SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of January
____, 2004, by and among Wizzard Software Corporation, a Colorado corporation
(the "Company"), and the subscribers identified on the signature page hereto
(each a "Subscriber" and collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers shall purchase, in the
aggregate, $1,200,000 (the "Purchase Price") of the Company's common stock,
$.001 par value (the "Common Stock" or "Shares") at a per share price of
$.728; and share purchase warrants (the "Warrants"), in the form attached
hereto as Exhibit A, to purchase shares of Common Stock (the "Warrant
Shares"). Six Hundred Thousand Dollars ($600,000) of the Purchase Price
shall be payable on the Initial Closing Date, as defined in Section 1 hereof
("Initial Closing Purchase Price"). Six Hundred Thousand Dollars ($600,000)
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 Common Stock, the Warrants and the Warrant Shares are
collectively referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Common Stock and the
Warrants contemplated hereby shall be held in escrow pursuant to the terms of
a Funds Escrow Agreement to be executed by the parties substantially in the
form attached hereto as Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. 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 Common
Stock for the principal amount designated on the signature page hereto
("Initial Closing Shares"). The aggregate amount of the Common Stock 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 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 Common Stock in the principal amount designated on the
signature page hereto "Second Closing Shares". The aggregate Purchase Price
of the Second Closing Shares for all Subscribers shall be equal to the Second
Closing Purchase Price. The per share purchase price of the Second Closing
Shares shall be equitably adjusted to offset the effect of stock splits, stock
dividends, and distributions of property or equity interests to the Company's
shareholders.
(b) Conditions to Second Closing. The occurrence of the
Second Closing is expressly contingent on (i) the truth and accuracy, on the
Effective Date (as defined in Section 11.1(iv)), Actual Effective Date and the
Second Closing Date of the representations and warranties of the Company and
Subscriber contained in this Agreement, (ii) compliance with the covenants and
undertakings of the Company set forth in this Agreement, (iii) the non-
occurrence of any default by the Company of its obligations and undertakings
contained in this Agreement, (iv) the delivery on the Second Closing Date of
Second Closing Shares and Second Closing Warrants 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.
(c) Second Closing Deliveries. On the Second Closing
Date, the Company will deliver the Second Closing Shares and Second Closing
Warrants to the Escrow Agent and each Subscriber will deliver its 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 operating 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 Shares, and (iii)
representing the timely compliance by the Company with the Company's
registration requirements set forth in Section 11 of this Agreement, and all
other provisions of this Agreement. A legal opinion nearly identical to the
legal opinion referred to in Section 6 of this Agreement shall be delivered to
the Subscriber at the Second Closing in relation to the Company and Second
Closing Shares and Second Closing Warrants ("Second Closing Legal Opinion").
The Second Closing Legal Opinion must also state that all of the Registrable
Securities (as defined in Section 11) have been included for registration in
an effective registration statement effective as of the Actual Effective Date
and Second Closing Date.
(d) Second Closing Limitation. A Second Closing may not
take place in connection with that amount of Second Closing Shares to be sold
to a Subscriber which would be in excess of the sum of (y) the number of
shares of Common Stock beneficially owned by such Subscriber on the Second
Closing Date, and (z) the number of Second Closing Shares with respect to
which the determination of this proviso is being made on a Second Closing
Date, which would result in beneficial ownership by the Subscriber of more
than 9.99% of the outstanding shares of Common Stock of the Company on the
Second Closing Date. For the purposes of the proviso 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. The Subscriber may revoke the restriction
described in this paragraph upon and effective after 61 days prior notice to
the Company. The Subscriber shall have the right to determine 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%, except that the Warrant Shares issuable upon exercise
of the Second Closing Warrants will all be allocated to the amount above
9.99%.
3. Warrants. On each closing date, the Company will issue
Warrants to the Subscribers. One (1) Warrant will be issued for each two (2)
Initial Closing Shares and Second Closing Shares issued on the Initial Closing
Date and Second Closing Date. The Warrants issuable on the Initial Closing
Date are referred to as Initial Closing Warrants. The Warrants issuable on
the Second Closing Date are referred to as Second Closing Warrants. The per
Warrant Share exercise price to acquire a Warrant Share upon exercise of a
Warrant shall be $1.55 which is equal to 110% of the closing bid price of the
Common Stock as reported by Bloomberg L.P. for the OTC Bulletin Board
("Bulletin Board") for December 22, 2003. Collectively, the Initial Closing
Warrants and Second Closing Warrants are referred to herein as Warrants. The
Initial Closing Warrants and Second Closing Warrants shall be exercisable for
three (3)years after the Initial Closing Date and Second Closing Date,
respectively. The entire Purchase Price shall be deemed allocated to the
Common Stock.
4. Subscriber's Representations and Warranties. Each
Subscriber hereby represents and warrants to and agrees with the Company as to
such Subscriber that:
(a) Information on Company. The Subscriber has been
furnished with or has had access at the XXXXX Website of the Commission to the
Company's Form 10-KSB for the year ended December 31, 2002 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 Common Stock 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 Common Stock and Warrants. On each
closing date, the Subscriber will purchase the Common Stock and Warrants as
principal for its own account and not with a view to any distribution thereof.
(d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act or any applicable state securities laws, by reason of their issuance
in a transaction that does not require registration under the 1933 Act (based
in part on the accuracy of the representations and warranties of Subscriber
contained herein), and that such Securities must be held indefinitely unless a
subsequent disposition is registered under the 1933 Act or any applicable
state securities laws or is exempt from such registration. In any event, and
subject to compliance with applicable securities laws, the Subscriber may
enter into hedging transactions with third parties, which may in turn engage
in short sales of the Securities in the course of hedging the position they
assume and the Subscriber may also enter into short positions or other
derivative transactions relating to the Securities, or interests in the
Securities, and deliver the Securities, or interests in the Securities, to
close out their short or other positions or otherwise settle short sales or
other transactions, or loan or pledge the Securities, or interests in the
Securities, to third parties that in turn may dispose of these Securities.
The amount of shares of Common Stock which may be affected by transactions
described in the previous sentence shall be limited to an amount equal to the
Shares, Warrant Shares and any Securities which may be issued pursuant to
Section 12 hereof. The share limitation shall no longer apply after a
Subscriber has transferred all of its Shares and Warrant Shares.
(e) Shares Legend. The Shares and the Warrant Shares
shall bear the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO WIZZARD
SOFTWARE CORPORATION 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 WIZZARD
SOFTWARE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
(g) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber by the Company. At no
time was the Subscriber presented with or solicited by any leaflet, newspaper
or magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.
(h) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith
have been duly authorized, executed and delivered by the Subscriber and are
valid and binding agreements enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and
Subscriber has full corporate power and authority necessary to enter into this
Agreement and such other agreements and to perform its obligations hereunder
and under all other agreements entered into by the Subscriber relating hereto.
(i) Correctness of Representations. Each Subscriber
represents as to such Subscriber that the foregoing representations and
warranties are true and correct as of the date hereof and will be true and
correct as of each closing date and unless a Subscriber otherwise notifies the
Company prior to any closing date, shall be true and correct as of such
closing dates. 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 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 Common
Stock, the Warrants, the Escrow Agreement and any other agreements delivered
together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Company and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights generally
and to general principles of equity; and the Company has full corporate power
and authority necessary to enter into this Agreement, the Warrants, the Escrow
Agreement and such other agreements and to perform its obligations hereunder
and under all other agreements entered into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common
stock or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company except as described on Schedule 5(d), or the
Reports.
(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the Amex, the
National Association of Securities Dealers, Inc., Nasdaq, SmallCap Market, the
OTC Bulletin Board nor the Company's shareholders is required for the
execution and compliance by the Company of its obligations under this
Agreement, and all other agreements entered into by the Company relating
hereto, including, without limitation, the issuance and sale of the
Securities, and the performance of the Company's obligations hereunder and
under all such other agreements.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscribers in Section 4 are true and
correct, neither the issuance and sale of the Securities nor the performance
of the Company's obligations under this Agreement and all other agreements
entered into by the Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach of,
or constitute a default (or an event which with the giving of notice or the
lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company, (B)
to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Company or any of its 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) will not result in the activation of any anti-
dilution rights or a reset or repricing of any debt or security instrument of
any other debt or equity holder of the Company, nor result in the acceleration
of the due date of any obligation of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance of the Shares, and upon exercise of the
Warrants, the Shares and Warrant Shares respectively, 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 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
Certificate 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 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, 2002 and which, individually or in the
aggregate, would reasonably be expected to have a material adverse effect on
the Company's financial condition, other than as set forth in Schedule 5(q).
(r) No Undisclosed Events or Circumstances. Since
December 31, 2002, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed in the Reports.
(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, except as otherwise described in
this Agreement 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 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) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof and will be true and correct as of each closing
date, and unless the Company otherwise notifies the Subscribers prior to any
closing date, shall be true and correct as of such closing dates. 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 each closing date, the Company will provide an opinion reasonably
acceptable to Subscriber from the Company's legal counsel opining on the
availability of an exemption from registration under the 1933 Act as it
relates to the offer and issuance of the Securities. 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 resale of the Common Stock and exercise of the Warrants and
resale of the Warrant Shares.
7. Legal Fee. The Company shall pay to Grushko & Xxxxxxx,
P.C., a fee of $15,000 ("Legal Fees") as reimbursement for services rendered
to the Subscribers in connection with this Agreement and the purchase and sale
of the Notes and Warrants (the "Offering") and acting as Escrow Agent for the
Offering. Fourteen Thousand Dollars ($14,000) of the Legal Fees shall be
payable on or before the Initial Closing Date and $1,000 shall be payable on
the Second Closing Date. The Legal Fees will be payable out of funds held
pursuant to the Escrow Agreement.
8. Finder. The Company on the one hand, and each Subscriber
(for itself only) on the other hand, agrees to indemnify the other against and
hold the other harmless from any and all liabilities to any persons claiming
brokerage commissions or finder's fees (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. 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 represents that there are no parties entitled to receive fees,
commissions, or similar payments in connection with the Offering except the
Finder identified on Schedule 8 hereto, in the amount designated on Schedule
8.
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 Initial 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 Actual Effective
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 Actual Effective Date. Until
the earlier of the resale of the Common Stock and the Warrant Shares by each
Subscriber or at least two (2) years after the Warrants have been exercised,
the Company will use its best efforts to continue the listing or quotation of
the Common Stock on the Principal Market and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or
rules of the Principal Market. 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 the purposes set forth on Schedule
9(e)hereto. 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 redeemable notes
or equity instruments of the Company nor non-trade obligations outstanding on
the Initial Closing Date.
(f) Reservation. The Company undertakes to reserve, pro
rata on behalf of each holder of a Warrant, from its authorized but unissued
common stock the amount of Common Shares issuable upon the Second Closing Date
and at all times that Warrants remain outstanding, a number of common shares
equal to 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 Actual Effective 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 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 Actual Effective 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 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 Actual Effective 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 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 Actual Effective
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 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 Actual Effective
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 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 Actual Effective 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 needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a material adverse effect.
(m) Confidentiality. From the date of this Agreement and
until the sooner of (i) two (2) years after the Actual Effective 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 agrees that it will not
disclose publicly or privately the identity of the Subscribers unless
expressly agreed to in writing by a Subscriber or only to the extent required
by law and then only upon ten days prior notice to Subscriber.
(n) Blackout. The Company undertakes and covenants that
until the first to occur of (i) the registration statement described in
Section 11.1(iv) having been effective for one hundred and eighty (180)
business days, or (ii) until all the Shares and Warrant Shares have been
resold pursuant to said registration statement, the Company will not enter
into any acquisition, merger, exchange or sale or other transaction that could
have the effect of delaying the effectiveness of any pending registration
statement, causing an already effective registration statement to no longer be
effective or current, or require the filing of an amendment to an already
effective registration statement.
(o) S-8. The Company will not file a Form S-8 with the
Commission during the Exclusion Period (as defined in Section 12(a) of the
Agreement) without the consent of the Subscriber, except in connection with an
additional 1,000,000 shares of common stock underlying employee stock options
that may be subsequently granted to regularly employed employees of the
Company, excluding consultants.
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 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) giving rise to such indemnification obligation.
(d) The procedures set forth in Section 11.6 shall apply
to the indemnifications set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 91 days after
the Initial Closing Date, but not later than three (3)years after the Second
Closing Date ("Request Date"), the Company, upon a written request therefor
from any record holder or holders of more than 50% of the Initial Closing
Shares, Second Closing Shares, and Warrant Shares actually issued upon
exercise of the Warrants shall prepare and file with the Commission a
registration statement under the 1933 Act registering the Initial Closing
Shares, Second Closing Shares and Warrant Shares (collectively "Registrable
Securities") which are the subject of such request for unrestricted public
resale by the holder thereof. For purposes of Sections 11.1(i) and 11.1(ii),
Registrable Securities shall not include Securities which are registered for
resale in an effective registration statement or included for registration in
a pending registration statement, or which have been issued without further
transfer restrictions after a sale or transfer pursuant to Rule 144 under the
1933 Act. Upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities that
such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received
written requests within ten (10) days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section 11.1(i).
(ii) If the Company at any time proposes to register any of
its securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement,
each such time it will give at least fifteen (15) days' prior written notice
to the record holder of the Registrable Securities of its intention so to do.
Upon the written request of the holder, received by the Company within ten
(10) days after the giving of any such notice by the Company, to register any
of the Registrable Securities not previously registered, the Company will
cause such Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so
registered by the holder of such Registrable Securities (the "Seller" or
"Sellers"). In the event that any registration pursuant to this Section
11.1(ii) shall be, in whole or in part, an underwritten public offering of
common stock of the Company, the number of shares of Registrable Securities to
be included in such an underwriting may be reduced by the managing underwriter
if and to the extent that the Company and the underwriter shall reasonably be
of the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that the
Company shall notify the Seller in writing of any such reduction.
Notwithstanding the foregoing provisions, or Section 11.4 hereof, the Company
may withdraw or delay or suffer a delay of any registration statement referred
to in this Section 11.1(ii) without thereby incurring any liability to the
Seller.
(iii) If, at the time any written request for registration
is received by the Company pursuant to Section 11.1(i), the Company has
determined to proceed with the actual preparation and filing of a registration
statement under the 1933 Act in connection with the proposed offer and sale
for cash of any of its securities for the Company's own account and the
Company actually does file such other registration statement, such written
request shall be deemed to have been given pursuant to Section 11.1(ii) rather
than Section 11.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission not later
than forty-five (45) days after the Initial Closing Date (the"Filing Date"),
and cause to be declared effective within one hundred (100) 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 all of the Initial Closing Shares, Second Closing
Shares and Warrant Shares issuable pursuant to this Agreement. The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber, and not issued, employed or reserved for anyone
other than each such Subscriber. The Registration Statement will immediately
be amended or additional registration statements will be immediately filed by
the Company as necessary to register additional shares of Common Stock to
allow the public resale of all Common Stock included in and issuable by virtue
of the Registrable Securities. 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 shares of Registrable Securities under the 1933 Act, the
Company will, as expeditiously as possible:
(a) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 11, with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of
the distribution contemplated thereby (determined as herein provided), and
promptly provide to the holders of Registrable Securities 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) 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 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 (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 ten (10) business days of receipt
by the Company of a written or oral communication from the Commission that the
Registration Statement will not be reviewed, (ii) if the registration
statement described in Sections 11.1(i) or 11.1(ii) is not filed within 60
days after such written request, or is not declared effective within 120 days
after such written request, or (iii) any registration statement described in
Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and declared effective but
shall thereafter cease to be effective (without being succeeded 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
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 one percent (1%) for each thirty days or part thereof of
the Purchase Price of the Common Stock and actually paid "Purchase Price" (as
defined in the Warrants) of 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. The Company may, at the
Company's election, pay the Liquidated Damages in cash or by delivery of free
trading shares of common stock. If the Company elects to pay the Liquidated
Damages by delivering free trading shares of Common Stock, such shares of
common stock will be valued at the closing bid price of the Common Stock on
the Principal Market as of the last trading day of each thirty (30) day or
such shorter period for which Liquidated Damages are due. Payments to be made
pursuant to this Section 11.4 shall be due and payable within ten (10)
business days after the end of each thirty (30) day period or part thereof.
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.
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 (in an amount not to
exceed $5,000) 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 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 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.
11.7. Delivery of Unlegended Shares.
(a) Within five (5) business days (such fifth 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, for 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 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 therefore do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the Company shall cause its transfer agent to electronically transmit the
Unlegended Shares by crediting the account of Subscriber's prime Broker with
DTC through its Deposit Withdrawal Agent Commission system. 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 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 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
purchase all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to 130% 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.
(d) In addition to any other rights available to a
Subscriber, if the Company fails to deliver to a Subscriber Unlegended Shares
within ten (10) calendar days after the 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 11.7(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 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.
12. (a) Right of First Refusal. Until 180 days after the
Actual Effective Date of the Registration Statement (the "Exclusion Period"),
the Subscribers shall be given not less than seven (7) business days prior
written notice of any proposed sale by the Company of its common stock or
other securities or debt obligations, except in connection with (i) employee
stock options or compensation plans, (ii) as full or partial consideration in
connection with any merger, consolidation or purchase of substantially all of
the securities or assets of any corporation or other entity, (iii) as has been
described in the Reports or Other Written Information filed or delivered prior
to the Initial Closing Date, or (iv) common shares of the Company or
instruments convertible or exercisable into common shares of the Company to be
issued to consultants after the Actual Effective Date, having a trading market
value on the date of issuance, or conversion or exercise, whichever is higher,
of up to $250,000 in the aggregate, provided that such common shares are
restricted from transfer except pursuant to Rule 144, are not granted with
registration rights and will not be included in any registration statement
including but not limited to a registration statement on Form S-8
(collectively "Excepted Issuances"). The Subscribers shall have the right
during the seven (7) business days following 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 Common Stock in the Offering. In the event such
terms and conditions are modified during the notice period, the Subscribers
shall be given prompt notice of such modification and shall have the right
during the original notice period or for a period of seven (7) business days
following the notice of modification, whichever is longer, to exercise such
right.
(b) Offering Restrictions. Except as disclosed in the
Reports or Other Written Information filed with the Commission or made
available to the Subscriber prior to the Initial Closing Date, or in
connection with Excepted Issuances, the Company will not issue any equity,
convertible debt or other securities convertible into common stock until after
the Exclusion Period without the prior written consent of the Subscriber,
which consent may be withheld for any reason.
(c) Favored Nations Provision. At any time that the
Subscribers are holders of any Securities, 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 at any time that any Subscriber is holding Shares) except for the
Excepted Issuances to any person, firm or corporation at a price per share or
conversion or exercise price per share which shall be less than the per share
purchase price of the Shares, without the consent of each Subscriber holding
Shares, then the Company shall issue, for each such occasion, additional
shares of Common Stock to the Subscriber so that the average per share
Purchase Price of the shares of Common Stock issued to the Subscriber (on
Common Stock or Warrant Shares still owned by the Subscriber only) is equal to
such other lower price per share. The delivery to the Subscriber of the
additional shares of Common Stock shall be not later than the closing date of
the transaction giving rise to the requirement to issue additional shares of
Common Stock. The Subscriber is granted the registration rights described in
Section 11 hereof in relation to such additional shares of Common Stock except
that the Filing Date and Effective Date vis- -vis such additional common
shares shall be, respectively, the sixtieth (60th) and one hundred and
twentieth (120th) date after the closing date giving rise to the requirement
to issue the additional shares of Common Stock. For purposes of the issuance
and adjustment described in this paragraph, the issuance of any security of
the Company carrying the right to convert such security into shares of Common
Stock or of any warrant, right or option to purchase Common Stock shall result
in the issuance of the additional shares of Common Stock upon the issuance of
such convertible security, warrant, right or option and again upon any
subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
then Purchase Price per share of the shares of Common Stock. The rights of
the Subscriber set forth in this Section 12(c) are in addition to any other
rights the Subscriber has pursuant to this Agreement and any other agreement
referred to or entered into in connection herewith.
(d) Maximum Exercise of Rights. In the event the
exercise of the rights described in Sections 12(a) or 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 2(d) of this Agreement, then the purchase and/or issuance
of such other common stock or common stock equivalents 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 or common stock
equivalents without exceeding the maximum amount set forth calculated in the
manner described in Section 2(d). The determination of when such common stock
or common stock equivalents may be issued shall be made by each Subscriber as
to only such Subscriber.
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: Wizzard Software Corporation, 000 Xxxx
Xxx, Xxxxxxxxxx, XX 00000, Attn: Xxxxxxxxxxx X. Xxxxxxx, President and Chief
Executive Officer, telecopier: (000) 000-0000, with a copy by telecopier only
to: Xxxxxxxxxx & Xxxxxxxxxx, 000 Xxxx 000 Xxxxx, Xxxxx 000, Xxxx Xxxx Xxxx,
Xxxx 00000, Attn: Xxxxxxx X. Xxxxxxxxxx, Esq. and Xxxxxxx X. Xxxxxxxxxx, Esq.,
telecopier: (000) 000-0000, and (ii) if to the Subscribers, to: the address
and telecopier number indicated on the signature page hereto, with a copy by
telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxx, Xxx Xxxx 00000, telecopier number: (000) 000-0000.
(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 herein as
"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 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' 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.
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.
WIZZARD SOFTWARE CORPORATION
A Colorado Corporation
By: /s/ Xxxxxxxxxxx X. Xxxxxxx
--------------------------
Name: Xxxxxxxxxxx X. Xxxxxxx
Title: President & CEO
Dated: January _____, 2004
SUBSCRIBER INITIAL INITIAL INITIAL SECOND SECOND SECOND
CLOSING CLOSING CLOSING CLOSING CLOSING CLOSING
PURCHASE SHARES WARRANTS PURCHASE SHARES WARRANTS
/s/
---
(Signature)
ALPHA CAPITAL
AKTIENGESELLSCHAFT
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Xxxxxxxxxxxx
Fax: 000-00-00000000 $400,000.00 549,450 274,725 $400,000.00 549,450 274,725
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it
shall become a binding agreement between us.
WIZZARD SOFTWARE CORPORATION
A Colorado Corporation
By: /s/ Xxxxxxxxxxx X. Xxxxxxx
--------------------------
Name: Xxxxxxxxxxx X. Xxxxxxx
Title: President & CEO
Dated: January _____, 2004
SUBSCRIBER INITIAL INITIAL INITIAL SECOND SECOND SECOND
CLOSING CLOSING CLOSING CLOSING CLOSING CLOSING
PURCHASE SHARES WARRANTS PURCHASE SHARES WARRANTS
/s/_____________________
---
(Signature)
GENESIS MICROCAP INC.
000 Xxxxx Xxxxx
Xxxxxx X00 0XX, Xxxxxxx
Attn:
Xxxxxxxx X. Xxxxxxx
Fax: 000-000-0000-0000 $100,000.00 137,363 68,681 $100,000.00 137,363 68,681
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it
shall become a binding agreement between us.
WIZZARD SOFTWARE CORPORATION
A Colorado Corporation
By:_/s/ Xxxxxxxxxxx X. Xxxxxxx
--------------------------
Name: Xxxxxxxxxxx X. Xxxxxxx
Title: President & CEO
Dated: January _____, 2004
SUBSCRIBER INITIAL INITIAL INITIAL SECOND SECOND SECOND
CLOSING CLOSING CLOSING CLOSING CLOSING CLOSING
PURCHASE SHARES WARRANTS PURCHASE SHARES WARRANTS
/s/
(Signature)
XXXXXXXXXXX LIMITED
PARTNERSHIP
C/o Canaccord Capital
Corporation
000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx
X0X 0X0, Xxxxxx
Fax: (000) 000-0000 $100,000.00 137,363 68,681 $100,000.00 137,363 68,681
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Warrant
Exhibit B Escrow Agreement
Exhibit C Form of Legal Opinion
Schedule 5(d) Additional Issuances
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 8 Finders
Schedule 9(e) Use of Proceeds
Schedule 11.1 Other Securities to be Registered
EXHIBIT A
[SEE EXHIBITS 10.3 THROUGH 10.5 OF CURRENT REPORT ON FORM 8-K]
EXHIBIT B
[SEE EXHIBIT 10.2 OF CURRENT REPORT ON FORM 8-K]
EXHIBIT C
[FORM OF LEGAL OPINION]
January ____, 2004
TO THE SUBSCRIBERS LISTED ON SCHEDULE A HERETO:
We have acted as counsel to Wizzard Software Corporation, a Colorado
corporation (the "Company") in connection with the offer and sale by the
Company
of shares of the Company's $.001 par value common stock ("Common Stock") and
issuance of common stock purchase warrants to purchase shares of Common Stock
("Warrants") in the amounts set forth on Schedule A, to the Subscribers
identified thereto, pursuant to the exemption from registration under the
Securities Act of 1933, as amended (the "Act) as set forth in Regulation D
("Regulation D") promulgated thereunder. Capitalized terms used herein and
not
otherwise defined shall have the meaning assigned to them in the subscription
agreement (the "Agreement") by and between the Company and (Subscriber) (the
"Purchaser") entered into at or about the date hereof. The Agreement, and the
agreements described below are sometimes hereinafter referred to collectively
as
the "Documents".
In connection with the opinions expressed herein, we have made such
examination of law as we considered appropriate or advisable for purposes
hereof.
As to matters of fact material to the opinions expressed herein, we have
relied,
with your permission, upon the representations and warranties as to factual
matters contained in and made by the Company and the Purchaser pursuant to the
Documents and upon certificates and statements of certain government officials
and of officers of the Company as described below. We have also examined
originals or copies of certain corporate documents or records of the Company
as
described below:
(a) Form of Agreement
(b) Form of Common Stock Certificate
(c) Form of Warrant
(d) Funds Escrow Agreement
(e) Certificate of Incorporation of the Company
(f) Bylaws of the Company
(g) Minutes of the action of the Company's Board of Directors,
including
unanimous Board of Directors approval of the Documents, a copy of
which is annexed hereto.
In rendering this opinion, we have, with your permission, assumed: (a) the
authenticity of all documents submitted to us as originals; (b) the conformity
to the originals of all documents submitted to us as copies; (c) the genuiness
of all signatures; (d) the legal capacity of natural persons; (e) the truth,
accuracy and completeness of the information, factual matters, representations
and warranties contained in all of such documents; (f) the due authorization,
execution and delivery of all such documents by Subscribers, and the legal,
valid
and binding effect thereof on Subscribers; and (g) that the Company and the
Purchasers will act in accordance with their respective representations and
warranties as set forth in the Documents.
We are members of the bar of the State of _________. We express no
opinion as to the laws of any jurisdiction other than ___________ and the
federal
laws of the United States of America. We express no opinion with respect to
the
effect or application of any other laws. Special rulings of authorities
administering any of such laws or opinions of other counsel have not been
sought
or obtained by us in connection with rendering the opinions expressed herein.
1. The Company and each of its subsidiaries is duly incorporated,
validly existing and in good standing in the states of their incorporation;
have
qualified to do business in each state where required unless the failure to do
so would not have a material impact in the Company's operations; and have the
requisite corporate power and authority to conduct their business, and to own,
lease and operate their properties.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Documents. The
Documents,
and the issuance of the Common Stock and Warrants and the reservation and
issuance of Common Stock issuable upon exercise of the Warrants ("Warrant
Shares") have been (a) duly approved by the Board of Directors of the Company,
and (b) all such Common Stock, Warrants and Warrant Shares, when issued
pursuant
to the Agreement and upon delivery, shall be validly issued and outstanding,
fully paid and non assessable.
3. The execution, delivery and performance of the Documents by the
Company and the consummation of the transactions contemplated thereby, will
not,
with or without the giving of notice or the passage of time or both:
(a) Violate the provisions of the Certificate of Incorporation or
bylaws of the Company; or
(b) To the best of counsel's knowledge, violate any judgment,
decree, order or award of any court binding upon the Company.
4. The Documents constitute the valid and legally binding obligations
of the Company and are enforceable against the Company in accordance with
their
respective terms.
5. The Common Stock, Warrants and Warrant Shares have not been
registered under the Securities Act of 1933, as amended (the "Act") or under
the
laws of any state or other jurisdiction, and are and will be issued pursuant
to
a valid exemption from registration.
6. The Company has either obtained the approval of the transactions
described in the Documents from the OTC Bulletin Board or no such approval is
required.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
A. The effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the relief of debtors or the
rights
and remedies of creditors generally, including without limitation the effect
of
statutory or other law regarding fraudulent conveyances and preferential
transfers.
B. Limitations imposed by state law, federal law or general equitable
principles upon the specific enforceability of any of the remedies, covenants
or
other provisions of any applicable agreement and upon the availability of
injunctive relief or other equitable remedies, regardless of whether
enforcement
of any such agreement is considered in a proceeding in equity or at law.
C. This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, including the
General Qualifications and the Equitable Principles Limitation, and this
opinion
letter should be read in conjunction therewith.
This opinion is rendered as of the date first written above, is solely for
your benefit in connection with the Agreement and may not be relief upon or
used
by, circulated, quoted, or referred to nor may any copies hereof by delivered
to
any other person without our prior written consent. We disclaim any
obligation
to update this opinion letter or to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
Schedule 5(d)
Additional Issuances
Warrant No. WA-2003/No. 1 issued to Xxxx Xxxx representing 20,000
warrants to purchase 20,000 shares of common stock at a purchase price of
$0.25 per share.
Schedule 5(q)
Undisclosed Liabilities
None.
Schedule 5(s)
Capitalization
100,000,000 common, $0.001 par value, 22,266,466 outstanding
10,000,000 preferred, $0.001 par value, none outstanding
Schedule 8
Finders
None.
Schedule 9(e)
Use of Proceeds
The proceeds of this transaction will be used by Wizzard Software for working
capital. Below is an estimated breakdown of our expenses for 2004 predicted
to the best of our ability. We plan to hire up to 10 additional people over
the course of 2004 with at least 6 of them being directly tied to sales. We
plan to make up to three acquisitions over the course of the year and it is
impossible to predict at this time what that will cost in term of cash. For
the numbers below we used our trailing 9 month expenses and estimated them out
over the course of one year with reasonable increases for 2004.
Fees for Transaction 87,000.00
Filings for Transaction 50,000.00
Directors' Fees 22,666.00
Accounting 26,727.00
Rent 36,558.00
Communications 42,724.00
General & Administrative 53,769.00
Legal fees 89,499.00
Selling & Marketing 184,497.00
Payroll & Related Taxes 446,560.00
Acquisition 160,000.00
$1,200,000.00
Schedule 11.1
Other Securities to be Registered
None.
