Exhibit 10.1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of October ___,
2004, is by and among FTS Group, Inc., a Nevada corporation (the "Company"), and
the subscribers identified and whose signatures appear on the signature pages to
this Agreement (each, a "Subscriber" and, collectively, the "Subscribers").
WHEREAS, the Company is offering to accredited investors in a private
placement (the "Offering") made in reliance upon exemptions from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), afforded under Sections 4(2) and 4(6) of the 1933 Act and Regulation D
promulgated by the United States Securities and Exchange Commission (the
"Commission") under the 1933 Act, an aggregate of up to 25,000,000 units (each,
a "Unit"), each Unit consisting of (a) one share (each, a "Share") of the common
stock, $.001 par value per share (the "Common Stock"), of the Company, (b) one
Class A Common Stock Purchase Warrant of the Company (each, a "Class A Warrant")
and (c) one Class B Common Stock Purchase Warrant of the Company (each, a "Class
B Warrant," and with the Class A Warrants sometimes collectively referred to as
the "Warrants"), at a per Unit price of $0.08 (the "Unit Purchase Price"), on a
"best efforts, no minimum" basis through Westor Online, Inc. the exclusive
placement agent (in such capacity, the "Placement Agent") for the Offering;
WHEREAS, each Class A Warrant shall entitle its holder to purchase one
share (each, a "Class A Warrant Share") of Common Stock at a purchase price of
$0.12 (subject to adjustment), have a term of three years, commencing on the
date of the Closing (as such term is hereinafter defined), and be evidenced by a
warrant certificate substantially in the form attached as EXHIBIT A to this
Agreement;
WHEREAS, each Class B Warrant shall entitle its holder to purchase one
share (each, a "Class B Warrant Share") of Common Stock at a purchase price of
$0.08 (subject to adjustment), have a term of 180 days, commencing on the date
on which the Commission shall declare effective a registration statement under
the 1933 Act registering for resale the Shares included in the Units actually
sold in the Offering, the Class A Warrant Shares issuable upon exercise of the
Class A Warrants included in the Units actually sold in the Offering and the
Class B Warrant Shares issuable upon exercise of the Class B Warrants included
in the Units actually sold in the Offering (the "Registrable Securities"), and
be evidenced by a warrant certificate substantially in the form attached as
EXHIBIT B to this Agreement;
WHEREAS, all amounts representing subscriptions to purchase the Units shall
be deposited and disbursed pursuant to and in accordance with the terms and
provisions of a funds Escrow Agreement, substantially in the form attached as
EXHIBIT C to this Agreement (the "Escrow Agreement"); and
WHEREAS, each of the Subscribers desires to participate in the Offering and
purchase that number of Units as set forth on the Subscriber's signature page to
this Agreement and the Company desires to accept such subscriptions.
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement and other good and valuable
consideration, receipt of which is hereby acknowledged, the Company and the
Subscribers agree as follows:
1. Purchase and Sale of the Units. Subject to the satisfaction (or
waiver) of the conditions to Closing set forth in this Agreement and the Escrow
Agreement, each Subscriber shall purchase the number of Units (for each
Subscriber, the "Subscriber's Units") indicated on the Subscriber's signature
page to this Agreement, and the Company shall issue and sell to the Subscriber
the Shares, Class A Warrants and Class B Warrants comprising such Units.
2. Escrow Arrangements; Form of Payment. Upon execution of this
Agreement, and pursuant to the terms of the Escrow Agreement, each Subscriber
shall tender in cash (or other immediately available funds) the aggregate Unit
Purchase Price for the Subscriber's Units. Upon notice of the tender of the
aggregate Unit Purchase Price for the Subscriber's Units the Company shall
deliver to the escrow agent under the Escrow Agreement the Shares, Class A
Warrants and Class B Warrants comprising the Subscriber's Units in accordance
with the terms of the Escrow Agreement.
3. Subscriber's Representations and Warranties. Each
Subscriber hereby represents and warrants to and agrees with the
Company only as to such Subscriber that:
(a) Information on Company. The Subscriber has been
furnished with and 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"). Copies of the current form 10K and 10Q. The
Subscriber has been furnished with and has reviewed the risk factors relating to
an investment in the Company's securities annexed hereto as EXHIBIT E. 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"), has had an opportunity to ask questions and
receive answers from the Company's management, and considered all factors the
Subscriber deems material in deciding on the advisability of investing in the
Securities.
(b) Information on Subscriber. The Subscriber is and will be at the
time of the exercise of any of the Warrants, an "accredited investor", as such
term is defined in paragraph (a) of Rule 501 of Regulation D promulgated by the
Commission under the 1933 Act (a copy of which is annexed hereto as EXHIBIT F),
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 and complete.
(c) Purchase of Units. On each closing date, the Subscriber will
purchase the Units as principal for its own account and not with a view to any
distribution thereof and no one other than the Subscriber has any beneficial
interest in such securities.
(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 including the 1933 Act and Regulation
M, the Subscriber may enter into hedging transactions with third parties, which
may in turn engage in short sales of the Securities in the course of hedging the
position they assume and the Subscriber may also enter into short positions or
other derivative transactions relating to the Securities, or interests in the
Securities, and deliver the Securities, or interests in the Securities, to close
out their short or other positions or otherwise settle short sales or other
transactions, or loan or pledge the Securities, or interests in the Securities,
to third parties that in turn may dispose of these Securities.
(e) Shares Legend. The Shares, the Class A Warrant Shares and the
Class B Warrant Shares shall bear the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FTS GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(f) Warrants Legend. The Warrants shall bear the
following or similar legend:
"THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933,AS AMENDED. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO FTS GROUP, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(g) Reserved.
(h) Authority; Enforceability. This Agreement and other agreements
delivered together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and Subscriber has full corporate power and
authority necessary to enter into this Agreement and such other agreements and
to perform its obligations hereunder and under all other agreements entered into
by the Subscriber relating hereto.
(i) Correctness of Representations. Each Subscriber represents as
to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Subscriber otherwise notifies
the Company prior to the Closing Date (as hereinafter defined), shall be true
and correct as of the Closing Date.
(j) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
4. 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 on the
business, operations or financial condition of the Company.
(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company and each of its subsidiaries has been duly authorized and
validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the Shares, 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.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company
except as described on Schedule 5(d), or the Reports.
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its affiliates, the American Stock Exchange, the National
Association of Securities Dealers, Inc., Nasdaq, SmallCap Market, 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 by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities, and the performance of the
Company's obligations under the Transaction Documents.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 3 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:
(i) are, or will be, free and clear of any security interests, liens,
claims or other encumbrances, subject to restrictions upon transfer under the
1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and on the
date of issuance of the Shares and upon exercise of the Warrants, the Shares,
the Class A Warrant Shares and the Class B Warrant Shares will be duly and
validly issued, fully paid and non-assessable (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 this Agreement, and all
other agreements entered into by the Company relating hereto. Except as
disclosed in the Reports, there is no pending or, to the best knowledge of the
Company, 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 could have a material adverse effect on the Company.
(i) Reporting Company. The Company is a publicly-held company subject
to reporting obligations pursuant to 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.
(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 and as of the Closing
Date, the Company will satisfy 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 on the Company's financial condition, 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 Initial Closing Date are
set forth on Schedule 5(s). Except as set forth in the Reports and Other Written
Information and Schedule 5(d), there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company. All of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable.
(t) Dilution. The Company's executive officers and directors
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 Securities 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, and is not an Affiliate
(as defined in Rule 405 under the 0000 Xxx) 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 the Closing Date, shall be true and correct in all material
respects as of the Closing Date.
(x) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
5. 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 G. The Company will provide, at the Company's expense, such
other legal opinions in the future as are reasonably necessary for the resale of
the Shares and exercise of the Warrants and resale of the Class A Warrant Shares
and the Class B Warrant Shares.
6. Legal Fees. The Company will pay to the Placement Agent a
non-refundable, one-time fee of $30,000 for the Placement Agent's legal costs,
and due diligence ("Legal Fees"). The Legal Fees will be payable solely out of
funds held in escrow. Any fees incurred by the Placement Agent in excess of
$30,000 will be the sole responsibility of the Placement Agent.
7. Placement Agent. The Company on the one hand, and each Subscriber
(for himself only) on the other hand, agree to indemnify the other and the
Placement Agent against and hold the other and the Placement Agent harmless from
any and all liabilities to any persons claiming brokerage commissions or
finder's fees other than the Placement Agent on account of services purported to
have been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party's actions. Anything to the contrary in this Agreement notwithstanding,
each Subscriber is providing indemnification only for such Subscriber's own
actions and not for any action of any other Subscriber. Each Subscriber's
liability hereunder is several and not joint. The Company shall pay the
Placement Agent a fee payable as follows: (i) a cash portion, paid directly out
of funds held pursuant to the Escrow Agreement equal to 10% of the funds raised;
and (ii) warrants to purchase, at a an initial exercise price per share of $.096
per share, that number of shares of Common Stock (the "Placement Agent's
Shares") equal to 10% of the number of Units actually sold in the Offering (the
"Placement Agent's Warrants", and together with the cash portion, the "Placement
Agent's Fees"). The Placement Agent's Fees shall be paid simultaneously with
the release of proceeds and securities pursuant to the Escrow Agreement. The
Company represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the Offering except the
Placement Agent and the Company's attorneys.
8. 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
Registrable Securities 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 de-listing 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 Closing
Date, or (ii) until all the Registrable Securities 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 not 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 Closing
Date. Until the earlier of the resale of the Registrable Securities by each
Subscriber or at least two (2) years after the Warrants have been exercised, the
Company will use its best efforts to continue the listing or quotation of the
Common Stock on the Principal Market or other market with the reasonable consent
of Subscribers holding a majority of the Registrable Securities, and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market. The Company agrees to file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Subscriber promptly after such filing.
(e) Use of Proceeds. The Company undertakes to use the proceeds of the
Subscribers' funds for working capital, acquisitions and general corporate
purposes.
(f) Reservation. The Company undertakes to reserve,
pro rata on behalf of each Subscriber and holder of the Shares and Warrants,
from its authorized but unissued Common Stock, a number of shares of Common
Stock equal to the amount of Class A Warrant Shares and Class B Warrant Shares
issuable upon exercise of the Class A Warrants and the Class B Warrants.
Failure to have sufficient shares reserved pursuant to this Section 8(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 Closing Date, or (ii) until all the Registrable
Securities 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 Closing Date, or (ii) until all the Registrable
Securities 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 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 Closing Date, or (ii) until all the
Registrable Securities 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.
(j) Governmental Authorities. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Registrable Securities 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 Closing Date, or (ii) until all the
Registrable Securities 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 Closing Date, or (ii) until all the
Registrable Securities 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 Closing Date, or
(ii) until all the Registrable Securities have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations except as required in the Registration
Statement, the Company agrees that it will not disclose publicly or privately
the identity of the Subscribers unless expressly agreed to in writing by a
Subscriber or only to the extent required by law. 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 not later than the Closing Date. In the
Form 8-K or public announcement, the Company will specifically disclose the
amount of Common Stock outstanding immediately after the Closing.
(n) Credit Line. For 3 months following effectiveness of the
Registration Statement described in Section 11, the Company will not exercise,
access, employ or drawdown, directly or indirectly an equity line of credit
available to the Company from Dutchess Capital Management, LLC, which equity
line of credit is described in the Company's Registration Statement on Form
SB-2, File No. 333-112283.
9. 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 Subscribes 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 10.6 shall
apply to the indemnifications set forth in Sections 9(a) and 9(b) above.
10. Registration Rights.
--------------------
10.1. Registration Rights. When the Placement Agent has raised a
--------------------
minimum of $500,000, the Seller will require the Company to file with the
Commission not later than fifteen (15) business days after the Seller has
notified the Company in writing of its intent to require Registration pursuant
to this Section 10 (the "Filing Date"), and cause to be declared effective
within one hundred and five (105) days after the 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 all of the Registrable Securities
issuable pursuant to this Agreement. The Registrable Securities shall be
available for the benefit of each Subscriber, pro rata, at the time of
--- ----
conversion. If the Placement Agent raises less than $500,000, the Company may,
but will not be obligated to, file a Registration Statement. The Subscribers
and their permitted transferees and assigns may be referred to in this Section
10 as "Sellers."
10.2. Registration Procedures. If and whenever the Company is required
------------------------
by the provisions of Section 10.1 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 10, 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 make available to the
holders of Registrable Securities copies of all filings and Commission letters
of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until such registration statement has been effective for a period of two (2)
years, and comply with the provisions of the 1933 Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Sellers' intended method of disposition set
forth in such registration statement for such period;
(c) make available 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 reasonably retained by the Seller, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, attorney,
accountant or agent in connection with such registration statement. If any
Seller, or its agents, request non-public, material information, Seller and its
agents agree to keep such information confidential and not to trade on such
information.
10.3. Provision of Documents. In connection with each registration
------------------------
described in this Section 10, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it in order to assure compliance with federal and
applicable state securities laws.
10.4. 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 maintained in the manner and within the time periods contemplated by
Section 10 hereof, and it would not be feasible to ascertain the extent of such
damages with precision. Accordingly, if the Placement Agent raises at least
$500,000 and (i) the Registration Statement is not filed on or before the Filing
Date or is not declared effective on or before the sooner of the Effective Date,
or within three (3) business days of 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, (ii) or the
registration statement is filed and declared effective but shall thereafter
cease to be effective (without being succeeded within ten (10) 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 (i), (ii)
and (iii) of this Section 10.4 is referred to herein as a "Non-Registration
Event"), then the Company shall deliver to the holder of Registrable Securities,
as Liquidated Damages, an amount equal to two percent (2%) for each thirty days
or part thereof of the Purchase Price of the Shares and actually paid "Purchase
Price" (as defined in the Warrants) of Class A Warrant Shares and Class B
Warrant Shares issued or issuable upon actual exercise of the Warrants, for the
Registrable Securities owned of record by such holder as of and during the
pendency of such Non-Registration Event which are subject to such
Non-Registration Event. In the alternative, the Company may elect to pay the
cash Liquidated Damages by delivery of free-trading, unrestricted Common Stock
valued at fifty percent (50%) of the closing bid price of the Company's Common
Stock for each trading day for which each Liquidated Damages is due. For
non-trading days, the valuation of Common Stock to be delivered in lieu of cash
Liquidated Damages shall be determined based upon the closing bid price of the
Common Stock on the next succeeding trading day. Such Common Stock must be
delivered on the same day that the cash Liquidated Damages would otherwise be
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 thereof for
which Liquidated Damages are payable. In the event a Registration Statement is
filed by the Filing Date but is withdrawn prior to being declared effective by
the Commission, then such Registration Statement will be deemed to have not been
declared effective.
10.5. Expenses. All expenses incurred by the Company in complying with
-------- Section 10, including, without limitation, all registration
and filing fees, reasonable printing expenses not to exceed $500, 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 and costs of insurance 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 10. Selling Expenses in connection with each registration statement
under Section 10 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.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities under the
1933 Act pursuant to Section 10, 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 10, 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 10.6(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 10, each Seller severally but not jointly
will, to the extent permitted by law, indemnify and hold harmless the Company,
and each person, if any, who controls the Company within the meaning of the 1933
Act, each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the 1933 Act, against all losses, claims,
damages or liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the 1933
Act or otherwise, 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 10, 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 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(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 10.6(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 10.6 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 10.6 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 10.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the 0000
Xxx) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
10.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third business day, 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 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 legends
set forth in Sections 4(e) and 4(f) above, issuable pursuant to any effective
and current registration statement described in Section 10 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
Placement Agent 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 10 hereof beyond 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 10.7 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 purchase all or any portion of the
Registrable Securities subject to such default at a price per share equal to
130% of the Purchase Price of such Registrable Securities. The Company shall pay
any payments incurred under this Section in immediately available funds upon
demand.
(d) In addition to any other rights available to a Subscriber, if the
Company fails to deliver to a Subscriber Unlegended Shares as required pursuant
to this Agreement, within ten (10) calendar 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 anticipated
receiving from the Company (a "Buy-In"), then the Company shall pay in cash to
the Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery of Unlegended Shares
as described in Section 10.7(a), 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 Registrable Securities 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.
11. Offering Restrictions. From the date of this Agreement until after the
Exclusion Period, except in connection with (i) employee stock options or
compensation plans, (ii) as full or partial consideration in connection with any
merger, consolidation or purchase of substantially all of the securities or
assets of any corporation or other entity, or (iii) as has been described in the
Reports or Other Written Information filed or delivered prior to the Closing
Date (collectively "Excepted Issuances"), or the Offering, the Company will not
enter into any agreement to, nor issue any equity, convertible debt or other
securities convertible into Common Stock without the prior written consent of
Subscribers holding a majority of the then outstanding Registrable Securities,
which consent may be withheld for any reason.
12. 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:
FTS Group, Inc.
0000x Xxxxxx Xxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx, CEO
Telecopier:(000) 000-0000
With a copy to:
Xxx Xxxxxxx, Esq.
0000 Xxxxxx Xxxxxx, Xxxxx 0
Xxxxxx, XX 00000
Telecopier: (000) 000-0000
(ii) If to the Subscribers, to the one or more addresses and telecopier numbers
indicated on the signature pages hereto, and
(iii) If to the Placement Agent, to:
Westor Online, Inc.
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxx, XX 00000
Attn: Xxxxxxx Xxxx
Telecopier: (000) 000-0000
With a copy to:
Xxxxx & Associates, LLC
00 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
Attn: Xxxxx Xxxxx
Telecopier: (000) 000-0000
(b) Closing. The consummation of the transactions contemplated herein
-------
shall take place at the offices of the Company's counsel, Xxx Xxxxxxx, located
at 0000 Xxxxxx Xxxxxx, Xxxxx 0, Xxxxxx, Xxxxxxxxxxxxx 00000, upon the
satisfaction of all conditions to Closing set forth in this Agreement ("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 Pennsylvania 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 Pennsylvania or in the federal
courts located in the state of Pennsylvania. 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 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
signatory 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' Obligations and Rights. The
obligations of each Subscriber hereunder are several and not joint with the
obligations of any other Subscriber hereunder, and no such Subscriber shall be
responsible in any way for the performance of the obligations of any other
hereunder.
(h) Equitable Adjustment. The Securities and the purchase prices of
Securities shall be equitably adjusted to offset the effect of stock splits,
stock dividends, and distributions of property or equity interests of the
Company to its shareholders.
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
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.
FTS GROUP, INC.
a Nevada corporation
By:__________________________________
Xxxxx Xxxxxxxxx
Chief Executive Officer
Dated: October _____, 2004
SUBSCRIBER PURCHASE PRICE UNITS
_____________________________
(Signature)
SUBSCRIBER
Address:
_______________________________________
_______________________________________
Social Security Number/Employer Identification Number:
_______________________________________
Telecopier/Facsimile Number for Notices:
_______________________________________
