement, such Subscriber may transfer (without restriction and
without the need for an opinion of counsel) the Securities to its Affiliates
(as defined below) provided that each such Affiliate is an "accredited
investor" under Regulation D and such Affiliate agrees to be bound by the
terms and conditions of this Agreement. For the purposes of this Agreement,
an "Affiliate" of any person or entity means any other person or entity
directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. For purposes of this
definition, "control" means the power to direct the management and policies
of such person or firm, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
(k) No Governmental Review. Each Subscriber understands
that no United States federal or state agency or any other governmental or
state agency has passed on or made recommendations or endorsement of the
Securities or the suitability of the investment in the Securities nor have
such authorities passed upon or endorsed the merits of the offering of the
Securities.
(l) Correctness of Representations. Each Subscriber
represents as to such Subscriber that the foregoing representations and
warranties are true and correct as of the date hereof and, unless a
Subscriber otherwise notifies the Company prior to each Closing Date shall
be true and correct as of each Closing Date.
(m) Survival. The foregoing representations and
warranties shall survive the Second Closing Date for a period of two years.
5. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their
incorporation and have the requisite corporate power to own their properties
and to carry on their business as now being conducted. The Company and each
of its subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in each jurisdiction where the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure to so qualify
would not have a Material Adverse Effect. For purpose of this Agreement, a
"material adverse effect" shall mean a material adverse effect on the
financial condition, results of operations, properties or business of the
Company taken as a whole.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries have
been duly authorized and validly issued and are fully paid and
nonassessable.
(c) Authority; Enforceability. This Agreement, the
Note, the Warrants, the Escrow Agreement and any other agreements delivered
together with this Agreement or in connection herewith (collectively
"Transaction Documents") have been duly authorized, executed and delivered
by the Company and are valid and binding agreements enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity. The Company has full corporate power and
authority necessary to enter into and deliver the Transaction Documents and
to perform its obligations thereunder.
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(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common
stock or equity and no outstanding rights, warrants or options to acquire,
or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale, issuance or registration of any
shares of common stock or equity of the Company or other equity interest in
any of the subsidiaries of the Company except as described on Schedule 5(d).
(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its Affiliates, the OTC Bulletin
Board ("Bulletin Board") nor the Company's shareholders is required for the
execution by the Company of the Transaction Documents and compliance and
performance by the Company of its obligations under the Transaction
Documents, including, without limitation, the issuance and sale of the
Securities.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscribers in Section 4 are true and
correct, neither the issuance and sale of the Securities nor the performance
of the Company's obligations under this Agreement and all other agreements
entered into by the Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach of,
or constitute a default (or an event which with the giving of notice or the
lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles or certificate of incorporation, charter or bylaws of
the Company, (B) to the Company's knowledge, any decree, judgment, order,
law, treaty, rule, regulation or determination applicable to the Company of
any court, governmental agency or body, or arbitrator having jurisdiction
over the Company or any of its subsidiaries or over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement,
stock option or other similar plan, indenture, lease, mortgage, deed of
trust or other instrument to which the Company or any of its Affiliates or
subsidiaries is a party, by which the Company or any of its Affiliates or
subsidiaries is bound, or to which any of the properties of the Company or
any of its Affiliates or subsidiaries is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its Affiliates or subsidiaries is a party
except the violation, conflict, breach, or default of which would not have a
Material Adverse Effect on the Company; or
(ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company, its subsidiaries or any of its Affiliates; or
(iii) result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any
other creditor or equity holder of the Company, nor result in the
acceleration of the due date of any obligation of the Company; or
(iv) result in the activation of any piggy-back
registration rights of any person or entity holding securities of the
Company or having the right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
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(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to
restrictions upon transfer under the 1933 Act and any applicable state
securities laws;
(ii) have been, or will be, duly and validly
authorized and on the date of conversion of the Notes and upon exercise of
the Warrants, the Shares and Warrant Shares will be duly and validly issued,
fully paid and nonassessable (and if registered pursuant to the 1933 Act,
and resold pursuant to an effective registration statement will be free
trading and unrestricted, provided that each Subscriber complies with the
prospectus delivery requirements of the 1933 Act);
(iii) will not have been issued or sold in violation
of any preemptive or other similar rights of the holders of any securities
of the Company; and
(iv) will not subject the holders thereof to
personal liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates that would
affect the execution by the Company or the performance by the Company of its
obligations under the Transaction Documents. Except as disclosed in the
Reports, there is no pending or, to the best knowledge of the Company, basis
for or threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over
the Company, or any of its Affiliates which litigation if adversely
determined would have a Material Adverse Effect on the Company.
(i) Reporting Company. The Company is a publicly-held
company subject to reporting obligations pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and has a class
of common shares registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, the Company has timely filed all
reports and other materials required to be filed thereunder with the
Commission during the preceding twelve months.
(j) No Market Manipulation. The Company has not taken,
and will not take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock of the Company to facilitate
the sale or resale of the Securities or affect the price at which the
Securities may be issued or resold.
(k) Information Concerning Company. The Reports contain
all material information relating to the Company and its operations and
financial condition as of their respective dates which information is
required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other
Written Information or in the Schedules hereto, there has been no material
adverse change in the Company's business, financial condition or affairs not
disclosed in the Reports. The Reports do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances when made.
(l) Stop Transfer. The Securities, when issued, will be
restricted securities. The Company will not issue any stop transfer order
or other order impeding the sale, resale or delivery of any of the
Securities, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is
given to the Subscriber.
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(m) Defaults. The Company is not in violation of its
articles of incorporation or bylaws. The Company is (i) not in default
under or in violation of any other material agreement or instrument to which
it is a party or by which it or any of its properties are bound or affected,
which default or violation would have a Material Adverse Effect on the
Company, (ii) not in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of any
court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to its
knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect
on the Company.
(n) No Integrated Offering. Neither the Company, nor
any of its Affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited
any offers to buy any security under circumstances that would cause the
offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of the Bulletin Board. Nor will the Company
or any of its Affiliates or subsidiaries take any action or steps that would
cause the offer of the Securities to be integrated with other offerings.
The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of
the Securities.
(o) No General Solicitation. Neither the Company, nor
any of its Affiliates, nor to its knowledge, any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the 0000 Xxx) in
connection with the offer or sale of the Securities.
(p) Listing. The Company's common stock is quoted on
the Bulletin Board. The Company has not received any oral or written notice
that its common stock is not eligible nor will become ineligible for
quotation on the Bulletin Board nor that its common stock does not meet all
requirements for the continuation of such quotation and the Company
satisfies all the requirements for the continued quotation of its common
stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the
aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the
Company's businesses since December 31, 2003 and which, individually or in
the aggregate, would reasonably be expected to have a Material Adverse
Effect other than as set forth in Schedule 5(q).
(r) No Undisclosed Events or Circumstances. Since
December 31, 2003, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, operations or
financial condition, that, under applicable law, rule or regulation,
requires public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed in the
Reports.
(s) Capitalization. The authorized and outstanding
capital stock of the Company as of the date of this Agreement and the
Closing Date are set forth on Schedule 5(s). Except as set forth in the
Reports and Other Written Information and Schedule 5(d), there are no
options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable.
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(t) Dilution. The Company's executive officers and
directors understand the nature of the Securities being sold hereby and
recognize that the issuance of the Securities will have a potential dilutive
effect on the equity holdings of other holders of the Company's equity or
rights to receive equity of the Company. The board of directors of the
Company has concluded, in its good faith business judgment, that the
issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares
upon conversion of the Notes, and the Warrant Shares upon exercise of the
Warrants is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other
shareholders of the Company or parties entitled to receive equity of the
Company.
(u) No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants
and lawyers formerly or presently employed by the Company, including but not
limited to disputes or conflicts over payment owed to such accountants and
lawyers.
(v) Investment Company. The Company is not an Affiliate
of an "investment company" within the meaning of the Investment Company Act
of 1940, as amended.
(w) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to each Closing Date, shall
be true and correct in all material respects as of each Closing Date.
(x) Survival. The foregoing representations and
warranties shall survive the Second Closing Date for a period of two years.
6. Regulation D Offering. The offer and issuance of the
Securities to the Subscribers is being made pursuant to the exemption from
the registration provisions of the 1933 Act afforded by Section 4(2) or
Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated
thereunder. On the Closing Date, the Company will provide an opinion
reasonably acceptable to Subscriber from the Company's legal counsel opining
on the availability of an exemption from registration under the 1933 Act as
it relates to the offer and issuance of the Securities and other matters
reasonably requested by Subscribers. A form of the legal opinion is annexed
hereto as Exhibit C. The Company will provide, at the Company's expense,
such other legal opinions in the future as are reasonably necessary for the
issuance and resale of the Common Stock issuable upon conversion of the
Notes and exercise of the Warrants.
7.1. Conversion of Note.
(a) Upon the conversion of a Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action,
including obtaining and delivering, an opinion of counsel to assure that the
Company's transfer agent shall issue stock certificates in the name of
Subscriber (or its nominee) or such other persons as designated by
Subscriber and in such denominations to be specified at conversion
representing the number of shares of common stock issuable upon such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the
Company's Common Stock and that, unless waived by the Subscriber, the Shares
will be free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Shares provided the Shares
are being sold pursuant to an effective registration statement covering the
Shares or are otherwise exempt from registration.
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(b) Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by delivering via
telecopier an executed and completed Notice of Conversion (a form of which
is annexed as Exhibit A to the Note) to the Company via confirmed telecopier
transmission or otherwise pursuant to Section 13(a) of this Agreement. The
Subscriber will not be required to surrender the Note until the Note has
been fully converted or satisfied. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the provisions
hereof shall be deemed a Conversion Date. The Company will itself or cause
the Company's transfer agent to transmit the Company's Common Stock
certificates representing the Shares issuable upon conversion of the Note to
the Subscriber via express courier for receipt by such Subscriber within
three (3) business days after receipt by the Company of the Notice of
Conversion (such third day being the "Delivery Date"). In the event the
Shares are electronically transferable, then delivery of the Shares must be
made by electronic transfer provided request for such electronic transfer
has been made by the Subscriber. A Note representing the balance of the
Note not so converted will be provided by the Company to the Subscriber if
requested by Subscriber, provided the Subscriber delivers an original Note
to the Company. To the extent that a Subscriber elects not to surrender a
Note for reissuance upon partial payment or conversion, the Subscriber
hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual
amount then due under the Note.
(c) The Company understands that a delay in the delivery
of the Shares in the form required pursuant to Section 7.1 hereof, or the
Mandatory Redemption Amount described in Section 7.2 hereof, later than two
business days after the Delivery Date or later than the Mandatory Redemption
Payment Date (as hereinafter defined) could result in economic loss to the
Subscriber. As compensation to the Subscriber for such loss, the Company
agrees to pay (as liquidated damages and not as a penalty) to the Subscriber
for late issuance of Shares in the form required pursuant to Section 7.1
hereof upon Conversion of the Note in the amount of $100 per business day
after the Delivery Date for each $10,000 of Note principal amount being
converted, of the corresponding Shares which are not timely delivered. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Subscriber, in the event that the Company
fails for any reason to effect delivery of the Shares by the Delivery Date
or make payment by the Mandatory Redemption Payment Date, the Subscriber
will be entitled to revoke all or part of the relevant Notice of Conversion
or rescind all or part of the notice of Mandatory Redemption by delivery of
a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that the liquidated damages
described above shall be payable through the date notice of revocation or
rescission is given to the Company.
(d) Nothing contained herein or in any document referred
to herein or delivered in connection herewith shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of
the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed
the maximum permitted by such law, any payments in excess of such maximum
shall be credited against amounts owed by the Company to the Subscriber and
thus refunded to the Company.
7.2. Mandatory Redemption at Subscriber's Election. In the
event the Company is prohibited from issuing Shares, or fails to timely
deliver Shares on a Delivery Date, or upon the occurrence of any other Event
of Default (as defined in the Note or in this Agreement) or for any reason
other than pursuant to the limitations set forth in Section 7.3 hereof, then
at the Subscriber's election, the Company must pay to the Subscriber ten
(10) business days after request by the Subscriber, at the Subscriber's
election, a sum of money determined by (i) multiplying up to the outstanding
principal amount of the Note designated by the Subscriber by 120%, or (ii)
multiplying the number of Shares otherwise deliverable upon
10
conversion of an amount of Note principal and/or interest designated by the
Subscriber (with the date of giving of such designation being a "Deemed
Conversion Date") at the then Conversion Price that would be in effect on
the Deemed Conversion Date by the highest closing price of the Common Stock
on the principal market for the period commencing on the Deemed Conversion
Date until the day prior to the receipt of the Mandatory Redemption Payment,
whichever is greater, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is
sooner ("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory
Redemption Payment, the corresponding Note principal and interest will be
deemed paid and no longer outstanding. Liquidated damages calculated
pursuant to Section 7.1(c) hereof, that have been paid or accrued for the
thirty day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment.
7.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with
that number of shares of Common Stock which would be in excess of the sum of
(i) the number of shares of common stock beneficially owned by the
Subscriber and its Affiliates on a Conversion Date, and (ii) the number of
shares of Common Stock issuable upon the conversion of the Note with respect
to which the determination of this provision is being made on a Conversion
Date, which would result in beneficial ownership by the Subscriber and its
Affiliates of more than 9.99% of the outstanding shares of common stock of
the Company on such Conversion Date. For the purposes of the provision to
the immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 9.99% and
aggregate conversions by the Subscriber may exceed 9.99%. The Subscriber
may void the conversion limitation described in this Section 7.3 upon and
effective after 61 days prior written notice to the Company. The Subscriber
may allocate which of the equity of the Company deemed beneficially owned by
the Subscriber shall be included in the 9.99% amount described above and
which shall be allocated to the excess above 9.99%.
7.4. Injunction - Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof or exercise the Warrant in
whole or in part, the Company may not refuse conversion or exercise based on
any claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other
reason, unless, an injunction from a court, on prior notice to Subscriber,
restraining and or enjoining conversion of all or part of said Note or
exercise of all or part of said Warrant shall have been sought and obtained
by the Company and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 130% of the amount of the Note, or
aggregate purchase price of the Warrant Shares which are subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be
payable to such Subscriber to the extent Subscriber obtains judgment.
7.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if seven (7)
business days after the Delivery Date the Subscriber purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "Buy-In"), then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (B) the aggregate
principal and/or interest amount of the Note for which such conversion was
not timely honored, together with interest thereon at a rate of 15% per
annum, accruing until such amount and any accrued interest thereon is
11
paid in full (which amount shall be paid as liquidated damages and not as a
penalty). For example, if the Subscriber purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
7.6 Adjustments. The Conversion Price, Warrant exercise price
and amount of Shares issuable upon conversion of the Notes and exercise of
the Warrants shall be equitably adjusted to offset the effect of stock
splits, stock dividends, pro rata distributions of property or equity
interests to the Company's shareholders.
7.7. Optional Redemption. Provided an Event of Default (as
defined in this Agreement and the Note) has not occurred, whether or not
such Event of Default has been cured, the Company will have the option of
prepaying the outstanding principal amount of the Note ("Optional
Redemption"), in whole or in part, together with the interest accrued
thereon, by paying to the Subscriber a sum of money equal to one hundred
twenty percent (120%) of the Principal Amount to be redeemed, together with
accrued but unpaid interest thereon and interest that will accrue until the
actual repayment date and any and all other sums due, accrued or payable to
the Subscriber arising under the Note, the Subscription Agreement or any
Transaction Document (the "Redemption Amount") on the day written notice of
redemption (the "Notice of Redemption") is given to the Subscriber. The
Notice of Redemption shall specify the date for such Optional Redemption
(the "Redemption Payment Date"), which date shall be not less than thirty
(30) business days after the date of the Notice of Redemption (the
"Redemption Period"). A Notice of Redemption shall not be effective with
respect to any portion of the Note for which the Subscriber has a pending
election to convert, or for Conversion notices given by the Subscriber prior
to the Redemption Payment Date. On the Redemption Payment Date, the
Redemption Amount shall be paid in good funds to the Subscriber. In the
event the Company fails to pay the Redemption Amount on the Redemption
Payment Date as set forth herein, then (i) such Notice of Redemption will be
null and void, (ii) Company will have no further right to deliver another
Notice of Redemption, and (iii) Company's failure may be deemed by
Subscriber to be a non-curable Event of Default.
8. Finder/Legal Fees.
(a) Finder's Fee. The Company on the one hand, and each
Subscriber (for himself only) on the other hand, agree to indemnify the
other against and hold the other harmless from any and all liabilities to
any persons claiming brokerage commissions, finder's fees or due diligence
fees other than the finders or designees identified on Schedule 8 hereto
(each a "Finder") on account of services purported to have been rendered on
behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby and arising out of such party's actions.
The Company agrees that it will pay the party identified on Schedule 8
hereto on each Closing Date a due diligence fee equal to ten percent (10%)
of the Purchase Price ("Due Diligence Fee"). One-half of the Due Diligence
Fee will be payable in cash out of funds held pursuant to the Escrow
Agreement. One-half of the Due Diligence Fee will be payable in Common
Stock valued at $0.125 per share of Common Stock ("Due Diligence Shares").
All representations, covenants, warranties, undertakings, remedies,
liquidated damages, indemnification, and other rights including but not
limited to registration rights made or granted to or for the benefit of the
Subscribers are hereby also made and granted to the recipient of the Due
Diligence Shares. The Company represents that there are no other parties
entitled to receive fees, commissions, or similar payments in connection
with the Offering except the party identified on Schedule 8.
(b) Legal Fees. The Company shall pay to Grushko &
Xxxxxxx, P.C., a fee of $22,500 ("Legal Fees") as reimbursement for services
rendered to the Subscribers in connection with
12
this Agreement and the purchase and sale of the Notes and Warrants (the
"Offering") and acting as Escrow Agent for the Offering. Twenty Thousand
Dollars ($20,000) will be payable on the Initial Closing Date and $2,500
shall be payable on the Second Closing Date. Legal Fees will be payable
out of funds held pursuant to the Escrow Agreement.
9. Covenants of the Company. The Company covenants and
agrees with the Subscribers as follows:
(a) Stop Orders. The Company will advise the
Subscribers, promptly after it receives notice of issuance by the
Commission, any state securities commission or any other regulatory
authority of any stop order or of any order preventing or suspending any
offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the
listing of the shares of Common Stock and the Warrant Shares upon each
national securities exchange, or automated quotation system upon which they
are or become eligible for listing (subject to official notice of issuance)
and shall maintain such listing so long as any Warrants are outstanding.
The Company will maintain the listing of its Common Stock on the American
Stock Exchange, Nasdaq SmallCap Market, Nasdaq National Market System,
Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at
the time the principal trading exchange or market for the Common Stock (the
"Principal Market")), and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market, as applicable. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened
and actual delisting of the Common Stock from any Principal Market. As of
the date of this Agreement and the Closing Date, the Bulletin Board is and
will be the Principal Market.
(c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Securities to the Subscribers and promptly
provide copies thereof to Subscriber.
(d) Reporting Requirements. From the date of this
Agreement and until the sooner of (i) two (2) years after the Second Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitation, the Company will
(v) cause its Common Stock to continue to be registered under Section 12(b)
or 12(g) of the 1934 Act, (x) comply in all respects with its reporting and
filing obligations under the 1934 Act, (y) comply with all reporting
requirements that are applicable to an issuer with a class of shares
registered pursuant to Section 12(b) or 12(g) of the 1934 Act, as
applicable, and (z) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will use its best
efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said acts until two (2) years after
the Second Closing Date. Until the earlier of the resale of the Common
Stock and the Warrant Shares by each Subscriber or two (2) years after the
Warrants have been exercised, the Company will use its best efforts to
continue the listing or quotation of the Common Stock on the Principal
Market or other market with the reasonable consent of Subscribers holding a
majority of the Shares and Warrant Shares, and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws
or rules
13
of the Principal Market. The Company agrees to timely file a Form D with
respect to the Securities if required under Regulation D and to provide a
copy thereof to each Subscriber promptly after such filing.
(e) Use of Proceeds. The proceeds of the Offering will
be employed by the Company for the purposes set forth on Schedule 9(e)
hereto. A deviation of more than 10% of any single stated use of proceeds
or a deviation in the aggregate of more than 25% will be an Event of Default
under the Note. Except as set forth on Schedule 9(e), the Purchase Price
may not and will not be used for accrued and unpaid officer and director
salaries, payment of financing related debt, redemption of outstanding notes
or equity instruments of the Company nor non-trade obligations outstanding
on a Closing Date.
(f) Reservation. Prior to the Closing Date, the Company
undertakes to reserve, pro rata, on behalf of each holder of a Note or
Warrant, from its authorized but unissued common stock, a number of common
shares equal to 150% of the amount of Common Stock necessary to allow each
holder of a Note to be able to convert all such outstanding Notes and
interest and reserve the amount of Warrant Shares issuable upon exercise of
the Warrants. Failure to have sufficient shares reserved pursuant to this
Section 9(f) for three (3) consecutive business days or ten (10) days in the
aggregate shall be a material default of the Company's obligations under
this Agreement.
(g) Taxes. From the date of this Agreement and until
the sooner of (i) two (2) years after the Second Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon
the income, profits, property or business of the Company; provided, however,
that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will
pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefore.
(h) Insurance. From the date of this Agreement and
until the sooner of (i) two (2) years after the Second Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business,
in amounts sufficient to prevent the Company from becoming a co-insurer and
not in any event less than one hundred percent (100%) of the insurable value
of the property insured; and the Company will maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner customary
for companies in similar businesses similarly situated and to the extent
available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement
and until the sooner of (i) two (2) years after the Second Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred
by all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company will keep true
records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs
in accordance with generally accepted accounting principles applied on a
consistent basis.
14
(j) Governmental Authorities. From the date of this
Agreement and until the sooner of (i) two (2) years after the Second Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company
shall duly observe and conform in all material respects to all valid
requirements of governmental authorities relating to the conduct of its
business or to its properties or assets.
(k) Intellectual Property. From the date of this
Agreement and until the sooner of (i) two (2) years after the Second Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company
shall maintain in full force and effect its corporate existence, rights and
franchises and all licenses and other rights to use intellectual property
owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.
(l) Properties. From the date of this Agreement and
until the sooner of (i) two (2) years after the Second Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitation, the Company will keep its
properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company
will at all times comply with each provision of all leases to which it is a
party or under which it occupies property if the breach of such provision
could reasonably be expected to have a Material Adverse Effect.
(m) Confidentiality/Public Announcement. From the date
of this Agreement and until the sooner of (i) two (2) years after the Second
Closing Date, or (ii) until all the Shares and Warrant Shares have been
resold or transferred by all the Subscribers pursuant to the Registration
Statement or pursuant to Rule 144, without regard to volume limitations, the
Company agrees that except in connection with a Form 8-K or the Registration
Statement, it will not disclose publicly or privately the identity of the
Subscribers unless expressly agreed to in writing by a Subscriber or only to
the extent required by law and then only upon five days prior notice to
Subscriber. In any event and subject to the foregoing, the Company
undertakes to file a Form 8-K or make a public announcement describing the
Offering on the Closing Date. In the Form 8-K or public announcement, the
Company will specifically disclose the amount of common stock outstanding
immediately after each Closing. A form of the proposed Form 8-K or public
announcement to be employed in connection with each Closing Date is annexed
hereto as Exhibit D.
(n) Further Registration Statements. Except for a
registration statement filed on behalf of the Subscribers pursuant to
Section 11 of this Agreement or in connection with the securities identified
on Schedule 11.1 hereto, the Company will not file any registration
statements or amend any already filed registration statement, including but
not limited to Form S-8, with the Commission or with state regulatory
authorities without the consent of the Subscriber until the sooner of (i)
the Registration Statement shall have been current and available for use in
connection with the unrestricted public resale of the Shares and Warrant
Shares for 90 days, (ii) until all the Shares have been resold or
transferred by the Subscribers pursuant to the Registration Statement or
Rule 144, without regard to volume limitations, or (iii) the date the Note
has been fully paid ("Exclusion Period").
(o) Blackout. The Company undertakes and covenants that
until the first to occur of (i) the end of the Exclusion Period, or (ii)
until all the Shares and Warrant Shares have been resold pursuant to a
registration statement or Rule 144, the Company will not enter into any
acquisition, merger, exchange or sale or other transaction that could have
the effect of delaying the effectiveness of any
15
pending registration statement or causing an already effective registration
statement to no longer be effective or current for a period of fifteen (15)
or more days.
(p) Non-Public Information. The Company covenants and
agrees that neither it nor any other Person acting on its behalf will
provide any Subscriber or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless
prior thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber
shall be relying on the foregoing representations in effecting transactions
in securities of the Company.
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend the Subscribers, the Subscribers' officers, directors,
agents, Affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the
Subscriber or any such person which results, arises out of or is based upon
(i) any material misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any Exhibits or Schedules attached hereto,
or other agreement delivered pursuant hereto; or (ii) after any applicable
notice and/or cure periods, any breach or default in performance by the
Company of any covenant or undertaking to be performed by the Company
hereunder, or any other agreement entered into by the Company and Subscriber
relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers,
directors, agents, Affiliates, control persons against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by such Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant hereto; or
(ii) after any applicable notice and/or cure periods, any breach or default
in performance by such Subscriber of any covenant or undertaking to be
performed by such Subscriber hereunder, or any other agreement entered into
by the Company and Subscribers, relating hereto.
(c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of Registrable
Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply
to the indemnification set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing ninety-one
(91) days after the Closing Date, but not later than two (2) years after the
Closing Date ("Request Date"), upon a written request therefor from any
record holder or holders of more than 50% of the Shares issued and issuable
upon conversion of the Notes and Warrant Shares actually issued upon
exercise of the Warrants, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the
Shares, Warrant Shares and Due Diligence Shares (collectively "Registrable
Securities") which are the subject of such request for unrestricted public
resale by the holder thereof. For purposes of
16
Sections 11.1(i) and 11.1(ii), Registrable Securities shall not include (A)
Securities which are registered for resale in an effective registration
statement, (B) included for registration in a pending registration
statement, or (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933
Act. Upon receipt of such request, the Company shall promptly give written
notice to all other record holders of the Registrable Securities that such
registration statement is to be filed and shall include in such registration
statement Registrable Securities for which it has received written requests
within ten (10) days after the Company gives such written notice. Such
other requesting record holders shall be deemed to have exercised their
demand registration right under this Section 11.1(i).
(ii) If the Company at any time proposes to register any
of its securities under the 1933 Act for sale to the public, whether for its
own account or for the account of other security holders or both, except
with respect to registration statements on Forms X-0, X-0 or another form
not available for registering the Registrable Securities for sale to the
public, provided the Registrable Securities are not otherwise registered for
resale by the Subscribers or Holder pursuant to an effective registration
statement, each such time it will give at least fifteen (15) days' prior
written notice to the record holder of the Registrable Securities of its
intention so to do. Upon the written request of the holder, received by the
Company within ten (10) days after the giving of any such notice by the
Company, to register any of the Registrable Securities not previously
registered, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities
to be covered by the registration statement proposed to be filed by the
Company, all to the extent required to permit the sale or other disposition
of the Registrable Securities so registered by the holder of such
Registrable Securities (the "Seller" or "Sellers"). In the event that any
registration pursuant to this Section 11.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the Company shall
notify the Seller in writing of any such reduction. Notwithstanding the
foregoing provisions, or Section 11.4 hereof, the Company may withdraw or
delay or suffer a delay of any registration statement referred to in this
Section 11.1(ii) without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration
is received by the Company pursuant to Section 11.1(i), the Company has
determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed
offer and sale for cash of any of its securities for the Company's own
account and the Company actually does file such other registration
statement, such written request shall be deemed to have been given pursuant
to Section 11.1(ii) rather than Section 11.1(i), and the rights of the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv) The Company shall file with the Commission not later
than forty-five (45) days after the Initial Closing Date (the "Filing
Date"), and cause to be declared effective within ninety (90) days after the
Initial Closing Date (the "Effective Date"), a Form SB-2 registration
statement (the "Registration Statement") (or such other form that it is
eligible to use) in order to register the Registrable Securities for resale
and distribution under the 1933 Act. The Company will register not less
than a number of shares of common stock in the aforedescribed registration
statement that is equal to 150% of the Shares issuable upon conversion of
the Notes and all of the Warrant Shares issuable pursuant to this Agreement.
The Registrable Securities shall be reserved and set aside exclusively for
the benefit of each Subscriber and Warrant holder, pro rata, and not issued,
employed or reserved for anyone other than each such Subscriber and Warrant
holder. The Registration Statement will immediately be amended or
additional registration statements will be immediately filed by the Company
as necessary to register
17
additional shares of Common Stock to allow the public resale of all Common
Stock included in and issuable by virtue of the Registrable Securities.
Without the written consent of the Subscriber, no securities of the Company
other than the Registrable Securities will be included in the Registration
Statement except as disclosed on Schedule 11.1.
11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect
the registration of any Registrable Securities under the 1933 Act, the
Company will, as expeditiously as possible:
(a) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 11, with respect to such securities and use its best efforts to
cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein
provided), and promptly provide to the holders of the Registrable Securities
copies of all filings and Commission letters of comment and notify
Subscribers and Grushko & Xxxxxxx, P.C. (by telecopier and by email to
Xxxxxxxxx@xxx.xxx) within one (1) business day after (i) notice that the
Commission has no comments or no further comments on the Registration
Statement, and (ii) the declaration of effectiveness of the registration
statement, (failure to timely provide notice as required by this Section
11.2(a) shall be a material breach of the Company's obligation and an Event
of Default as defined in the Notes);
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective until such registration statement has been effective for a period
of two (2) years, and comply with the provisions of the 1933 Act with
respect to the disposition of all of the Registrable Securities covered by
such registration statement in accordance with the Sellers' intended method
of disposition set forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's expense,
such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Sellers' Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of such jurisdictions as the Sellers shall
request in writing, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) if applicable, list the Registrable Securities
covered by such registration statement with any securities exchange on which
the Common Stock of the Company is then listed;
(f) immediately notify the Sellers when a prospectus
relating thereto is required to be delivered under the 1933 Act, of the
happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing; and
(g) provided same would not be in violation of the
provision of Regulation FD under the 1934 Act, make available for inspection
by the Sellers, and any attorney, accountant or other agent retained by the
Seller or underwriter, all publicly available, non-confidential financial
and other
18
records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration
statement.
11.3. Provision of Documents. In connection with each
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters with respect
to itself and the proposed distribution by it as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
11.4. Non-Registration Events. The Company and the Subscribers
agree that the Sellers will suffer damages if the Registration Statement is
not filed by the Filing Date and not declared effective by the Commission by
the Effective Date, and any registration statement required under Section
11.1(i) or 11.1(ii) is not filed within 60 days after written request and
declared effective by the Commission within 120 days after such request, and
maintained in the manner and within the time periods contemplated by Section
11 hereof, and it would not be feasible to ascertain the extent of such
damages with precision. Accordingly, if (A) the Registration Statement is
not filed on or before the Filing Date, (B) is not declared effective on or
before the Effective Date, (C) if the Registration Statement is not declared
effective within three (3) business days after receipt by the Company of a
written or oral communication from the Commission that the Registration
Statement will not be reviewed or that the Commission has no further
comments, (D) if the registration statement described in Sections 11.1(i) or
11.1(ii) is not filed within 60 days after such written request, or is not
declared effective within 120 days after such written request, or (E) any
registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
is filed and declared effective but shall thereafter cease to be effective
(without being succeeded within fifteen (15) business days by an effective
replacement or amended registration statement) for a period of time which
shall exceed 30 days in the aggregate per year (defined as a period of 365
days commencing on the date the Registration Statement is declared
effective) or more than 20 consecutive days (each such event referred to in
clauses (A) through (E) of this Section 11.4 is referred to herein as a
"Non-Registration Event"), then the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to two
percent (2%) for each thirty (30) days or part thereof, of the Purchase
Price of the Notes remaining unconverted and purchase price of Shares issued
upon conversion of the Notes owned of record by such holder which are
subject to such Non-Registration Event. The Company must pay the Liquidated
Damages in cash or an amount equal to two hundred percent of such cash
Liquidated Damages if paid in additional shares of registered unlegended
free-trading shares of Common Stock. Such Common Stock shall be valued at a
per share value equal to 80% of the average of the five (5) lowest closing
bid prices of the Common Stock as reported by Bloomberg L.P. for the twenty
(20) trading days preceding the first day of each thirty (30) day or shorter
period for which Liquidated Damages are payable. The Liquidated Damages
must be paid within ten (10) days after the end of each thirty (30) day
period or shorter part thereof for which Liquidated Damages are payable.
The Company must pay the Liquidated Damages in cash within ten (10) days
after the end of each thirty (30) day period or shorter part for which
Liquidated Damages are payable. In the event a Registration Statement is
filed by the Filing Date but is withdrawn prior to being declared effective
by the Commission, then such Registration Statement will be deemed to have
not been filed. It shall be deemed a Non-Registration Event if at any time
after the Actual Effective Date the Company has registered for unrestricted
resale on behalf of the Subscriber fewer than 125% of the amount of Common
Shares issuable upon full conversion of all sums due under the Notes and
100% of the Warrant Shares issuable upon exercise of the Warrants. All oral
or written and accounting comments received from the Commission relating to
the Registration Statement must be responded to within ten (10) business
days. Failure to timely respond is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders
of Registrable Securities at the same rate set forth above. Notwithstanding
the foregoing, the Company shall not be liable to the Subscriber under this
Section 11.4 for any events or delays occurring as a consequence of the acts
or omissions of the
19
Subscribers contrary to the obligations undertaken by Subscribers in this
Agreement. Liquidated Damages will not accrue or be payable pursuant to
this Section 11.4 nor will a Non-Registration Event be deemed to have
occurred for times during which Registrable Securities are transferable by
the holder of Registrable Securities pursuant to Rule 144(k) under the 1933
Act.
11.5. Expenses. All expenses incurred by the Company in
complying with Section 11, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, costs of insurance and fee of one counsel for all Sellers are
called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, including any
fees and disbursements of any additional counsel to the Seller, are called
"Selling Expenses." The Company will pay all Registration Expenses in
connection with the registration statement under Section 11. Selling
Expenses in connection with each registration statement under Section 11
shall be borne by the Seller and may be apportioned among the Sellers in
proportion to the number of shares sold by the Seller relative to the number
of shares sold under such registration statement or as all Sellers
thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to
the extent permitted by law, indemnify and hold harmless the Seller, each
officer of the Seller, each director of the Seller, each underwriter of such
Registrable Securities thereunder and each other person, if any, who
controls such Seller or underwriter within the meaning of the 1933 Act,
against any losses, claims, damages or liabilities, joint or several, to
which the Seller, or such underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
Securities was registered under the 1933 Act pursuant to Section 11, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not
be liable to the Seller to the extent that any such damages arise out of or
are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Seller failed to send or deliver a copy of the final
prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or
such omission or alleged omission, or (iii) to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by any such Seller, or any
such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the 1933 Act pursuant to Section 11, each
Seller severally but not jointly will, to the extent permitted by law,
indemnify and hold harmless the Company, and each person, if any, who
controls the Company within the meaning of the 1933 Act, each officer of the
Company who signs the registration statement, each director of the Company,
each underwriter and each person who controls any underwriter within the
meaning of the
20
1933 Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Securities were registered under the
1933 Act pursuant to Section 11, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and
each such officer, director, underwriter and controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action, provided, however, that the Seller will be liable hereunder in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and
in conformity with information pertaining to such Seller, as such, furnished
in writing to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that
the liability of the Seller hereunder shall be limited to the net proceeds
actually received by the Seller from the sale of Registrable Securities
covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party
other than under this Section 11.6(c) and shall only relieve it from any
liability which it may have to such indemnified party under this Section
11.6(c), except and only if and to the extent the indemnifying party is
prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and,
after notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section
11.6(c) for any legal expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected, provided, however,
that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably
may be deemed to conflict with the interests of the indemnifying party, the
indemnified parties, as a group, shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in
the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the 1933 Act in any case
in which either (i) a Seller, or any controlling person of a Seller, makes a
claim for indemnification pursuant to this Section 11.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this Section 11.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6; then, and in each such case, the Company and the Seller will
contribute to the aggregate losses, claims, damages or
21
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public
offering price of all securities offered by such registration statement,
provided, however, that, in any such case, (y) the Seller will not be
required to contribute any amount in excess of the public offering price of
all such securities sold by it pursuant to such registration statement; and
(z) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 0000 Xxx) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
11.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third (3rd)
business day being the "Unlegended Shares Delivery Date") after the business
day on which the Company has received (i) a notice that Registrable
Securities have been sold either pursuant to the Registration Statement or
Rule 144 under the 1933 Act, (ii) a representation that the prospectus
delivery requirements, or the requirements of Rule 144, as applicable, have
been satisfied, and (iii) the original share certificates representing the
shares of Common Stock that have been sold, and (iv) in the case of sales
under Rule 144, customary representation letters of the Subscriber and/or
Subscriber's broker regarding compliance with the requirements of Rule 144,
the Company at its expense, (y) shall deliver, and shall cause legal counsel
selected by the Company to deliver, to its transfer agent (with copies to
Subscriber) an appropriate instruction and opinion of such counsel,
directing the delivery of shares of Common Stock without any legends
including the legend set forth in Section 4(e) above, issuable pursuant to
any effective and current Registration Statement described in Section 11 of
this Agreement or pursuant to Rule 144 under the 1933 Act (the "Unlegended
Shares"); and (z) cause the transmission of the certificates representing
the Unlegended Shares together with a legended certificate representing the
balance of the unsold shares of Common Stock, if any, to the Subscriber at
the address specified in the notice of sale, via express courier, by
electronic transfer or otherwise on or before the Unlegended Shares Delivery
Date. Transfer fees shall be the responsibility of the Seller.
(b) In lieu of delivering physical certificates
representing the Unlegended Shares, if the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of a Subscriber, so long as the
certificates therefor do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the Company shall cause its transfer agent to electronically transmit the
Unlegended Shares by crediting the account of Subscriber's prime Broker with
DTC through its Deposit Withdrawal Agent Commission system. Such delivery
must be made on or before the Unlegended Shares Delivery Date.
(c) The Company understands that a delay in the delivery
of the Unlegended Shares pursuant to Section 11 hereof later than two
business days after the Unlegended Shares Delivery Date could result in
economic loss to a Subscriber. As compensation to a Subscriber for such
loss, the Company agrees to pay late payment fees (as liquidated damages and
not as a penalty) to the Subscriber for late delivery of Unlegended Shares
in the amount of $100 per business day after the Delivery Date for each
$10,000 of purchase price of the Unlegended Shares subject to the delivery
default. If during any 360 day period, the Company fails to deliver
Unlegended Shares as required by this Section 11.7 for an aggregate of
thirty (30) days, then each Subscriber or assignee holding Securities
subject to such default may, at its option, require the Company to redeem
all or any portion of the Shares and Warrant Shares subject to such default
at a price per share equal to 120% of the Purchase Price of such Common
Stock and Warrant Shares. The Company shall pay any payments incurred under
this Section in immediately available funds upon demand.
22
(d) In addition to any other rights available to a
Subscriber, if the Company fails to deliver to a Subscriber Unlegended
Shares as required pursuant to this Agreement, within seven (7) business
days after the Unlegended Shares Delivery Date and the Subscriber purchases
(in an open market transaction or otherwise) shares of common stock to
deliver in satisfaction of a sale by such Subscriber of the shares of Common
Stock which the Subscriber was entitled to receive from the Company (a "Buy-
In"), then the Company shall pay in cash to the Subscriber (in addition to
any remedies available to or elected by the Subscriber) the amount by which
(A) the Subscriber's total purchase price (including brokerage commissions,
if any) for the shares of common stock so purchased exceeds (B) the
aggregate purchase price of the shares of Common Stock delivered to the
Company for reissuance as Unlegended Shares, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full (which amount shall be paid as liquidated
damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company
shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery of
Unlegended Shares as described in Section 11.7 and the Company is required
to deliver such Unlegended Shares pursuant to Section 11.7, the Company may
not refuse to deliver Unlegended Shares based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless, an
injunction or temporary restraining order from a court, on notice,
restraining and or enjoining delivery of such Unlegended Shares or exercise
of all or part of said Warrant shall have been sought and obtained and the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 130% of the amount of the aggregate purchase price of the Common
Stock and Warrant Shares which are subject to the injunction or temporary
restraining order, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be
payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber's favor.
12. (a) Right of First Refusal. Until the Registration
Statement has been effective for the unrestricted public resale of the
Shares and Warrant Shares for three hundred and sixty-five (365) days or
until one year after the Notes have been fully paid, whichever is later, the
Subscribers shall be given not less than seven (7) business days prior
written notice of any proposed sale by the Company of its common stock or
other securities or debt obligations, except in connection with (i) employee
stock options or compensation plans in effect on the Initial Closing Date
which have been disclosed to the Subscribers in writing, (ii) as full or
partial consideration in connection with merger, consolidation or purchase
of substantially all of the securities or assets of any corporation or other
entity, or (iii) as has been described in the Reports or Other Written
Information filed with the Commission or delivered to the Subscribers prior
to the Closing Date (collectively "Excepted Issuances"). The Subscribers
who exercise their rights pursuant to this Section 12(a) shall have the
right during the seven (7) business days following receipt of the notice to
purchase such offered common stock, debt or other securities in accordance
with the terms and conditions set forth in the notice of sale in the same
proportion to each other as their purchase of Notes in the Offering. No
additional Finder's Fees will be payable as a result of such transaction.
In the event such terms and conditions are modified during the notice
period, the Subscribers shall be given prompt notice of such modification
and shall have the right during the original notice period or for a period
of seven (7) business days following the notice of modification, whichever
is longer, to exercise such right.
(b) Offering Restrictions. From the date of this
Agreement and until the end of the Exclusion Period, except in connection
with the Excepted Issuances, the Company will not enter
23
into any agreement to, nor issue any equity, convertible debt or other
securities convertible into Common Stock without the prior written consent
of the Subscribers, which consent may be withheld for any reason. For so
long as the Notes are outstanding the Company will not enter into any equity
line of credit or similar agreement, nor issue or agree to issue any
floating or variable priced equity linked instruments nor any of the
foregoing or equity with price reset rights.
(c) Favored Nations Provision. Other than the Excepted
Issuances, if at any time Notes are outstanding the Company shall offer,
issue or agree to issue any common stock or securities convertible into or
exercisable for shares of common stock (or modify any of the foregoing which
may be outstanding) to any person or entity at a price per share or
conversion or exercise price per share which shall be less than the
Conversion Price described in Section 2.1(b)(i) or Section 2.1(b)(ii) of the
Note in respect of the Shares, or if less than the Warrant exercise price in
respect of the Warrant Shares, without the consent of each Subscriber
holding Notes and/or Shares, then the Company shall issue, for each such
occasion, additional shares of Common Stock to each Subscriber so that the
average per share purchase price of the shares of Common Stock issued to the
Subscriber (of only the Common Stock or Warrant Shares still owned by the
Subscriber) is equal to such other lower price per share and the Conversion
Price and Warrant Exercise Price shall automatically be reduced to such
other lower price per share. The average Purchase Price of the Shares and
average exercise price in relation to the Warrant Shares shall be calculated
separately for the Shares and Warrant Shares. The foregoing calculation and
issuance shall be made separately for Shares received upon conversion of
Notes and separately for Warrant Shares. The delivery to the Subscriber of
the additional shares of Common Stock shall be not later than the closing
date of the transaction giving rise to the requirement to issue additional
shares of Common Stock. The Subscriber is granted the registration rights
described in Section 11 hereof in relation to such additional shares of
Common Stock except that the Filing Date and Effective Date vis-a-vis such
additional common shares shall be, respectively, the sixtieth (60th) and one
hundred and twentieth (120th) date after the closing date giving rise to the
requirement to issue the additional shares of Common Stock. For purposes of
the issuance and adjustment described in this paragraph, the issuance of any
security of the Company carrying the right to convert such security into
shares of Common Stock or of any warrant, right or option to purchase Common
Stock shall result in the issuance of the additional shares of Common Stock
upon the issuance of such convertible security, warrant, right or option and
again at any time upon any subsequent issuances of shares of Common Stock
upon exercise of such conversion or purchase rights if such issuance is at a
price lower than the Conversion Price in effect upon such issuance. The
rights of the Subscriber set forth in this Section 12 are in addition to any
other rights the Subscriber has pursuant to this Agreement, the Note, any
Transaction Document, and any other agreement referred to or entered into in
connection herewith.
(d) Option Plan Restrictions. The only officer,
director, employee and consultant stock option or stock incentive plan
currently in effect or contemplated by the Company has been submitted to the
Subscribers. No other plan will be adopted nor may any options or equity
not included in such plan be issued for so long as any sum is outstanding
under the Note.
(e) Maximum Exercise of Rights. In the event the
exercise of the rights described in Sections 12(a) and 12(c) would result in
the issuance of an amount of common stock of the Company that would exceed
the maximum amount that may be issued to a Subscriber calculated in the
manner described in Section 7.3 of this Agreement, then the issuance of such
additional shares of common stock of the Company to such Subscriber will be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such common stock without exceeding the maximum amount set
forth calculated in the manner described in Section 7.3 of this Agreement.
The determination of when such common stock may be issued shall be made by
each Subscriber as to only such Subscriber.
24
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be
in writing and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such
party shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at
the address or number designated below (if delivered on a business day
during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be: (i) if to the Company, to: Bravo! Foods
International Corp., 00000 X.X. Xxxxxxx 0, Xxxxx 000, Xxxxx Xxxx Xxxxx,
Xxxxxxx 00000, Attn: Xxx X. Xxxxxx, Xx., Esq., telecopier: (000) 000-0000,
and (ii) if to the Subscribers, to: the one or more addresses and telecopier
numbers indicated on the signature pages hereto, with an additional copy by
telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000,
Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (000) 000-0000.
(b) Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the
satisfaction of all conditions to Closing set forth in this Agreement. Each
of the Initial Closing Date and Second Closing Date is referred to as a
"Closing Date".
(c) Entire Agreement; Assignment. This Agreement and
other documents delivered in connection herewith represent the entire
agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties.
Neither the Company nor the Subscribers have relied on any representations
not contained or referred to in this Agreement and the documents delivered
herewith. No right or obligation of either party shall be assigned by that
party without prior notice to and the written consent of the other party.
(d) Counterparts/Execution. This Agreement may be
executed in any number of counterparts and by the different signatories
hereto on separate counterparts, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute but one and
the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(e) Law Governing this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state courts of New York or
in the federal courts located in the state of New York. The parties and the
individuals executing this Agreement and other agreements referred to herein
or delivered in connection herewith on behalf of the Company agree to submit
to the jurisdiction of such courts and waive trial by jury. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or
25
rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The
Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be
entitled by law or equity. Subject to Section 13(e) hereof, each of the
Company, Subscriber and any signator hereto in his personal capacity hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction in New York of
such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Nothing in this Section shall affect or limit any right to serve
process in any other manner permitted by law.
(g) Independent Nature of Subscribers. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that the decision of each Subscriber to
purchase Securities has been made by such Subscriber independently of any
other Subscriber and independently of any information, materials, statements
or opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges
that nothing contained in any Transaction Document, and no action taken by
any Subscriber pursuant hereto or thereto (including, but not limited to,
the (i) inclusion of a Subscriber in the SB-2 Registration Statement and
(ii) review by, and consent to, such Registration Statement by a Subscriber)
shall be deemed to constitute the Subscribers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Subscribers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by
the Transaction Documents. The Company acknowledges that each Subscriber
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of the Transaction Documents, and
it shall not be necessary for any other Subscriber to be joined as an
additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same
terms and Transaction Documents for the convenience of the Company and not
because Company was required or requested to do so by the Subscribers. The
Company acknowledges that such procedure with respect to the Transaction
Documents in no way creates a presumption that the Subscribers are in any
way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it
shall become a binding agreement between us.
BRAVO! FOODS INTERNATIONAL CORP.
a Delaware corporation
By:_________________________________
Name: Xxx Xxxxxx
Title: CEO
Dated: January _____, 2005
SUBSCRIBER INITIAL CLOSING SECOND CLOSING NOTE
NOTE (INITIAL (SECOND CLOSING
CLOSING PURCHASE PURCHASE PRICE)
PRICE)
$ $
___________________________________
(Signature)
___________________________________
Print Name and Title
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