EXHIBIT 10.43
SUBSCRIPTION AGREEMENT
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THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of May 1,
2007, by and among BigString Corporation, a Delaware corporation (the
"Company"), and the subscribers identified on the signature page hereto (each a
"Subscriber" and collectively the "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase (i) One Million Six Hundred Thousand Dollars ($1,600,000) (the
"Purchase Price") of principal amount of convertible promissory notes of the
Company ("Note" or "Notes"), a form of which is annexed hereto as Exhibit A,
which Notes are convertible into shares of the Company's common stock, $.0001
par value (the "Common Stock"), at a fixed conversion price of $0.18 per share
(the "Conversion Price"), as such Conversion Price may be adjusted as provided
for herein and in the Note, and (ii) share purchase warrants (the "Warrants") in
the form attached hereto as Exhibit B, to purchase up to 3,555,556 shares of the
Company's Common Stock (the "Warrant Shares"). The Notes, shares of Common Stock
issuable upon conversion of the Notes (the "Shares"), the Warrants and the
Warrant Shares issuable upon exercise of the Warrants are collectively referred
to herein as the "Securities."; and
WHEREAS, the Purchase Price to be paid by the Subscribers and the Notes
and the Warrants to be issued by the Company as provided herein 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 C (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. (a) Closing Date. The "Initial Closing Date" shall be the date
that the Initial Closing Purchase Price is transmitted by wire transfer or
otherwise credited to or for the benefit of the Company. 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 or waiver of all conditions to closing set forth in this Agreement.
Each of the Initial Closing Date and Second Closing Date (as defined in Section
1(c) below) is referred to herein as a "Closing Date."
(b) Initial Closing. Subject to the satisfaction or waiver of the
terms and conditions of this Agreement, on the Initial Closing Date, each
Subscriber shall purchase and the Company shall sell to each Subscriber a Note
in the principal amount designated on the signature page hereto ("Initial
Closing Notes"), and Warrants as described in Section 2 of this Agreement
("Initial Closing Warrants"). The principal amount of the Notes to be purchased
by the Subscribers on the Initial Closing Date shall be Eight Hundred Thousand
Dollars ($800,000) (the "Initial Closing Purchase Price").
(c) Second Closing. The "Second Closing Date" shall be on or
before the fifth business day after the compliance with the Second Closing
Condition as defined in Section 1(d) of this Agreement (the "Second Closing
Date"). Subject to the satisfaction or waiver of the conditions to Closing, on
the Second Closing Date, each Subscriber shall purchase and the Company shall
sell to each Subscriber a Note in the Principal Amount designated on the
signature page hereto ("Second Closing Notes") and Warrants as described in
Section 2 of this Agreement ("Second Closing Warrants"). The Second Closing
Notes shall be of the same tenor as the Notes issuable on the Initial Closing
Date and have the same maturity date as the Initial Closing Notes. The principal
amount of the Notes to be purchased by the Subscribers on the Second Closing
Date shall be Eight Hundred Thousand Dollars ($800,000) (the "Second Closing
Purchase Price").
(d) Conditions to Second Closing. The occurrence of the Second
Closing is expressly contingent on (i) compliance with the Second Closing
Condition, (ii) the truth and accuracy, on the Second Closing Date of the
representations and warranties of the Company and Subscriber contained in this
Agreement except for changes that do not constitute a Material Adverse Event (as
defined in Section 5(a)), (iii) continued compliance with the covenants of the
Company set forth in this Agreement, and (iv) the non-occurrence of any Event of
Default (as defined in the Note and this Agreement) or an event that with the
passage of time or the giving of notice could become an Event of Default.
"Second Closing Condition" shall mean the actual effectiveness of the
Registration Statement as defined in Section 11.1 hereunder. If the conditions
to the Second Closing have been satisfied but a Subscriber does not purchase
his, her or its share of the Second Closing Notes and deliver his, her or its
share of the Second Closing Purchase Price on or before the Second Closing Date,
then all registration rights under Section 11.1 of this Agreement with respect
to any such Subscriber shall terminate immediately and be of no further force
and effect, and the Company shall be entitled to file a post-effective amendment
to the Registration Statement and remove from registration (i) all Shares
issuable upon conversion of the Notes, and (ii) all Warrant Shares issuable upon
exercise of the Warrants purchased, acquired and issued to such Subscriber.
(e) Second Closing Deliveries. On the Second Closing Date, the
Company will deliver a certificate ("Second Closing Certificate") signed by its
chief executive officer or chief financial officer (i) representing the truth
and accuracy of all the representations and warranties made by the Company
contained in this Agreement, as of the Initial Closing Date, and the Second
Closing Date, as if such representations and warranties were made and given on
all such dates except for changes that do not constitute a Material Adverse
Event, (ii) certifying that the information contained in the schedules and
exhibits hereto is substantially accurate as of the Second Closing Date, except
for changes that do not constitute a Material Adverse Effect, (iii) adopting and
renewing the covenants and representations set forth in Sections 5, 8, 9, 10,
11, and 12 of this Agreement in relation to the Second Closing Date, Second
Closing Notes, and Second Closing Warrants, (iv) representing timely compliance
by the Company with the Second Closing Condition, (v) representing the timely
compliance by the Company with the Company's applicable registration
requirements set forth in Section 11 of this Agreement, and (vi) certifying that
an Event of Default nor an event that with the passage of time or the giving of
notice could become an Event of Default, has not occurred. A legal opinion
nearly identical to the legal opinion referred to in Section 6 of this Agreement
shall be delivered to each Subscriber at the Second Closing in relation to the
Company, Second Closing Notes and Second Closing Warrants ("Second Closing Legal
Opinion").
2. Warrants. On each Closing Date, the Company will issue and
deliver Warrant to each Subscriber. The number of Warrant Shares available for
purchase under each Warrant shall equal the product of (i) 0.40 multiplied by
(ii) the quotient of (a) the principal amount of the Subscriber's Note,
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divided by (b) the Conversion Price. The number of Warrant Shares eligible for
purchase by each Subscriber is set forth in the signature pages of this
Agreement. The aggregate number of Warrant Shares eligible for purchase by the
Subscribers is 3,555,556, subject to adjustment as provided for herein and in
the Warrant The per Warrant Share exercise price to acquire a Warrant Share upon
exercise of a Warrant shall be $0.30. The Warrants shall be exercisable until
five (5) years after the issue date of the Warrants. Each holder of the Warrants
is granted the registration rights set forth in this Agreement. The Warrant
exercise price and number of Warrant Shares issuable upon exercise of the
Warrants shall be equitably adjusted to offset the effect of stock splits, stock
dividends, and similar events, and as otherwise described in the Warrant.
3. Calendar Days. All references to "days" in the Transaction
Documents shall mean calendar days unless otherwise stated. The terms "business
days" and "trading days" shall mean days that the New York Stock Exchange is
open for trading for three or more hours. Time periods shall be determined as if
the relevant action, calculation or time period were occurring in New York City.
4. Subscriber's Representations and Warranties. As of each Closing
Date, each Subscriber hereby represents and warrants to and agrees with the
Company only as to such Subscriber that:
(a) Organization and Standing of the Subscribers. If the
Subscriber is an entity, such Subscriber is a corporation, partnership or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Subscriber has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Notes and Warrants being sold to it hereunder. The execution, delivery and
performance of this Agreement by such Subscriber and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its Board of Directors, stockholders,
partners, members, as the case may be, is required. This Agreement has been duly
authorized, executed and delivered by the Subscriber and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Subscriber enforceable against the Subscriber in accordance with the terms
hereof and thereof.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by such Subscriber of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of such Subscriber's charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a Material Adverse Effect on such
Subscriber). For purposes of this Agreement, a "Material Adverse Effect" on a
Subscriber shall mean a material adverse effect on the financial condition,
results of operations, properties or business of the Subscriber. Such Subscriber
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or to
purchase the Securities in accordance with the terms hereof, provided that for
purposes of the representation made in this sentence, such Subscriber is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
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(d) 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, 2006 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, Forms 8-K, and other reports
and filings made with the Commission and made available at the XXXXX website
(hereinafter referred to collectively as the "Reports"). The Subscriber has had
an opportunity to ask questions and receive answers from representatives of the
Company. 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 identified thereon as OTHER
WRITTEN INFORMATION (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.
(e) Information on Subscriber. The Subscriber is, and will be at
the time of the conversion of the Notes and exercise 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.
(f) Purchase of Notes and Warrants. On each Closing Date, the
Subscriber will purchase the Notes and Warrants as principal for its own account
for investment only and not with a view toward, or for resale in connection
with, the public sale or any distribution thereof.
(g) 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. Subject to compliance with applicable
securities laws and provided that a net short position in the Shares and Warrant
Shares is not created, the Subscriber may enter into lawful hedging transactions
with respect to the Company's securities, otherwise the Subscriber will not
conduct any short sales as such term is defined in Rule 3b-3 of the 1934 Act.
(h) 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
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LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIGSTRING
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(i) 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 BIGSTRING CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED."
(j) Notes Legend. The Notes shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER
SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIGSTRING
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(k) 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.
(l) Restricted Securities. Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act, or unless an exemption from registration is available.
Notwithstanding anything to the contrary contained in this Agreement, such
Subscriber may transfer (without restriction and without the need for an opinion
of counsel) the Securities to its Affiliates (as defined below) provided that
each such Affiliate is an "accredited investor" under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this Agreement. For
the purposes of this Agreement, an "Affiliate" of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity. Affiliate
includes each subsidiary of the Company. For purposes of this definition,
"control" means the power to direct the management and policies of such person
or firm, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
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(m) No Governmental Review. Each Subscriber understands that no
United States federal or state agency or any other governmental or state agency
has passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
(n) Correctness of Representations. Each Subscriber represents as
to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Subscriber otherwise notifies
the Company prior to the Closing Date shall be true and correct as of the
Closing Date.
(o) Survival. The foregoing representations and warranties shall
survive the Closing Date.
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 or other entity duly incorporated or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate power to own its
properties and to carry on its business as presently 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 Company. For purposes of this Agreement, a
"Material Adverse Effect" on the Company shall mean a material adverse effect on
the financial condition, results of operations, properties or business of the
Company and its Subsidiaries taken as a whole. For purposes of this Agreement,
"Subsidiary" means, with respect to any entity at any date, any corporation,
limited or general partnership, limited liability company, trust, estate,
association, joint venture or other business entity of which more than 25% of
(i) the outstanding capital stock having (in the absence of contingencies)
ordinary voting power to elect a majority of the board of directors or other
managing body of such entity, (ii) in the case of a partnership or limited
liability company, the interest in the capital or profits of such partnership or
limited liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
entity. All the Company's Subsidiaries as of the Closing Date are set forth on
Schedule 5(a) hereto.
(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable.
(c) Authority; Enforceability. This Agreement, the Note, the
Warrants, and the Escrow Agreement, and any other agreements delivered together
with this Agreement or in connection herewith (collectively, the "Transaction
Documents") have been duly authorized, executed and delivered by the Company
and/or its Subsidiaries and are valid and binding agreements of the Company and
its Subsidiaries enforceable against them in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity. The Company has
full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations thereunder.
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(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or its Subsidiaries or other equity interest in the Company except as
described on Schedule 5(d). The Common Stock of the Company on a fully diluted
basis outstanding as of the last Business Day preceding the Closing Date is set
forth on Schedule 5(d).
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its Affiliates, the OTC Bulletin Board (the "Bulletin Board")
nor the Company's shareholders is required for the execution by the Company of
the Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities. The Transaction Documents and the Company's
performance of its obligations thereunder has been approved by the Company's
board of directors.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct and except as
set forth on this Schedule 5(f), neither the issuance and sale of the Securities
nor the performance by the Company of its obligations under this Agreement and
all other Transaction Documents entered into by the Company relating thereto by
the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or over the
properties or assets of the Company or any of its Affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other instrument to which the Company or any of its Affiliates is a
party, by which the Company or any of its Affiliates is bound, or to which any
of the properties of the Company or any of its Affiliates is subject, or (D) the
terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its Affiliates is a party except the
violation, conflict, breach, or default of which would not have a Material
Adverse Effect; 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 or any of
its Affiliates except as described herein; or
(iii) result in the activation of any anti-dilution rights or
a reset or repricing of any debt, security or other instrument issued or
issuable by the Company, nor result in the acceleration of the due date of any
obligation of the foregoing; or
(iv) result in the triggering of any piggy-back registration
rights of any person or entity holding securities of the Company or having the
right to receive securities of the Company.
(g) The Securities. The Securities upon issuance, conversion and
exercise:
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(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon transfer under
the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and on
the date of issuance of the Shares upon conversion of the Notes and the Warrant
Shares and upon exercise of the Warrants, the Shares and Warrant Shares will be
duly and validly issued, fully paid and nonassessable and if registered pursuant
to the 1933 Act and resold pursuant to an effective registration statement will
be free trading and unrestricted);
(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;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
(v) assuming the representations warranties of the Subscribers
as set forth in Section 4 hereof are true and correct, will not result in a
violation of Section 5 under the 1933 Act.
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its Affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under the Transaction
Documents. Except as disclosed in the Reports or in the schedules hereto, there
is no pending or, to the best knowledge of the Company, basis for or threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any of its
Affiliates which litigation if adversely determined would have a Material
Adverse Effect.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the 1934 Act and has
a class of common stock 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 and its Affiliates have
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 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 and Other Written
Information 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 Event
relating to the Company's business, financial condition or affairs not disclosed
in the Reports. The Reports including the financial statements therein, and
Other Written Information 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, taken as a whole, not misleading in light of the
circumstances when made.
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(l) Stop Transfer. The Company has not and will not issue any
stop transfer order or other order impeding the sale, resale or delivery of any
of the Securities, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is given
to the Subscriber.
(m) Defaults. The Company is not in violation of its articles of
incorporation or bylaws. Except as described on Schedule 5(q), 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, (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, and (iii) not in violation of any statute, rule
or regulation of any governmental authority which violation would have a
Material Adverse Effect.
(n) Not an 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 OTC Bulletin Board ("Bulletin Board") which would impair the exemptions
relied upon in this Offering or the Company's ability to timely comply with its
obligations hereunder. Neither the Company nor any of its Subsidiaries will take
any action or steps that would cause the offer or issuance of the Securities to
be integrated with other offerings which would impair the exemptions relied upon
in this Offering or the Company's ability to timely comply with its obligations
hereunder. 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, which would impair the exemptions relied upon in this Offering or
the Company's ability to timely comply with its obligations hereunder.
(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 Common Stock is quoted on the Bulletin Board
under the symbol BSGC.OB. The Company has not received any oral or written
notice that the Common Stock is not eligible nor will become ineligible for
quotation on the Bulletin Board nor that the Common Stock does not meet all
requirements for the continuation of such quotation and the Company satisfies
all the requirements for the continued quotation of the 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,
2006 and which, individually or in the aggregate, would reasonably be expected
not to have a Material Adverse Effect, except as disclosed on Schedule 5(q).
(r) No Undisclosed Events or Circumstances. Since December 31,
2006, 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 been so
publicly announced or disclosed in the Reports.
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(s) Capitalization. The authorized and the issued and outstanding
capital stock of the Company as of the date of this Agreement and the Closing
Date (not including the Securities) are set forth on Schedule 5(d). Except as
set forth on 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 or any of its Subsidiaries.
(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 and its shareholders. The Company specifically
acknowledges that its obligation to issue the Shares upon conversion of the
Notes, and the Warrant Shares upon exercise of the Warrants is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other stockholders of the Company or parties entitled to
receive equity of the Company.
(u) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers, nor have there been
any such disagreements during the two (2) years prior to the Closing Date.
(v) DTC Status. The Company's transfer agent is a participant in
and the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company transfer
agent is set forth on Schedule 5(v) hereto.
(w) Investment Company. Neither the Company nor any Affiliate is
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(x) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(y) Solvency. Based on the financial condition of the Company as
of the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to be paid
on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid.
10
(z) Subsidiary Representations. The Company makes each of the
representations contained in Sections 5(a), (b), (d), (f), (h), (k), (m), (q),
(r), (s), (u), (w), (x) and (y) of this Agreement, as same relate to each
Subsidiary of the Company; provided that with respect to the Company's
wholly-owned subsidiary, Email Emissary, Inc., the Company makes no
representation or warranties other than that such subsidiary has no material
assets or liabilities and does not conduct any active business operations.
(AA) Company Predecessor. All representations made by or relating
to the Company of a historical or prospective nature and all undertakings
described in Sections 9(g) through 9(l) shall relate and refer to the Company,
its predecessors, and the Subsidiaries.
(BB) Correctness of Representations. The Company represents that
the foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and unless the Company otherwise notifies the
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date.
(CC) Survival. The foregoing representations and warranties shall
survive the Closing Date.
6. Regulation D Offering/Legal Opinion. The offer and issuance of
the Securities to the Subscribers is being made pursuant to the exemption from
the registration provisions of the 1933 Act afforded by Section 4(2) or Section
4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On
the Closing Date, the Company will provide an opinion reasonably acceptable to
the Subscribers from the Company's legal counsel in the form annexed hereto as
Exhibit D opining on the availability of an exemption from registration under
the 1933 Act as it relates to the offer and issuance of the Securities and other
matters reasonably requested by the Subscribers. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Notes pursuant to an effective registration statement, Rule
144 under the 1933 Act or an exemption from registration.
7.1 Conversion of Note.
(a) Upon the conversion of a Note or part thereof as provided for
in Section 2.1(a) of the Note, the Company shall, at its own cost and expense,
take all necessary action, including obtaining and delivering, an opinion of
counsel to assure that the Company's transfer agent shall issue stock
certificates in the name of Subscriber (or its permitted nominee) or such other
persons as designated by Subscriber and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company's
Common Stock and that the certificates representing such shares shall contain no
legend other than the usual 1933 Act restriction from transfer legend. Examples
of such legends are provided for in Section 4 of this Agreement. If and when the
Subscriber sells the Shares, assuming (i) the Registration Statement (as defined
below) is effective and the prospectus, as supplemented or amended, contained
therein is current and (ii) the Subscriber or its agent confirms in writing to
the transfer agent that the Subscriber has complied with the prospectus delivery
requirements, the restrictive legend can be removed and the Shares will be
free-trading, and freely transferable. In the event that the Shares are sold in
a manner that complies with an exemption from registration, the Company will
promptly instruct its counsel to issue to the transfer agent an opinion
permitting removal of the legend (indefinitely, if pursuant to Rule 144(k) of
the 1933 Act or in accordance with the other relevant provisions of Rule 144 of
the 1933 Act).
11
(b) Subscriber will give notice of its decision to exercise its
right to convert the Note, or part thereof as provided for in Section 2.1(a) of
the Note by telecopying an executed and completed Notice of Conversion (a form
of which is annexed as Exhibit A to the Note) to the Company via confirmed
telecopier transmission or otherwise pursuant to Section 13(a) of this
Agreement. The Subscriber will not be required to surrender the Note until the
Note has been fully converted or satisfied. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion Date. The Company will itself or cause the
Company's transfer agent to transmit the Company's Common Stock certificates
representing the Shares issuable upon conversion of the Note to the Subscriber
via express courier for receipt by such Subscriber within three (3) business
days after receipt by the Company of the Notice of Conversion (such fifth day
being the "Delivery Date"). In the event the Shares are electronically
transferable, then delivery of the Shares must be made by electronic transfer
provided request for such electronic transfer has been made by the Subscriber
and the Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation, the
prospectus delivery requirements. A Note representing the balance of the Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided the Subscriber delivers the original Note to the
Company. In the event that a Subscriber elects not to surrender a Note for
reissuance upon partial payment or conversion of a Note, the Subscriber hereby
indemnifies the Company against any and all loss or damage attributable to a
third-party claim in an amount in excess of the actual amount then due under the
Note.
(c) The Company understands that a delay in the delivery of the
Shares in the form required pursuant to Section 7.1 hereof, or the Mandatory
Redemption Amount described in Section 7.2 hereof, respectively after the
Delivery Date or the Mandatory Redemption Payment Date (as hereinafter defined)
could result in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay (as liquidated damages and
not as a penalty) to the Subscriber for late issuance of Shares in the form
required pursuant to Section 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each $10,000 of Note
principal amount being converted of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under this Section
in immediately available funds upon demand. Furthermore, in addition to any
other remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of the Shares by the Delivery
Date or make payment by the Mandatory Redemption Payment Date, the Subscriber
will be entitled to revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery of a
notice to such effect to the Company whereupon the Company and the Subscriber
shall each be restored to their respective positions immediately prior to the
delivery of such notice, except that the liquidated damages described above
shall be payable through the date notice of revocation or rescission is given to
the Company.
(d) The Company agrees and acknowledges that despite the pendency
of a not yet effective Registration Statement which includes for registration
the Registrable Securities as defined in Section 11.1(iv), the Subscriber is
permitted to and the Company will issue to the Subscriber Shares upon conversion
of the Note and Warrant Shares upon exercise of the Warrants. Such Shares will,
if required by law, bear the legends described in Section 4 above and if the
requirements of Rule 144 under the 1933 Act are satisfied be immediately
resalable thereunder.
7.2 Mandatory Redemption at Subscriber's Election. In the event (i)
the Company is prohibited from issuing Shares, (ii) fails to timely deliver
Shares on a Delivery Date, (iii) upon the occurrence of any other Event of
Default (as defined in the Note or in this Agreement); any of the foregoing that
is not cured during any applicable cure period and an additional twenty (20)
days thereafter, or (iv) upon a Change in Control (as defined below), then at
the Subscriber's election, the
12
Company must pay to the Subscriber ten (10) business days after request by the
Subscriber, at the Subscriber's election, a sum of money determined by (i)
multiplying up to the outstanding principal amount of the Note designated by the
Subscriber by 100%, or (ii) multiplying the number of Shares otherwise
deliverable upon conversion of an amount of Note principal and/or interest
designated by the Subscriber (with the date of giving of such designation being
a "Deemed Conversion Date") at the Conversion Price that would be in effect on
the Deemed Conversion Date by the highest closing price of the Common Stock on
the Principal Market for the period commencing on the Deemed Conversion Date
until the day prior to the receipt of the Mandatory Redemption Payment,
whichever is greater; together with accrued but unpaid interest thereon and any
other sums arising and outstanding under the Transaction Documents ("Mandatory
Redemption Payment"). The Mandatory Redemption Payment must be received by the
Subscriber within ten (10) business days after request ("Mandatory Redemption
Payment Date"). Upon receipt of the Mandatory Redemption Payment, the
corresponding Note principal and interest will be deemed paid and no longer
outstanding. "Change in Control" shall mean (i) the Company no longer having a
class of shares publicly traded or listed on a Principal Market, (ii) the
Company becoming a Subsidiary of another entity or merging into or with another
entity, (iii) if Xx. Xxxxx X. Xxxxx beneficially owns and holds at any time
after the Closing Date less than ten percent (10%) of the Company's Common
stock, or (iv) the sale, lease, license or transfer of substantially all the
assets of the Company and its Subsidiaries.
7.3 Maximum Conversion. The Subscriber shall not be entitled to
convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of common stock beneficially owned by the Subscriber and its
Affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its Affiliates of more than 4.99% of
the outstanding shares of common stock of the Company on such Conversion Date.
For the purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99% and aggregate conversions by the Subscriber may exceed
4.99%. The Subscriber may increase the permitted beneficial ownership amount up
to 9.99% upon and effective after 61 days prior written notice to the Company.
The Subscriber may allocate which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 4.99% amount
described above and which shall be allocated to the excess above 4.99%.
7.4 Injunction Posting of Bond. In the event a Subscriber shall
elect to convert a Note or part thereof, the Company may not refuse conversion
or exercise based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of such Note shall have been sought and
obtained by the Company or at the Company's request or with the Company's
assistance, and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 120% of the outstanding principal and interest of
the Note, or aggregate purchase price of the Shares which are sought to be
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber's favor.
7.5 Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after seven (7)
business days after the Delivery Date the Subscriber or a broker on the
Subscriber's behalf, purchases (in an open market transaction or otherwise)
shares of Common Stock
13
to deliver in satisfaction of a sale by such Subscriber of the Common Stock
which the Subscriber was entitled to receive upon such conversion (a "Buy-In"),
then the Company shall pay in cash to the Subscriber (in addition to any
remedies available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.
7.6 Adjustments. The Conversion Price, Warrant exercise price and
the number of Shares issuable upon conversion of the Notes and Warrant Shares
issuable upon exercise of the Warrants shall be equitably adjusted and as
otherwise described in this Agreement, the Notes and Warrants.
7.7 Redemption. The Note shall not be redeemable or callable except
as described in the Note. The Warrants shall not be callable or redeemable.
7.8 Mandatory Conversion. Unless an Event of Default (or an event
that with the passage of time or the giving of notice could become an Event of
Default (as such term is defined in the Notes)) has occurred and has not been
timely cured, then commencing after the Actual Effective Date (as defined in
Section 11.1(iv) of this Agreement), the Company will have the option by written
notice to the Subscribers ("Notice of Mandatory Conversion") of compelling the
Subscribers to convert part or all of the outstanding and unpaid principal of
their Notes into Shares at the Conversion Price then in affect ("Mandatory
Conversion"). The Notice of Mandatory Conversion may only be given, if at all,
within five (5) business days after the Company has received the net proceeds
from an underwritten public offering of the Company's equity securities in the
gross amount of not less than $30,000,000 at a per share equivalent price of not
less than the Conversion Price in effect on the final closing of such public
offering ("Mandatory Conversion Conditions"). The date the Notice of Mandatory
Conversion is given is the "Mandatory Conversion Date." The Notice of Mandatory
Conversion shall specify the aggregate principal amount of the Notes which is
subject to Mandatory Conversion. Mandatory Conversion Notices must be given
proportionately to all Subscribers of Notes. A Notice of Mandatory Conversion
may not be given unless the Registration Statement (as defined in Section
11.1(iv) of this Agreement) is effective for the unrestricted public resale of
the Registrable Securities (as defined in Section 11.2 of this Agreement) for
each of the twenty (20) trading days preceding the Mandatory Conversion Date and
through the date the conversion shares are delivered to the Subscriber. The
amount of Note principal included in a Mandatory Redemption Notice shall be
reduced to an amount that would not cause a Subscriber to exceed the limitation
described in Section 7.3 of this Agreement. Each Mandatory Conversion Date shall
be a deemed Conversion Date and the Company will be required to deliver the
Shares issuable pursuant to a Mandatory Conversion Notice in the same manner and
time period as described in Section 7.1(b) of this Agreement.
8. Finder/Legal Fees.
(a) Finder. The Company on the one hand, and each Subscriber (for
himself, herself or 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 on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions. The
14
Company and each Subscriber represents that there are no parties entitled to
receive fees, commissions, or similar payments in connection with the Offering
(as such term is defined below) arising out of such party's actions except as
described on Schedule 8.
(b) Legal Fees. The Company shall pay to Grushko & Xxxxxxx, P.C.,
a cash fee of $20,000 ("Legal Fees"), of which $5,000 has been paid, 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").
The Legal Fees and reimbursement for estimated UCC searches and filing fees
(less any amounts paid prior to a Closing Date), and estimated printing and
shipping costs for the closing statements to be delivered to Subscribers, will
be payable on the Initial Closing Date out of funds held pursuant to the Escrow
Agreement. The total amount of reimbursements shall not exceed $1,000 unless any
such reimbursement in excess of such amount shall be pre-approved in writing by
the Company.
9. Covenants of the Company. The Company covenants and agrees with
the Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers, within
twenty-four hours 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/Quotation. The Company shall promptly secure the
quotation or listing of the Shares and Warrant Shares upon the Principal Market
each national securities exchange, or automated quotation system upon which they
are or become eligible for quotation or listing (subject to official notice of
issuance) and shall maintain same so long as any Warrants are outstanding. The
Company will maintain the quotation or listing of its Common Stock on the
American Stock Exchange, Nasdaq Capital Market, Nasdaq Global Select Market,
Nasdaq Global Market, the Bulletin Board, or New York Stock Exchange (whichever
of the foregoing is at the time the principal trading exchange or market for the
Common Stock (the "Principal Market")), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market, as applicable. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market. As of the date
of this Agreement and the Closing Date, the Bulletin Board is and will be the
Principal Market.
(c) Market Regulations. The Company shall notify the Commission,
the Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Subscribers and promptly provide copies thereof to Subscriber.
(d) Filing Requirements. From the date of this Agreement and
until the last to occur of (i) two (2) years after the Second Closing Date, (ii)
until all the Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, or (iii) the Notes are no longer outstanding (the date of
such latest occurrence being the "End Date"), the Company will (A) cause its
Common Stock to continue to be registered under Section 12(b) or 12(g) of the
1934 Act, (B) comply in all respects with its reporting and filing obligations
under the 1934 Act, (C) voluntarily comply with all reporting requirements that
are applicable to an issuer with a class of shares registered pursuant to
Section 12(g) of the 1934 Act, if the Company is not subject to such reporting
requirements, and (D) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will use its best
efforts not to
15
take any action or file any document (whether or not permitted by the 1933 Act
or the 1934 Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said acts until the End Date. Until the End Date, the Company will
continue the listing or quotation of the Common Stock on a 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 timely file a Form D with respect to the Securities if required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing.
(e) Use of Proceeds. The proceeds of the Offering must be
employed by the Company for general corporate purposes and working capital. The
Purchase Price may not and will not be used for accrued and unpaid officer and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company or non-trade obligations outstanding
on a Closing Date. For so long as any Notes are outstanding, the Company will
not prepay any financing related debt obligations nor redeem any equity
instruments of the Company without the prior consent of the Subscribers.
(f) Reservation. Prior to the Closing, the Company undertakes to
reserve, pro rata, on behalf of each holder of a Note or Warrant, from its
authorized but unissued Common Stock, a number of common shares equal to 100% of
the amount of Common Stock necessary to allow each holder of a Note to be able
to convert all such outstanding Notes and reserve the amount of Warrant Shares
issuable upon exercise of the Warrants. Failure to have sufficient shares
reserved pursuant to this Section 9(f) at any time shall be a material default
of the Company's obligations under this Agreement and an Event of Default under
the Note.
(g) Taxes. From the date of this Agreement and until the End
Date, 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 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 End
Date, the Company will keep its assets which are of an insurable character
insured by financially sound and reputable insurers against loss or damage by
fire, explosion and other risks customarily insured against by companies in the
Company's line of business, in amounts sufficient to prevent the Company from
becoming a co-insurer and not in any event less than one hundred percent (100%)
of the insurable value of the property insured less reasonable deductible
amounts; 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 End Date, the Company will keep records and books of account in which
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 End Date, the Company shall duly observe and conform in all material
respects to all valid
16
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 End Date, 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, unless it is sold for value.
(l) Properties. From the date of this Agreement and until the End
Date, the Company will keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a Material Adverse
Effect.
(m) Confidentiality/Public Announcement. From the date of this
Agreement and until the End Date, the Company agrees that except in connection
with a Form 8-K or the Registration Statement or as otherwise required in
connection with any other filing required to be made with the Commission, it
will not disclose publicly or privately the identity of the Subscribers unless
expressly agreed to in writing by a Subscriber, only to the extent required by
law and then only upon five days prior notice to Subscriber. In any event and
subject to the foregoing, the Company shall file a Form 8-K or make a public
announcement describing the Offering not later than the fourth business day
after the Closing Date. In the Form 8-K or public announcement, the Company will
specifically disclose the amount of common stock outstanding immediately after
the Closing. A form of the proposed Form 8-K or public announcement to be
employed in connection with the Closing is annexed hereto as Exhibit E.
(n) Non-Public Information. The Company covenants and agrees that
except for schedules and exhibits to this Agreement which information thereon
will be publicly disclosed within four (4) business days after the Closing Date,
neither it nor any other person acting on its behalf will at any time provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
(o) Additional Negative Covenants. So long as the Notes are
outstanding, without the consent of the Subscribers, the Company will not and
will not permit any of its Subsidiaries to directly or indirectly:
(i) create, incur, assume or suffer to exist any pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, mortgage, security deed or deed of trust, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Uniform Commercial
Code or comparable law of any jurisdiction) (each, a "Lien") upon any of its
property, whether now owned or hereafter acquired except for: (i) the Excepted
Issuances (as defined in Section 12 hereof, (ii) (a) Liens imposed by law for
taxes that are not yet due or are being contested in good faith and for which
adequate reserves have been established in accordance with generally accepted
accounting principles; (b) carriers', warehousemen's, mechanics', material
men's, repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more than 30
days or that are being contested in good faith and by appropriate proceedings;
17
(c) pledges and deposits made in the ordinary course of business in compliance
with workers' compensation, unemployment insurance and other social security
laws or regulations; (d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature, in each case in the ordinary
course of business; (e) Liens created with respect to the financing of the
purchase of property in the ordinary course of the Company's business up to the
amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a "Permitted Lien") and (iii)
indebtedness for borrowed money which is not senior or pari passu in right of
payment to the payment of the Notes or distribution of the Company's assets;
(ii) amend its certificate of incorporation, by-laws or its
charter documents so as to adversely affect any rights of the Subscribers;
(iii) repay, repurchase or offer to repay, repurchase or
otherwise acquire or make any dividend or distribution in respect of any of its
Common Stock, preferred stock, or other equity securities other than to the
extent permitted or required under the Transaction Documents;
(iv) prepay or redeem any financing related debt or past due
obligations outstanding as of the Closing Date;
(v) engage in any transactions with any officer, director,
employee or any Affiliate (excluding a Subsidiary) of the Company, including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $100,000 other than (i)
for payment of salary and bonuses or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company, (iii) for other
employee benefits, including stock option agreements under any stock option plan
of the Company, and (iv) pursuant to existing contractual agreements; or
(vi) the Company agrees to provide Subscribers not less than
ten days notice prior to becoming obligated to or effectuating a Permitted Lien
or Excepted Issuance.
(p) Further Registration Statements. Except for a registration
statement filed on behalf of the Subscribers pursuant to Section 11 of this
Agreement, the Company will not, without the consent of the Subscribers, file
with the Commission or with state regulatory authorities any registration
statements or amend any already filed registration statement to increase the
amount of Common Stock registered therein, or reduce the price of which such
Common Stock is registered therein, including but not limited to Forms S-8,
until the expiration of the "Exclusion Period", which shall be defined as the
sooner of (i) the Registration Statement having been current and available for
use in connection with the resale of all of the Registrable Securities (as
defined in Section 11.1(i) for a period of 90 days, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by the Subscribers pursuant
to the Registration Statement or Rule 144, without regard to volume limitations.
The Exclusion Period will be tolled or reinstated, as the case may be, during
the pendency of an Event of Default as defined in the Note.
(q) Blackout. The Company undertakes and covenants that, until
the end of the Exclusion Period, the Company will not enter into any
acquisition, merger, exchange or sale or other
18
transaction or fail to take any action that could have the effect of delaying
the effectiveness of any pending Registration Statement or causing an already
effective Registration Statement to no longer be effective or current for a
period of twenty or more days in the aggregate during any three hundred and
sixty-five day period.
(r) Equity Line Restrictions/Option Plans. For so long as the
Notes are outstanding, except for the Excepted Issuances, the Company will not
enter into any equity line of credit or similar agreement, nor issue nor agree
to issue any floating or variable priced equity linked instruments nor any of
the foregoing or equity with price reset rights. The only officer, director,
employee and consultant stock option or stock incentive plan currently in effect
or contemplated by the Company is described on Schedule 5(d).
(s) Lockup Agreements. The Company will deliver to the
Subscribers on or before the Closing Date and enforce the provisions of
irrevocable lockup agreements ("Lockup Agreements") in the forms annexed hereto
as Exhibit F, with the parties identified on Schedule 9.1(s).
(t) Seniority. Except for Permitted Liens and as otherwise
provided for herein, until the Notes are fully satisfied or converted, the
Company shall not grant nor allow any security interest to be taken in the
assets of the Company or any Subsidiary; nor issue any debt, equity or other
instrument which would give the holder thereof directly or indirectly, a right
in any assets of the Company or any Subsidiary, superior to any right of the
holder of a Note in or to such assets.
(u) DTC Program. At all times that Notes or Warrants are
outstanding, the Company will employ as the transfer agent for the Common Stock,
Shares and Warrant Shares a participant in the Depository Trust Company
Automated Securities Transfer Program.
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 the Company or breach of any warranty by the Company in this Agreement or in
any Exhibits or Schedules attached hereto, or other Transaction Documents
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 Transaction
documents 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 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 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 Transaction Documents 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 Transaction Documents entered into by the
Company and Subscribers, relating hereto.
19
(c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any Transaction Document or other
agreement delivered in connection herewith be greater in amount than the dollar
amount of the net proceeds actually received by such Subscriber upon the sale of
Registrable Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply to the
indemnification set forth in Sections 10(a) and 10(b) above.
11.1 Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing ninety-one (91)
calendar days after the Initial Closing Date, but not later than two (2) years
after the Initial Closing Date, upon a written request therefor from any record
holder or holders of more than 50% of the Shares issued and issuable upon
conversion of the outstanding Notes and outstanding Warrant Shares, the Company
shall prepare and file with the Commission a registration statement under the
1933 Act registering the Registrable Securities, as defined in Section 11.1(iv)
hereof, 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 (A) registered for resale in
an effective registration statement, (B) included for registration in a pending
registration statement, or (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act.
Upon 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 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 five (5) 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
20
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 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 within forty-five (45) calendar days
after the Initial Closing Date (the "Filing Date"), and cause the Registration
Statement to be declared effective not later than ninety (90) calendar days
after the sooner of the Filing Date, or actual filing date of the Registration
Statement (the "Effective Date"). The Company will register not less than a
number of shares of Common Stock in the aforedescribed registration statement
that is not less than 100% of the Shares issued and issuable upon conversion of
all of the Notes and all of the Warrant Shares issuable upon exercise of the
Warrants and Finder's Warrants (described on Schedule 8) which are issuable on
the Initial Closing Date and Second Closing Date (collectively the "Registrable
Securities"). The Registrable Securities shall be reserved and set aside
exclusively for the benefit of each Subscriber and Warrant holder, pro rata, and
not issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder. The Registration Statement will immediately be amended or
additional registration statements will be immediately filed by the Company as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Except as set forth on Schedule 11.1(iv), or otherwise with the
written consent of the Subscribers, no securities of the Company other than the
Registrable Securities will be included in the Registration Statement. It shall
be deemed a Non-Registration Event if at any time after the date the
Registration Statement is declared effective by the Commission ("Actual
Effective Date") the Company has registered for unrestricted resale on behalf of
the Subscribers fewer than 100% of the amount of the Shares issuable upon full
conversion of the Notes and 100% of the Warrant Shares issuable upon exercise of
the Warrants and Finder's Warrants.
11.2 Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i) or 11.1(ii) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:
(a) subject to the timelines provided in this Agreement, prepare
and file with the Commission a registration statement required by Section 11,
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), promptly
provide to the holders of the Registrable Securities copies of all filings and
Commission letters of comment and notify Subscribers (by telecopier and by
e-mail addresses provided by Subscribers) and Grushko & Xxxxxxx, P.C. (by
telecopier and by email to Xxxxxxxxx@xxx.xxx) on or before the first business
day thereafter that the Company receives notice that (i) the Commission has no
comments or no further comments on the Registration Statement, and (ii) the
registration statement has been declared effective (failure to timely provide
notice as required by this Section 11.2(a) shall be a material breach of the
Company's obligation and an Event of Default as defined in the Notes and a
Non-Registration Event as defined in Section 11.4 of this Agreement);
(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
21
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 or make them electronically available;
(d) use its commercially reasonable best efforts to register or
qualify the Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of New York and 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) notify the Subscribers within two hours of the Company's
becoming aware that 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 or which becomes subject to a Commission, state or other governmental
order suspending the effectiveness of the registration statement covering any of
the Registrable Securities;
(g) provided same would not be in violation of the provisions 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;
and
(h) provide to the Sellers copies of the Registration Statement
and amendments thereto five business days prior to the filing thereof with the
Commission.
11.3 Provision of Documents. In connection with each registration
described in this Section 11, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
11.4 Non-Registration Events. The Company and the Subscribers agree
that the Sellers will suffer damages if the Registration Statement is not filed
by the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 11.1(i) or 11.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 11 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(A) the Registration Statement is not filed on or before the Filing Date, (B) is
not declared effective on or before the Effective Date, (C) due to the action or
inaction of the Company the Registration Statement is not declared effective
within three (3) business days after
22
receipt by the Company or its attorneys of a written or oral communication from
the Commission that the Registration Statement will not be reviewed or that the
Commission has no further comments, (D) if the registration statement described
in Sections 11.1(i) or 11.1(ii) is not filed within 60 days after such written
request, or is not declared effective within 120 days after such written
request, or (E) any registration statement described in Sections 11.1(i),
11.1(ii) or 11.1(iv) is filed and declared effective but shall thereafter cease
to be effective without being succeeded within fifteen (15) business days by an
effective replacement or amended registration statement or for a period of time
which shall exceed thirty (30) days in the aggregate per year (defined as every
rolling period of 365 consecutive days commencing on the Actual Effective Date
(each such event referred to in clauses (A) through (E) of this Section 11.4 is
referred to herein as a "Non-Registration Event"), then the Company shall
deliver to the holder of Registrable Securities, as Liquidated Damages, an
amount equal to two percent (2%) for the first thirty (30) days of such
Non-Registration Event and one percent (1%) for each thirty (30) days (in each
case such lesser pro-rata amount for any period of less than thirty (30) days)
of the Purchase Price of the outstanding Notes. The Company must pay the
Liquidated Damages in cash. The Liquidated Damages must be paid within ten (10)
days after the end of each thirty (30) day period or shorter part thereof for
which Liquidated Damages are payable. 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 and Liquidated Damages will be calculated accordingly. All oral or written
comments received from the Commission relating to the Registration Statement
must be reasonably responded to within twenty (20) days after receipt of
comments from the Commission. Failure to timely respond to Commission comments
is a Non-Registration Event for which Liquidated Damages shall accrue and be
payable by the Company to the holders of Registrable Securities at the same rate
and amounts set forth above calculated from the date the response was required
to have been made. Notwithstanding the foregoing, the Company shall not be
liable to the Subscriber under this Section 11.4 for any events or delays
occurring as a consequence of the acts or omissions of the Subscribers contrary
to the obligations undertaken by Subscribers in this Agreement. Liquidated
Damages will not accrue nor be payable pursuant to this Section 11.4 nor will a
Non-Registration Event be deemed to have occurred for times during which
Registrable Securities are transferable by the holder of Registrable Securities
pursuant to Rule 144(k) under the 1933 Act.
11.5 Expenses. All expenses incurred by the Company in complying
with Section 11, including, without limitation, all registration and filing
fees, printing expenses (if required), 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, and fees of transfer agents and registrars, are
called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities 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 the
Registration Statement under Section 11 shall be borne by each 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
23
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 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 the 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
24
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 sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11.7 Delivery of Unlegended Shares.
(a) Within three (3) business days (such third business day being
the "Unlegended Shares Delivery Date") after the business day on which the
Company has received (i) a notice that Shares or Warrant Shares or any other
Common Stock held by a Subscriber have been sold 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
and if required, have been satisfied, and (iii) the original share certificates
representing the shares of Common Stock that have been sold, and (iv) in the
case of sales under Rule 144, customary representation letters of the Subscriber
and/or Subscriber's broker regarding compliance with the requirements of Rule
144, the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver to its transfer agent (with copies to
Subscriber) an appropriate instruction and opinion of such counsel, directing
the delivery of shares of Common Stock without any legends including the legend
set forth in Section 4(i) above (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 submitted Shares
certificate, 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.
25
(b) In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(c) The Company understands that a delay in the delivery of the
Unlegended Shares pursuant to Section 11 hereof later than two business days
after the Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the Company agrees to
pay late payment fees (as liquidated damages and not as a penalty) to the
Subscriber for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to the greater of (i) the actual purchase
price of such Shares or Warrant Shares, or (ii) the highest closing price of the
Common Stock during the aforedescribed thirty day period and the denominator of
which is the lowest conversion price during such thirty day period ("Unlegended
Redemption Amount"). The Company shall pay any payments incurred under this
Section in immediately available funds upon demand.
(d) In addition to any other rights available to a Subscriber, if
the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Agreement, within seven (7) business days after the Unlegended
Shares Delivery Date and the Subscriber or a broker on the Subscriber's behalf,
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Subscriber of the shares of Common
Stock which the Subscriber was entitled to receive from the Company (a
"Buy-In"), then the Company shall pay in cash to the Subscriber (in addition to
any remedies available to or elected by the Subscriber) the amount by which (A)
the Subscriber's total purchase price (including brokerage commissions, if any)
for the shares of common stock so purchased exceeds (B) the aggregate purchase
price of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery of
Unlegended Shares as described in Section 11.7 or Warrant Shares upon exercise
of Warrants and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7 or the Warrant Shares pursuant to the Warrants, the
Company may not refuse to deliver Unlegended Shares or Warrant 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 by the Company
or at the Company's request or with
26
the Company's assistance, and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 120% of the amount of the aggregate
purchase price of the Common Stock and Warrant Shares which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber's favor.
12. (a) Right of First Refusal. Subject to the rights of the holders of
the Company's Series A Preferred Stock as existing and described in the Reports
as of the Initial Closing Date and without any amendment or enlargement thereof,
until one year after the Second Closing Date (which period shall be tolled
during the pendency of an Event of Default that is not cured during any
applicable cure 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 equity linked debt obligations, except in
connection with (i) full or partial consideration in connection with a strategic
merger, acquisition, consolidation or purchase of substantially all of the
securities or assets of corporation or other entity which holders of such
securities or debt are not at any time granted registration rights, (ii) the
Company's issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital and, (iii) the Company's issuance of Common Stock or
the issuances or grants of options to purchase Common Stock pursuant to stock
option plans and employee stock purchase plans described on Schedule 5(d)
hereto, and (iv) as a result of the exercise of Warrants or conversion of Notes
which are granted or issued pursuant to this Agreement (collectively the
foregoing are "Excepted Issuances"). The Subscribers who exercise their rights
pursuant to this Section 12(a) shall have the right during the seven (7)
business days following receipt of the notice to purchase some or all of such
offered common stock, debt or other securities in accordance with the terms and
conditions set forth in the notice of sale in the same proportion to each other
as their purchase of Notes in the Offering. A Subscriber may elect to purchase
less than the maximum amount purchasable by such Subscriber in which event other
Subscribers who have fully exercise their rights pursuant to this Section 12(a)
may elect during the following additional seven (7) days to purchase in
proportion to their initial Note purchase hereunder the amounts not purchased by
the Subscribers who did not purchase the maximum amount otherwise available to
them. 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 seven (7) business days following the notice of
modification to exercise such right.
(b) Favored Nations Provision. Other than in connection with the
Excepted Issuances, if at any time the Notes or Warrants are outstanding, the
Company shall offer, issue or agree to issue any common stock or securities
convertible into or exercisable for shares of common stock (or modify any of the
foregoing which may be outstanding) to any person or entity at a price per share
or conversion or exercise price per share which shall be less than the
Conversion Price in respect of the Shares, or if less than the Warrant exercise
price in respect of the Warrant Shares, without the consent of each Subscriber,
then the Company shall issue, for each such occasion, additional shares of
Common Stock to each Subscriber so that the average per share purchase price of
the shares of Common Stock issued to the Subscriber (of only the Common Stock or
Warrant Shares still owned by the Subscriber) is equal to such other lower price
per share and the Conversion Price and Warrant exercise price shall
automatically be reduced to such other lower price. The average Purchase Price
of the Shares and average exercise price in relation to the Warrant Shares shall
be calculated separately for the Shares and Warrant Shares. The foregoing
calculation and issuance shall be made separately for Shares received upon
conversion of the Notes and separately for Warrant Shares. The delivery to the
Subscriber of the additional shares of Common Stock shall be not later than the
closing date of the transaction giving rise to the requirement to issue
additional shares of Common Stock. The Subscriber is granted the registration
rights described in Section 11 hereof in relation to such additional shares of
Common Stock except that
27
the Filing Date and Effective Date vis-a-vis such additional common shares shall
be, respectively, the thirtieth (30th) and sixtieth (60th) 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 sooner of the agreement to or actual issuance of
such convertible security, warrant, right or option and again at any time upon
any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price or Warrant exercise price in effect upon such issuance. The
rights of the Subscriber set forth in this Section 12 are in addition to any
other rights the Subscriber has pursuant to this Agreement, the Note, any
Transaction Document, and any other agreement referred to or entered into in
connection herewith. The Subscriber is also given the right to elect to
substitute any term or terms of any other offering in connection with which the
Subscriber has rights as described in Section 12(a), for any term or terms of
the Offering in connection with Securities owned by Subscriber as of the date
the notice described in Section 12(a) is required to be given to Subscriber.
(c) Maximum Exercise of Rights. In the event the exercise of the
rights described in Sections 12(a) or 12(b) would or could result in the
issuance of an amount of common stock of the Company that would exceed the
maximum amount that may be issued to a Subscriber calculated in the manner
described in Section 7.3 of this Agreement, then the issuance of such additional
shares of Common Stock of the Company to such Subscriber will be deferred in
whole or in part until such time as such Subscriber is able to beneficially own
such Common Stock without exceeding the applicable maximum amount set forth
calculated in the manner described in Section 7.3 of this Agreement. The
determination of when such Common Stock may be issued shall be made by each
Subscriber as to only such Subscriber.
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 overnight 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), (b) on the first business day following the date
deposited with an overnight courier service with charges prepaid, or (c) on the
third business day following the date of mailing pursuant to subpart (a)(ii)
above, or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be: (i) if to the Company, to: BigString
Corporation, 0 Xxxxxxx Xxxx, Xxxxx X, Xxx Xxxx, XX 00000, Attn: Xxxxx X. Xxxxx,
President and Chief Executive Officer, telecopier: (000) 000-0000, with a copy
by telecopier only to: Xxxxxxxx, Xxxxxxxx & Xxxxxx, P.C., 000 Xxxx Xxxx Xxxx,
X.X. Xxx 000, Xxxxxxxxxx, XX 00000, Attn: Xxxx X. Xxxxxxx, Esq., telecopier:
(000) 000-0000, and (ii) if to the Subscriber, to: the one or more addresses and
telecopier numbers indicated on the signature pages hereto, with an additional
copy by telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier: (000) 000-0000.
28
(b) 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 the
Company shall be assigned without prior notice to and the written consent of the
Subscribers. A Subscriber shall promptly provide the Company with written notice
of the assignment or delegation of any of its rights or obligations under this
Agreement.
(c) 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.
(d) Law Governing this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of New Jersey without
regard to conflicts of laws principles that would result in the application of
the substantive laws of another jurisdiction. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the civil or state courts of New Jersey or in the
federal courts located in the State of New Jersey. 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.
(e) Specific Enforcement, Consent to Jurisdiction. To the extent
permitted by law, 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 one or more preliminary and final 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(d) hereof, each of
the Company, Subscriber and any signator hereto in his or her 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.
(f) Independent Nature of Subscribers. The Company acknowledges that
the obligations of each Subscriber under the Transaction Documents are several
and not joint with the obligations of any other Subscriber, and no Subscriber
shall be responsible in any way for the performance of the obligations of any
other Subscriber under the Transaction Documents. The Company acknowledges that
each Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the
29
Company which may have been made or given by any other Subscriber or by any
agent or employee of any other Subscriber, and no Subscriber or any of its
agents or employees shall have any liability to any Subscriber (or any other
person) relating to or arising from any such information, materials, statements
or opinions. The Company acknowledges that nothing contained in any Transaction
Document, and no action taken by any Subscriber pursuant hereto or thereto
(including, but not limited to, the (i) inclusion of a Subscriber in the
Registration Statement and (ii) review by, and consent to, such Registration
Statement by a Subscriber) shall be deemed to constitute the Subscribers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Subscribers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Subscriber shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of the Transaction Documents, and it shall
not be necessary for any other Subscriber to be joined as an additional party in
any proceeding for such purpose. The Company acknowledges that it has elected to
provide all Subscribers with the same terms and Transaction Documents for the
convenience of the Company and not because Company was required or requested to
do so by the Subscribers. The Company acknowledges that such procedure with
respect to the Transaction Documents in no way creates a presumption that the
Subscribers are in any way acting in concert or as a group with respect to the
Transaction Documents or the transactions contemplated thereby.
(g) Damages. In the event the Subscriber is entitled to receive any
liquidated damages pursuant to the Transactions, the Subscriber may elect to
receive the greater of actual damages or such liquidated damages.
(h) Consent. As used in the Agreement, "consent of the Subscribers"
or similar language means the consent of holders of not less than 70% of the
total of the Shares issued and issuable upon conversion of outstanding Notes
owned by Subscribers on the date consent is requested.
(i) Equal Treatment. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
the Transaction Documents unless the same consideration is also offered and paid
to all the Subscribers and their permitted successors and assigns.
(j) Maximum Payments. Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum rate permitted by applicable law. In the event that the
rate of interest or dividends required to be paid or other charges hereunder
exceed the maximum permitted by such law, any payments in excess of such maximum
rate shall be credited against amounts owed by the Company to the Subscriber and
thus refunded to the Company.
30
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.
BIGSTRING CORPORATION
a Delaware corporation
By: /s/ Xxxxx X. Xxxxx
----------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive
Officer
Dated: May 1, 2007
--------------------------------------------------------------------------------------------------------
SUBSCRIBER INITIAL CLOSING PURCHASE PRICE AND SECOND CLOSING PURCHASE PRICE AND
NOTE PRINCIPAL NOTE PRINCIPAL
--------------------------------------------------------------------------------------------------------
ALPHA CAPITAL ANSTALT $250,000.00 $250,000.00
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Vaduz, Lichtenstein
Fax: 000-00-00000000
/s/ Xxxxxx Xxxxxxxx
-----------------------------------
(Signature)
By: Xxxxxx Xxxxxxxx
--------------------------------------------------------------------------------------------------------
WARRANT SHARES WARRANT SHARES
555,556 555,556
---------------------------------------------------------------------
31
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.
BIGSTRING CORPORATION
a Delaware corporation
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive
Officer
Dated: May 1, 2007
----------------------------------------------------------------------------------------------------------
SUBSCRIBER INITIAL CLOSING PURCHASE PRICE AND SECOND CLOSING PURCHASE PRICE AND
NOTE PRINCIPAL NOTE PRINCIPAL
----------------------------------------------------------------------------------------------------------
WHALEHAVEN CAPITAL FUND LIMITED $250,000.00 $250,000.00
c/o FWS Capital Ltd.
0xx Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
Fax: (000) 000-0000
/s/ Xxxx Xxxxxxxx
-------------------------------------
(Signature)
By: Xxxx Xxxxxxxx, Managing Partner
----------------------------------------------------------------------------------------------------------
WARRANT SHARES WARRANT SHARES
555,556 555,556
---------------------------------------------------------------------
32
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.
BIGSTRING CORPORATION
a Delaware corporation
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive
Officer
-----------------------------------------------------------------------------------------------------
SUBSCRIBER INITIAL CLOSING PURCHASE PRICE AND SECOND CLOSING PURCHASE PRICE AND
NOTE PRINCIPAL NOTE PRINCIPAL
-----------------------------------------------------------------------------------------------------
CHESTNUT RIDGE PARTNERS LP $125,000.00 $125,000.00
00 Xxxx Xxxxxxxxx
Xxxxxxxxx Xxxx, XX 00000
Fax: (000) 000-0000
/s/ Xxxxxxx Xxxx
--------------------------------
(Signature)
By: Xxxxxxx Xxxx, CFO
-----------------------------------------------------------------------------------------------------
WARRANT SHARES WARRANT SHARES
277,778 277,778
---------------------------------------------------------------------
33
SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (D)
--------------------------------------------
Please acknowledge your acceptance of the foregoing
Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
BIGSTRING CORPORATION
a Delaware corporation
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive
Officer
----------------------------------------------------------------------------------------------------------------
SUBSCRIBER INITIAL CLOSING PURCHASE PRICE AND SECOND CLOSING PURCHASE PRICE AND
NOTE PRINCIPAL NOTE PRINCIPAL
----------------------------------------------------------------------------------------------------------------
IROQUOIS MASTER FUND LTD. $125,000.00 $125,000.00
c/o Iroquois Capital Management, LLC
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Fax: (212)
/s/ Xxxxxx Xxxxxxxxx
------------------------------------------
(Signature)
By: Xxxxxx Xxxxxxxxx
----------------------------------------------------------------------------------------------------------------
WARRANT SHARES WARRANT SHARES
277,778 277,778
----------------------------------------------------------------------
34
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (E)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
BIGSTRING CORPORATION
a Delaware corporation
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive
Officer
---------------------------------------------------------------------------------------------------------
SUBSCRIBER INITIAL CLOSING PURCHASE PRICE AND SECOND CLOSING PURCHASE PRICE AND
NOTE PRINCIPAL NOTE PRINCIPAL
---------------------------------------------------------------------------------------------------------
PENN FOOTWEAR $50,000.00 $50,000.00
Line and Xxxxx Xxxxxxx
X.X. Xxx 00
Xxxxxxxxx, XX 00000
Attn: Xxxx Xxxxxxxxxx, President
Fax: (000) 000-0000
/s/ Xxxx Xxxxxxxxxx
------------------------------------
(Signature)
By: Xxxx Xxxxxxxxxx, President
---------------------------------------------------------------------------------------------------------
WARRANT SHARES WARRANT SHARES
111,111 111,111
---------------------------------------------------------------------
35
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit A Form of Note
Exhibit B Form of Warrant
Exhibit C Escrow Agreement
Exhibit D Form of Legal Opinion
Exhibit E Form of Public Announcement
Exhibit F Form of Lockup Agreement
Schedule 5(a) Subsidiaries
Schedule 5(d) Additional Issuances / Capitalization
Schedule 5(f) Conflicts
Schedule 5(q) Undisclosed Liabilities
Schedule 5(v) Transfer Agent
Schedule 8 Finder's Fee
Schedule 9(s) Lockup Agreement Providers
Schedule 11.1(iv) Additional Securities to be included in the
Registration Statement
36
EXHIBIT B
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 UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BIGSTRING CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase ________ shares of Common Stock of
BigString Corporation (subject to adjustment as
provided herein)
COMMON STOCK PURCHASE WARRANT
No. 2007-001 Issue Date: May ____, 2007
BIGSTRING CORPORATION, a corporation organized under the laws of the
State of Delaware (the "Company"), hereby certifies that, for value received,
_____________________________, ____________________________________________, or
its assigns (the "Holder"), is entitled, subject to the terms set forth below,
to purchase from the Company at any time after the Issue Date until 5:00 p.m.,
E.S.T on the fifth anniversary of the Issue Date (the "Expiration Date"), up to
________ fully paid and nonassessable shares of Common Stock at a per share
exercise price of $0.30. The aforedescribed exercise price per share, as
adjusted from time to time as herein provided, is referred to herein as the
"Exercise Price." The number and character of such shares of Common Stock and
the Exercise Price are subject to adjustment as provided herein. The Company may
reduce the Exercise Price without the consent of the Holder. The Company may
reduce the Exercise Price without the consent of the Holder. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth in that
certain Subscription Agreement (the "Subscription Agreement"), dated as of May
___, 2007, entered into by the Company and the initial Holder of this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include BigString Corporation and any
corporation which shall succeed or assume the obligations of BigString
Corporation hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$0.0001 par value per share, as authorized on the date of the Subscription
Agreement, and (b) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
(d) The term "Warrant Shares" shall mean the Common Stock issuable upon
exercise of this Warrant.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
Holder hereof by delivery of this Warrant, an original or facsimile copy of the
form of subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and payment, in cash, wire transfer or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then exercisable by the Exercise Price then in effect. The original Warrant is
not required to be surrendered to the Company until it has been fully exercised.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by the Holder hereof by delivery, an original or
facsimile copy of the Subscription Form duly executed by such Holder and
payment, in cash, wire transfer or by certified or official bank check payable
to the order of the Company. The amount payable by the Holder on such partial
exercise shall be the amount obtained by multiplying (a) the number of whole
shares of Common Stock designated by the Holder in the Subscription Form by (b)
the Exercise Price then in effect. On any such partial exercise provided the
Holder has surrendered the original Warrant, the Company, at its expense, will
forthwith issue and deliver to or upon the order of the Holder hereof a new
Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may request, the whole
number of shares of Common Stock for which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or the American Stock Exchange, Inc., then the closing or
last sale price, respectively, reported for the last business day immediately
preceding the Determination Date;
(b) If the Company's Common Stock is not traded on an exchange or
on the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital
Market or the American Stock Exchange, Inc., but is traded in the
over-the-counter market, then the average of the closing bid and ask prices
reported for the last business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree,
or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause
2
(d) that all of the shares of Common Stock then issuable upon exercise of all of
the Warrants are outstanding at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall, to the extent
permitted by applicable law, have all the powers and duties of a warrant agent
(as hereinafter described) and shall accept, in its own name for the account of
the Company or such successor person as may be entitled thereto, all amounts
otherwise payable to the Company or such successor, as the case may be, on
exercise of this Warrant pursuant to this Section 1.
1.7 Delivery of Stock Certificates, etc. on Exercise. The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter ("Warrant Share Delivery Date"),
the Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the Holder
hereof, or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct in compliance with applicable securities laws, a
certificate or certificates for the number of duly and validly issued, fully
paid and nonassessable shares of Common Stock (or Other Securities) to which
such Holder shall be entitled on such exercise, plus, in lieu of any fractional
share to which such Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share of Common
Stock, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise
pursuant to Section 1 or otherwise. The Company understands that a delay in the
delivery of the Warrant Shares after the Warrant Share Delivery Date could
result in economic loss to the Holder. As compensation to the Holder for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty) to
the Holder for late issuance of Warrant Shares upon exercise of this Warrant the
amount of $100 per business day after the Warrant Share Delivery Date for each
$10,000 of Exercise Price of Warrant Shares for which this Warrant is exercised
which are not timely delivered. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of the Warrant
Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of
the relevant Warrant exercise by delivery of a notice to such effect to the
Company whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to the exercise of the relevant portion
of this Warrant, except that the liquidated damages described above shall be
payable through the date notice of revocation or rescission is given to the
Company.
1.8 Buy-In. In addition to any other rights available to the Holder,
if the Company fails to deliver to a Holder the Warrant Shares as required
pursuant to this Warrant, within seven (7) business days after the Warrant Share
Delivery Date and the Holder or a broker on the Holder's behalf, purchases (in
an open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Holder of the Warrant Shares which the Holder was
entitled to receive from the Company (a "Buy-In"), then the Company shall pay in
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (A) the Holder's total purchase price (including
brokerage commissions, if any) for the shares of common stock so purchased
exceeds (B) the aggregate Exercise Price of the Warrant Shares required to have
been delivered together with interest
3
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 Holder purchases shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to $10,000 of Exercise Price of Warrant Shares to have been received
upon exercise of this Warrant, the Company shall be required to pay the Holder
$1,000, plus interest. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
2. Cashless Exercise.
(a) If a registration statement (as described in Section 11 of the
Subscription Agreement) (the "Registration Statement") is effective and the
Holder may sell its shares of Common Stock upon exercise hereof pursuant to the
Registration Statement, this Warrant may be exercisable in whole or in part for
cash only as set forth in Section 1 above. If the Registration Statement is not
available, then commencing one year after the Issue Date, payment upon exercise
may be made at the option of the Holder either in (i) cash, wire transfer or by
certified or official bank check payable to the order of the Company equal to
the applicable aggregate Exercise Price, (ii) by delivery of Common Stock
issuable upon exercise of the Warrants in accordance with Section (b) below or
(iii) by a combination of any of the foregoing methods, for the number of Common
Stock specified in such form (as such exercise number shall be adjusted to
reflect any adjustment in the total number of shares of Common Stock issuable to
the holder per the terms of this Warrant) and the holder shall thereupon be
entitled to receive the number of duly authorized, validly issued, fully-paid
and non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.
(b) Subject to the provisions herein to the contrary, if the Fair
Market Value of one share of Common Stock is greater than the Exercise Price (at
the date of calculation as set forth below), in lieu of exercising this Warrant
for cash, the holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion thereof being cancelled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Subscription Form in which event the Company shall issue
to the holder a number of shares of Common Stock computed using the following
formula:
X=Y (A-B)
------
A
Where X= the number of shares of Common Stock to be issued to
the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the average Fair Market Value of a share of
Common stock for the five (5) trading days
immediately prior to (but not including) the
Exercise Date
B= Exercise Price (as adjusted to the date of such
calculation)
For purposes of Rule 144 promulgated under the 1933 Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
4
3.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, New York, as trustee for the
Holder of the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 Share Issuance. Until the Expiration Date, if the Company shall
issue any Common Stock except for the Excepted Issuances (as defined in the
Subscription Agreement), prior to the complete exercise of this Warrant for a
consideration less than the Exercise Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Exercise Price shall be reduced to such other lower price for then outstanding
Warrants. For purposes of this adjustment, the issuance of any security or debt
instrument of the Company carrying the right to convert such security or debt
instrument into Common Stock or of any warrant, right or option to purchase
Common Stock shall result in an adjustment to the Exercise Price upon the
issuance of the above-described security, debt instrument, warrant, right, or
option if such issuance is at a price lower than the Exercise Price in effect
upon such issuance and again at any time upon any subsequent issuances of shares
of Common Stock upon exercise of such conversion or purchase rights if such
issuance is at a price lower than the Exercise Price in effect upon such
issuance. The reduction of the Exercise Price described in this Section 3.4 is
subject to the provisions of, and in addition to the other rights of the Holder
described in, the Subscription Agreement.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by
5
multiplying the then Exercise Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Exercise Price then in effect. The Exercise Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 4. The number of
shares of Common Stock that the Holder of this Warrant shall thereafter, on the
exercise hereof as provided in Section 1, be entitled to receive shall be
adjusted to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Exercise Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Exercise Price in effect on the
date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of this Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of this Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor"). On the
surrender for exchange of this Warrant, with the Transferor's endorsement in the
form of Exhibit B attached hereto (the "Transferor Endorsement Form") and
together with an opinion of counsel reasonably satisfactory to the Company that
the transfer of this Warrant will be in compliance with applicable securities
laws, the Company will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face of the Warrant so
surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
9. Registration Rights. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference.
6
10. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (a) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (b) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common Stock
on such date. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Holder shall not be limited to aggregate exercises which
would result in the issuance of more than 4.99%. The restriction described in
this paragraph may be waived, in whole or in part, upon sixty-one (61) days
prior notice from the Holder to the Company to increase such percentage to up to
9.99%, but not in excess of 9.99%. The Holder may decide whether to convert a
Note or exercise this Warrant to achieve an actual 4.99% or up to 9.99%
ownership position as described above, but not in excess of 9.99%.
11. Warrant Agent. The Company may, by written notice to the Holder of
the Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing
Common Stock (or Other Securities) on the exercise of this Warrant pursuant to
Section 1, exchanging this Warrant pursuant to Section 7, and replacing this
Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered Holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. 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 (a) personally served, (b) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(c) delivered by reputable overnight courier service with charges prepaid, or
(d) 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 (i) 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),
(ii) on the first business day following the date deposited with an overnight
courier service with charges prepaid, or (iii) on the third business day
following the date of mailing pursuant to subpart (b) above, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: if to the Company, to: BigString Corporation, 0 Xxxxxxx
Xxxx, Xxxxx X, Xxx Xxxx, XX 00000, Attn: Xxxxx X. Xxxxx, President and Chief
Executive Officer, telecopier: (000) 000-0000, with a copy by telecopier only
to: Xxxxxxxx, Xxxxxxxx & Xxxxxx, P.C., 000 Xxxx Xxxx Xxxx, X.X. Xxx 000,
Xxxxxxxxxx, XX 00000, Attn: Xxxx X. Xxxxxxx, Esq., telecopier: (000) 000-0000,
and (ii) if to the Holder, to the address and telecopier number listed on the
first paragraph of this Warrant, 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.
7
14. Miscellaneous. This Warrant shall be governed by and construed in
accordance with the laws of the State of
New Jersey without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Warrant shall be brought only
in the state courts of
New Jersey or in the federal courts located in the State
of
New Jersey. The parties to this Warrant hereby irrevocably waive any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens. The Company and Holder 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 Warrant 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.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
BIGSTRING CORPORATION
By:
--------------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive Officer
8
Exhibit A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: BIGSTRING CORPORATION
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____) (the "Warrant"), hereby irrevocably elects to purchase (check
applicable box):
___ ________ shares of the Common Stock covered by the Warrant; or
___ the maximum number of shares of Common Stock covered by the Warrant pursuant
to the cashless exercise procedure set forth in Section 2 of the Warrant.
The undersigned herewith makes payment of the full Exercise Price for such
shares at the price per share provided for in the Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2 of the Warrant, to
exercise the Warrant with respect to the maximum number of shares of Common
Stock purchasable pursuant to the cashless exercise procedure set forth in
Section 2 of the Warrant.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is ______________________________________________________________
______________________________________ .
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the Warrant shall be
made pursuant to registration of the Common Stock covered by the Warrant under
the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an
exemption from registration under the Securities Act.
Dated:___________________ __________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
__________________________________
__________________________________
(Address)
9
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned transferor (the "Transferor")
hereby sells, assigns, and transfers unto the person(s) named below under the
heading "Transferees" the right represented by the attached Warrant (No. _____)
(the "Warrant") to purchase the percentage and number of shares of Common Stock
of BIGSTRING CORPORATION to which the Warrant relates specified under the
headings "Percentage Transferred" and "Number Transferred," respectively,
opposite the name(s) of such person(s) and appoints each such person attorney to
transfer its respective right on the books of BIGSTRING CORPORATION with full
power of substitution in the premises.
--------------------------------------------------------------------------------
Transferees Percentage Transferred Number Transferred
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[TRANSFEROR]
Dated: __________, _______ ____________________________________________
(Signature must conform to name of Holder as
specified on the face of the Warrant)
Signed in the presence of:
_______________________________ ____________________________________________
____________________________________________
(Signature) (address)
_______________________________
(Print Name) ACCEPTED AND AGREED:
[TRANSFEREE]
Dated: __________, _______ ____________________________________________
(Signature)
Signed in the presence of: ____________________________________________
(Print Name)
_______________________________
(Signature)
____________________________________________
____________________________________________
________________________________ (address)
(Print Name)
