SUBSCRIPTION AGREEMENT
----------------------
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of November
16, 2006, by and among Joystar, Inc., a California corporation (the "Company"),
and the subscribers identified on the signature page hereto (each a "Subscriber"
and collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase for up to Two Million Five Hundred Thousand Dollars ($2,500,000) (the
"Purchase Price") of shares of the Company's common stock, no par value (the
"Common Stock") at a per share price of $0.625, and share purchase warrants (the
"Warrants") in the form attached hereto as Exhibit A, to purchase shares of
Common Stock (the "Warrant Shares"). The shares of Common Stock (the "Shares"),
the Warrants and the Warrant Shares are collectively referred to herein as the
"Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Shares and the
Warrants contemplated hereby, and the other documents, instruments and payments
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Conditions To Closing. Subject to the satisfaction or
waiver of the terms and conditions of this Agreement, on the "Closing Date" (as
defined in Section 2 below), each Subscriber shall purchase and the Company
shall sell to each Subscriber the Shares and Warrants designated on the
signature page hereto for the portion of the Purchase Price set forth on the
signature page hereto.
2. Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of all
conditions to Closing set forth in this Agreement ("Closing Date").
3. Series A and B Warrants. On the Closing Date, the Company
will issue and deliver Series A and B Warrants to the Subscribers. One Series A
Warrant and one Series B Warrant will be issued for each four Shares issued on
the Closing Date. The per Warrant Share exercise price to acquire a Warrant
Share upon exercise of a Series A Warrant shall be $0.85 and the per Warrant
Share exercise price to acquire a Warrant Share upon exercise of a Series B
Warrant shall be $1.00. The Series A and B Warrants shall be exercisable until
five (5) years after the Closing Date.
4. Subscriber's Representations and Warranties. 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 Shares 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 such 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 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). 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.
(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, 2005 as filed with the
Commission, together with all subsequently filed Forms 10-QSB, 8-K, and filings
made with the Commission available at the XXXXX website (hereinafter referred to
collectively as the "Reports"). In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "Other Written Information"), and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(e) Information on Subscriber. The Subscriber is
presently, and will be at the time of the 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. The Subscriber is
not required to be registered as a broker-dealer under Section 15 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the Subscriber
is not a broker-dealer.
(f) Purchase of Shares and Warrants. On the Closing
Date, the Subscriber will purchase the Shares 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. In any event, and subject
to compliance with applicable securities laws, the Subscriber may enter into
lawful hedging transactions with third parties, which may in turn engage in
short sales of the Securities in the course of hedging the position they assume
and the Subscriber may also enter into short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their short
or other positions or otherwise settle short sales or other transactions, or
loan or pledge the Securities, or interests in the Securities, to third parties
that in turn may dispose of these Securities.
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(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 LAW OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO JOYSTAR, INC. 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 JOYSTAR, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(j) 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.
(k) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith have
been duly authorized, executed and delivered by the Subscriber and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and Subscriber has full corporate
power and authority necessary to enter into this Agreement and such other
agreements and to perform its obligations hereunder and under all other
agreements entered into by the Subscriber relating hereto.
(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. Notwithstanding anything to the contrary contained in this
Agreement, such Subscriber may transfer (without restriction and without the
need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an "accredited investor" under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an "Affiliate" of any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with such
person or entity. For purposes of this definition, "control" means the power to
direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
(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 each Closing Date shall be true and
correct as of each Closing Date.
(o) Survival. The foregoing representations and
warranties shall survive the Closing Date for a period of three years.
5. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber that:
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(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. For purposes of this Agreement, a "Material Adverse
Effect" shall mean a material adverse effect on the financial condition, results
of operations, properties or business of the Company 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 50% 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 has been duly authorized and validly
issued and are fully paid and nonassessable.
(c) Authority; Enforceability. This Agreement, the
Warrants, the Escrow Agreement, and any other agreements delivered together with
this Agreement or in connection herewith (collectively "Transaction Documents")
have been duly authorized, executed and delivered by the Company and are valid
and binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described on Schedule 5(d). Schedule 5(d)
includes a full description of all outstanding rights to purchase Common Stock
including the identities of the holders thereof, the issue and expiration dated
of such rights, and the issue and exercise prices of such rights. Schedule 5(d)
also includes a complete description of all outstanding restricted Common Stock
including the identities of the holders thereof, the issue date, the purchase
price or attributed value thereof, and whether such person is a "control person"
of the Company.
(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 Bulletin Board nor
the Company's shareholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscribers in Section 4 are true and
correct, neither the issuance and sale of the Securities nor the performance of
the Company's obligations under this Agreement and all other agreements entered
into by the Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach of,
or constitute a default (or an event which with the giving of notice or the
lapse of time or both would be reasonably likely to constitute a default) under
(A) the articles or certificate of incorporation, charter or bylaws of the
Company, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company of any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company or 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, in each case, the violation, conflict, breach, or default of
which would not have a Material Adverse Effect; or
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(ii) except as contemplated hereby, 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; or
(iii) result in the activation of any
anti-dilution rights or a reset or repricing of any debt or security instrument
of any other creditor or equity holder of the Company, nor result in the
acceleration of the due date of any obligation of the Company; or
(iv) result in the activation of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance of the Shares and upon exercise of the
Warrants, the Shares and Warrant Shares will be duly and validly issued, fully
paid and nonassessable or 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) will not result in a violation of Section 5
under the 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 on the Disclosure Schedule or in the
Reports, there is no pending or, to the best knowledge of the Company, basis for
or threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have a
Material Adverse Effect.
(i) Reporting Company. The Company is a publicly-held
company that files periodic and other reports required by Section 15(d) 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 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 do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
(l) Stop Transfer. The Company will not issue any stop
transfer order or other order impeding the sale, resale or delivery of any of
the Securities, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is given
to the Subscriber.
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(m) Defaults. The Company is not in violation of its
articles of incorporation or bylaws. The Company is (i) not in default under or
in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a Material Adverse Effect, (ii) not in default
with respect to any order of any court, arbitrator or governmental body or
subject to or party to any order of any court or governmental authority arising
out of any action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar matters,
or (iii) to the Company's knowledge not in violation of any statute, rule or
regulation of any governmental authority which violation would have a Material
Adverse Effect.
(n) No Integrated Offering. Neither the Company, nor
any of its Affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its Affiliates take any
action or steps that would cause the offer or issuance of the Securities to be
integrated with other offerings. The Company will not conduct any offering other
than the transactions contemplated hereby that will be integrated with the offer
or issuance of the Securities.
(o) No General Solicitation. Neither the Company, nor
any of its Affiliates, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 0000 Xxx) in connection with the
offer or sale of the Securities.
(p) Listing. The Common Stock is quoted on the Bulletin
Board. 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 OTC
Bulletin Board ("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, 2005 and which, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect,
except as disclosed on Schedule 5(q).
(r) No Undisclosed Events or Circumstances. Since
December 31, 2005, no event or circumstance has occurred or exists with respect
to the Company or its businesses, properties, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding
capital stock of the Company as of the date of this Agreement and the Closing
Date (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. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
(t) Dilution. The Company's executive officers and
directors understand the nature of the Securities being sold hereby and
recognize that the issuance of the Securities will have a potential dilutive
effect on the equity holdings of other holders of the Company's equity or rights
to receive equity of the Company. The board of directors of the Company has
concluded, in its good faith business judgment that the issuance of the
Securities is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Warrant Shares upon exercise of
the Warrants is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company or parties entitled to receive equity of the Company.
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(u) No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants and
lawyers formerly or presently employed by the Company, including but not limited
to disputes or conflicts over payment owed to such accountants and lawyers.
(v) 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.
(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) Subsidiary Representations. The Company makes each
of the representations contained in Sections 5(a), (b), (d), (f), (h), (k), (m),
(q) through (s), (u) and (w) of this Agreement, as same relate to each
Subsidiary of the Company.
(y) Company Predecessor. All representations made by or
relating to the Company of a historical or prospective nature and all
undertaking described in Sections 9.1(g) through 9.1(l) shall relate and refer
to the Company, its predecessors, and the Subsidiaries.
(z) 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.
(AA) Survival. The foregoing representations and
warranties shall survive the Closing Date for a period of three years.
6. Regulation D Offering. The offer and issuance of the
Securities to the Subscribers is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested by
Subscribers. A form of the legal opinion is annexed hereto as Exhibit C. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the issuance and/or resale of the Shares
and Warrant Shares pursuant to an effective registration statement.
7. Escrow Arrangements; Form of Payment. Upon execution hereof
by the parties and pursuant to the terms of the Escrow Agreement, each
Subscriber agrees to make the deliveries required of such Subscriber as set
forth in the Escrow Agreement and the Company agrees to make the deliveries
required of the Company as set forth in the Escrow Agreement.
8. Broker/Legal Fees.
(a) Broker's Commission. The Company on the one hand,
and each Subscriber (for himself only) on the other hand, agree to indemnify the
other against and hold the other harmless from any and all liabilities to any
persons claiming brokerage commissions or Broker's Commission other than First
Montauk Securities Corp. ("Broker") on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party's actions. Anything in this Agreement to the contrary notwithstanding,
each Subscriber is providing indemnification only for such Subscriber's own
actions and not for any action of any other Subscriber. Each Subscriber's
liability hereunder is several and not joint. The Company agrees that it will
pay Broker a cash fee equal to 10% of the Purchase Price on the Closing Date (as
defined herein) directly out of the funds held pursuant to the Escrow Agreement
("Broker's Commissions") as payment to broker for acting as a finder in
connection with the sale of the Securities hereunder. The Broker will also be
paid by the Company five percent (5%) of the cash proceeds received by the
Company from Warrant exercise ("Warrant Exercise Compensation"). The Warrant
Exercise Compensation must be paid by the Company to the Broker within five (5)
days after each receipt by the Company of Warrant Exercise cash proceeds. The
Company represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the offering described in
this Agreement except the Broker.
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(b) Broker's Warrants. On the Closing Date, the Company
will issue to the Broker, or at the Broker's written instructions to officers or
employees of the Broker, Warrants similar to and carrying the same rights as the
Warrants issuable to the Subscribers ("Broker's Warrants"). The Broker will
receive, in the aggregate, ten (10) Broker's Warrants for each one hundred (100)
Shares issued on the Closing Date to the Subscribers. The Broker's Warrants will
be substantially similar to the Subscriber Warrrants but the Broker's Warrants
will be exerciseable at $0.85.All the representations, covenants, warranties,
undertakings, remedies, liquidated damages, indemnification, and other rights
including but not limited to reservation and registration rights made or granted
to or for the benefit of the Subscribers are hereby also made by the Company and
granted to the holders of the Broker's Warrants.
(c) Legal Fees. The Company shall pay to Grushko &
Xxxxxxx, P.C., a fee of $10,000 ("Legal Fees") as reimbursement for services
rendered to the Subscribers in connection with this Agreement and the purchase
and sale of the Shares and Warrants (the "Offering") and acting as Escrow Agent
for the Offering. The Legal Fees will be payable out of funds held pursuant to
the Escrow Agreement.
9. Covenants of the Company. The Company covenants and agrees
with the Subscribers as follows:
(a) Stop Orders. The Company will advise the
Subscribers within two 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. The Company shall promptly secure the
listing of the Shares and the Warrant Shares upon each national securities
exchange, or electronic or automated quotation system upon which they are or
become eligible for listing and shall maintain such listing so long as any
Shares or Warrants are outstanding. The Company will maintain the listing of its
Common Stock on the American Stock Exchange, Nasdaq SmallCap Market, Nasdaq
National Market System, Bulletin Board, or New York Stock Exchange (whichever of
the foregoing is at the time the principal trading exchange or market for the
Common Stock (the "Principal Market")), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market, as applicable. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market. As of the date
of this Agreement and the Closing Date, the Bulletin Board is and will be the
Principal Market.
(c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscriber.
(d) Filing Requirements. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, the Company will (A) cause its Common Stock to continue to be subject to
the reporting obligations of Section 15(d), 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) comply with all reporting requirements that are applicable to an issuer
subject to Section 15(d) of the 1934 Act, or, if a class of its securities is
registered under Section 12(b) or 12(g) of the 1934 Act, to all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(b) or 12(g) of the 1934 Act, as applicable, and (D)
comply with all requirements related to any registration statement filed
pursuant to this Agreement. The Company will use its best efforts not to take
any action or file any document (whether or not permitted by the 1933 Act or the
1934 Act or the rules thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under said acts or
until three (3) years after the Closing Date. Until the earlier of the resale of
the Common Stock and the Warrant Shares by each Subscriber or three (3) years
after the Warrants have been exercised, the Company will use its best efforts to
continue the listing or quotation of the Common Stock on 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.
8
(e) Use of Proceeds. The proceeds of the Offering will
be employed by the Company for the purposes set forth on Schedule 9(e) hereto.
Except as set forth on Schedule 9(e), the Purchase Price may not and will not be
used for accrued and unpaid officer and director salaries, payment of financing
related debt, redemption of outstanding notes or equity instruments of the
Company nor non-trade obligations outstanding on a Closing Date.
(f) Reservation. Prior to the Closing Date, the Company
undertakes to reserve, pro rata, on behalf of each holder of Shares or Warrants,
from its authorized but unissued common stock, a number of common shares equal
to the Shares and Warrant Shares issuable upon exercise of the Warrants. Failure
to have sufficient shares reserved pursuant to this Section 9(f) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company's obligations under this Agreement.
(g) Taxes. From the date of this Agreement and until
the sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, the Company will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefore.
(h) Insurance. From the date of this Agreement and
until the sooner of (i) three (3) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144, the
Company will keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
Company's line of business, in amounts sufficient to prevent the Company from
becoming a co-insurer and not in any event less than one hundred percent (100%)
of the insurable value of the property insured; and the Company will maintain,
with financially sound and reputable insurers, insurance against other hazards
and risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement
and until the sooner of (i) three (3) years after the Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
the Company will keep true records and books of account in which full, true and
correct entries will be made of all dealings or transactions in relation to its
business and affairs in accordance with generally accepted accounting principles
applied on a consistent basis.
(j) Governmental Authorities. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, the Company shall duly observe and conform in all material respects to all
valid requirements of governmental authorities relating to the conduct of its
business or to its properties or assets.
(k) Intellectual Property. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, the Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.
(l) Properties. From the date of this Agreement and
until the sooner of (i) three (3) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement (as defined in Section
11.1(iv) hereof) or pursuant to Rule 144, 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.
9
(m) Confidentiality/Public Announcement. From the date
of this Agreement and until the sooner of (i) three (3) years after the Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, the Company agrees that except in connection with a Form
8-K or the Registration Statement, it will not disclose publicly or privately
the identity of the Subscribers unless expressly agreed to in writing by a
Subscriber or only to the extent required by law and then only upon five days
prior notice to Subscriber. In any event and subject to the foregoing, the
Company shall file a Form 8-K or make a public announcement describing the
Offering not later than the first 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
Offering is annexed hereto as Exhibit D.
(n) Further Registration Statements. Except for a
registration statement filed on behalf of the Subscribers pursuant to Section 11
of this Agreement and the shares and warrants purchased by Xxxxxxx X. Xxxxxxxx
and Xxxxxxxxx Xxxx and certain of subscribers who purchased shares directly from
the Company, the Company will not file any registration statements or amend any
already filed registration statement with the Commission or with state
regulatory authorities without the consent of the Subscriber until the
Registration Statement shall have been current and available for use in
connection with the public resale of the Shares and Warrant Shares for 60 days
("Exclusion Period"). The Exclusion Period will be tolled during the pendency of
a Non-Registration Event as defined in Section 11.4 hereof. With respect to Form
S-8, the Exclusion Period shall be extended until the sooner of (i) the
Registration Statement having been current and available for use in connection
with the public resale of the Shares and Warrant Shares for 180 days, or (ii)
one year from the Closing Date. The foregoing notwithstanding if an Event of
Default (as hereinafter defined in Section 10(a)) is pending, then the Exclusion
Period with respect to Form S-8 shall be extended until the later of (i) or (ii)
in the preceding sentence.
(o) Non-Public Information. The Company covenants and
agrees that neither it nor any other person acting on its behalf will provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
(p) 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 transaction 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 twenty (20) or more days.
(q) Limited Standstill. The Company will deliver to the
Subscribers on or before the Closing Date and enforce the provisions of
irrevocable standstill agreements ("Limited Standstill Agreements") in the form
annexed hereto as Exhibit E, with the parties identified on Schedule 9(q)
hereto.
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend the Subscribers, the Subscribers' officers, directors,
agents, Affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber
or any such person which results, arises out of or is based upon (i) any
material misrepresentation by Company or breach of any warranty by Company in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Company of any
material covenant or undertaking to be performed by the Company hereunder, or
any other agreement entered into by the Company and Subscriber relating hereto.
Any or all of the foregoing are deemed Events of Default.
10
(b) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers, relating hereto.
(c) In no event shall the liability of any Subscriber
or permitted successor hereunder or under any 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 one
hundred and eighty-one (181) days after the Closing Date, but not later than two
(2) years after the Closing Date ("Request Date"), upon a written request
therefor from any record holder or holders of more than 50% of the Shares and
Warrant Shares actually issued upon exercise of the Warrants, the Company shall
prepare and file with the Commission a registration statement under the 1933 Act
registering the Shares and Warrant Shares issuable upon exercise of the Warrants
and Warrant Shares issuable upon exercise of the Finder's Warrants (collectively
"Registrable Securities") which are the subject of such request for unrestricted
public resale by the holder thereof. For purposes of Sections 11.1(i) and
11.1(ii), Registrable Securities shall not include Securities (A) which are
registered for resale in an effective registration statement, (B) included for
registration in a pending registration statement, or (C) which have been issued
without further transfer restrictions after a sale or transfer pursuant to Rule
144 under the 1933 Act. Upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within ten (10) days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have exercised
their demand registration right under this Section 11.1(i).
(ii) If the Company at any time proposes to register
any of its securities under the 1933 Act for sale to the public, whether for its
own account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller" or "Sellers"). In the event
that any registration pursuant to this Section 11.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the number
of shares of Registrable Securities to be included in such an underwriting may
be reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 11.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account and the
Company actually does file such other registration statement, such written
request shall be deemed to have been given pursuant to Section 11.1(ii) rather
than Section 11.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 11.1(ii).
11
(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 not later than thirty (30) days after
the Closing Date (the "Filing Date"), and cause to be declared effective not
later than one hundred and eighty (180) days after the Closing Date (the
"Effective Date"). The Company will register not less than a number of shares of
common stock in the aforedescribed registration statement that is equal to the
Shares and Warrant Shares issuable pursuant to this Agreement upon exercise of
the Warrants. 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. Without the written consent of the Subscriber, no securities of the
Company other than the Registrable Securities will be included in the
Registration Statement, except as described on Schedule 11.1 hereto.
(v) The law firm of Sichenzia Xxxx Xxxxxxxx & Xxxxxxx
LLP will prepare and file the Registration
Statement. The retainer for such law firm for the preparation and filing of the
Registration Statement will be payable on the Closing Date out of the funds held
pursuant to the Escrow Agreement.
11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:
(a) subject to the timelines provided in this
Agreement, prepare and file with the Commission a registration statement
required by Section 11, with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
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 3:00 PM EST on the
first business day following the day 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 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 the Registrable Securities covered by such
registration statement in accordance with the Sellers' intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's expense,
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its 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;
12
(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 Shares; and
(g) provided same would not be in violation of the
provision of Regulation FD under the 1934 Act, make available for inspection by
the Sellers, and any attorney, accountant or other agent retained by the Seller
or underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company and the Subscribers
agree that the Sellers will suffer damages if the Registration Statement is not
filed by the Filing Date and not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (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)
the Registration Statement is not declared effective within two (2) business
days after 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 for a period of time which shall exceed 30 days
in the aggregate per year (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) or more than 20
consecutive days (each such event referred to in clauses A through E of this
Section 11.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to one percent (1%) for each thirty (30) days or part
thereof for up to a period of 334 days, thereafter of the Purchase Price of the
Shares owned of record by such holder which are subject to such Non-Registration
Event. The Liquidated Damages may be paid at the Company's option in cash or
with registered Common Stock valued at the average of the closing bid prices of
the Common Stock as reported by Bloomberg L.P. for the Principal Market for the
last five trading days of each thirty day or shorter period for which Liquidated
Damages are payable. The Liquidated Damages must be paid within ten (10) days
after the end of each thirty (30) day period or shorter part thereof for which
Liquidated Damages are payable. 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. All oral or written comments received from the Commission relating to the
Registration Statement must be satisfactorily responded to within ten (10)
business 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 set forth above. Notwithstanding the foregoing, the
Company shall not be liable to the Subscriber under this Section 11.4 for any
events or delays occurring as a consequence of the acts or omissions of the
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.
13
11.5. Expenses. All expenses incurred by the Company in
complying with Section 11, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of
insurance and fee of one counsel for all Sellers are called "Registration
Expenses." All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities, including any fees and disbursements of one
counsel to the Seller, are called "Selling Expenses." The Company will pay all
Registration Expenses in connection with the registration statement under
Section 11. Selling Expenses in connection with each registration statement
under Section 11 shall be borne by the Seller and may be apportioned among the
Sellers in proportion to the number of shares sold by the Seller relative to the
number of shares sold under such registration statement or as all Sellers
thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the 1933 Act pursuant to Section 11, each Seller
severally but not jointly will, to the extent permitted by law, indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the 1933 Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
14
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 11.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 11.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 11.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties, as a group, shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the
1933 Act in any case in which either (i) a Seller, or any controlling person of
a Seller, makes a claim for indemnification pursuant to this Section 11.6 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 11.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section 11.6;
then, and in each such case, the Company and the Seller will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will not be
required to contribute any amount in excess of the public offering price of all
such securities 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 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(h) above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the 1933
Act (the "Unlegended Shares"); and (z) cause the transmission of the
certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the submitted certificates, if any, to
the Subscriber at the address specified in the notice of sale, via express
courier, by electronic transfer or otherwise on or before the Unlegended Shares
Delivery Date. Transfer fees shall be the responsibility of the Seller.
15
(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 the
Unlegended Shares Delivery Date could result in economic loss to a Subscriber.
As compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company fails
to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities subject
to such default may, at its option, require the Company to redeem all or any
portion of the Shares and Warrant Shares subject to such default at a price per
share equal to 120% of the Purchase Price of such Common Stock and Warrant
Shares ("Unlegended Redemption Amount"). The amount of the aforedescribed
liquidated damages that have accrued or have been paid for the twenty day period
prior to the receipt by the Subscriber of the Unlegended Redemption Amount shall
be credited against the 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 purchases (in an open market
transaction or otherwise) shares of common stock to deliver in satisfaction of a
sale by such Subscriber of the shares of Common Stock which the Subscriber was
entitled to receive from the Company (a "Buy-In"), then the Company shall pay in
cash to the Subscriber (in addition to any remedies available to or elected by
the Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery of
Unlegended Shares as described in Section 11.7 and the Company is required to
deliver such Unlegended Shares pursuant to Section 11.7, the Company may not
refuse to deliver Unlegended Shares based on any claim that such Subscriber or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or enjoining delivery
of such Unlegended Shares or exercise of all or part of said Warrant shall have
been sought and obtained and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 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.
16
12. (a) Right of Participation. Until one year after the
Closing Date, the Subscribers shall be given not less than ten (10) business
days prior written notice of any proposed sale by the Company of its common
stock, other equity securities, obligations convertible or exercisable for
equity securities or debt obligations, except in connection with (i) full or
partial consideration in connection with a strategic merger, consolidation or
purchase of substantially all of the securities or assets of corporation or
other entity, and (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, (iii) the Company's
issuance of Common Stock or the issuance or grants of options to purchase Common
Stock pursuant to the Company's stock option plans and employee stock purchase
plans as they now exist, copies of which such plans have been delivered to the
Subscribers or are filed with the Reports or which plans nearly identical to the
2003 Equity Compensation Plan filed in the Reports may be adopted by the Company
(subject to the restrictions of Section 9(n) herein), (iv) as a result of the
exercise of Warrants which are granted or issued pursuant to this Agreement, (v)
as has been described in this Agreement or in the Reports or Other Written
Information filed with the Commission or delivered to the Subscribers prior to
the Closing Date (collectively the foregoing are "Excepted Issuances"). The
Subscribers who exercise their rights pursuant to this Section 12(a) shall have
the right during the ten (10) business days following receipt of the notice to
purchase such offered common stock, debt or other securities in accordance with
the terms and conditions set forth in the notice of sale in the same proportion
to each other as their purchase of Shares in the Offering. In the event such
terms and conditions are modified during the notice period, the Subscribers
shall be given prompt notice of such modification and shall have the right
during the ten (10) business days following the notice of modification to
exercise such right.
(b) Offering Restrictions. Until the end of the
Exclusion Period, or during the pendency of a Non-Registration Event, or when
any compensation or liquidated damages are accruing or are outstanding other
than the Excepted Issuances, the Company will not enter into an agreement to nor
issue any equity, convertible debt or other securities convertible into common
stock or equity of the Company nor modify any of the foregoing which may be
outstanding at anytime, without the prior written consent of the Subscriber,
which consent may be withheld for any reason. Until one year after the Closing
Date, the Company will not enter into any equity line of credit or similar
agreement, nor issue or agree to issue any floating or variable priced equity
linked instruments nor any of the foregoing or equity with price reset rights.
(c) Favored Nations Provision. Other than the Excepted
Issuances, if at any time until eighteen (18) months after the Actual Effective
Date of the Registration Statement, 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 common share or exercise price per common share
which shall be less than the per Share Purchase Price in respect of the Shares,
or if less than the Series A Warrant exercise price in respect of the Series A
Warrant Shares, without the consent of each Subscriber holding Shares, Series A
Warrants, or Series A Warrant Shares, then the Company shall issue, for each
such occasion, additional shares of Common Stock to each Subscriber so that the
average per share purchase price of the shares of Common Stock issued to the
Subscriber (of only the Common Stock or Warrant Shares still owned by the
Subscriber) is equal to such other lower price per share and the Warrant
Exercise Price of the Series A Warrants shall automatically be reduced to such
other lower price per share. The average Purchase Price of the Shares and
average exercise price in relation to the Series A Warrant Shares shall be
calculated separately for the Shares and Warrant Shares. The delivery to the
Subscriber of the additional shares of Common Stock shall be not later than the
closing date of the transaction giving rise to the requirement to issue
additional shares of Common Stock. The Subscriber is granted the registration
rights described in Section 11 hereof in relation to such additional shares of
Common Stock except that the Filing Date and Effective Date vis-a-vis such
additional common shares shall be, respectively, the forty-fifth (45th) and
ninetieth (90th) 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 per Share Purchase 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, any Transaction Document, and any other agreement referred to or
entered into in connection herewith.
17
(d) Option Plan Restrictions. The only officer,
director, employee and consultant stock option or stock incentive plan currently
in effect or contemplated by the Company has been submitted to the Subscribers
or filed with the Reports. No other plan will be adopted nor may any options or
equity not included in such plan be issued until the end of the Exclusion Period
except such plans are nearly as identical to the Company's 2003 Equity
Compensation Plan contained in the Reports, subject to the restrictions of
Section 9(n) herein.
(e) Maximum Exercise of Rights. In the event the
exercise of the rights described in Sections 12(a) and 12(c) would result in the
issuance of an amount of common stock of the Company that would exceed the
maximum amount that may be issued to a Subscriber calculated in the manner
described in Section 10 of the Series A and B Warrants, then the issuance of
such additional shares of Common Stock of the Company to such Subscriber will be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such common stock without exceeding the maximum amount set
forth calculated in the manner described in Section 10 of the Series A and B
Warrants. 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 air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Joystar, Inc., 00
Xxxxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxx Xxxxx, XX 00000, Attn: Xxxxxxx X. Xxxxxxxx,
CEO, telecopier number: (000) 000-0000, with a copy by telecopier only to: Xxxxx
Xxxxx, Esq., 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx, XX 00000,
telecopier number: (000) 000-0000, (ii) if to the Subscribers, to: the one or
more addresses and telecopier numbers indicated on the signature pages hereto,
with an additional copy by telecopier only to: Grushko & Xxxxxxx, P.C., 000
Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (212)
697-3575, and (iii) if to the Broker, to: First Montauk Securities Corp., 000
Xxxxxx Xxxxxxx Xxxx, Xxx Xxxx, XX 00000, Attn: Xxxxxx Xxxxxxxxxx, Director of
Corporate Finance, telecopier: (000) 000-0000.
(b) Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.
(c) Entire Agreement; Assignment. This Agreement and
other documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
the Company shall be assigned without prior notice to and the written consent of
the Subscribers.
18
(d) Counterparts/Execution. This Agreement may be
executed in any number of counterparts and by the different signatories hereto
on separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. This Agreement may be executed by facsimile signature and delivered
by facsimile transmission.
(e) Law Governing this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York without regard to 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 state courts of New York or in the
federal courts located in the state of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The
Company and Subscriber acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to 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(e) hereof, each of the Company, Subscriber
and any signator hereto in his personal capacity hereby waives, and agrees not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in New York of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Nothing in this Section shall affect
or limit any right to serve process in any other manner permitted by law.
(g) Independent Nature of Subscribers. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that 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 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.
(h) Resales Absent Effective Registration Statement.
Each of the Subscribers understands and acknowledges that (i) the Transaction
Documents may require the Company to issue and deliver Shares and/or Warrant
Shares to the Subscriber, without legend restricting their transferability under
the 1933 Act, and (ii) is aware that resales of the Shares and/or Warrant Shares
may not be made unless, at the time of resale, there is an effective
registration statement under the 1933 Act covering such Subscriber's resale(s)
or an applicable exemption from registration. Accordingly, each Subscriber
hereby covenants and agrees that, commencing from the time it is advised by the
Company that any registration statement theretofore covering resale of the
Shares and/or Warrant Shares is no longer effective, until such time as the
Company advises the Subscriber there is an effective registration statement
covering resale of the Shares and Warrant Shares, Subscriber will not sell,
assign, pledge, transfer or otherwise dispose of any of the Shares or Warrant
Shares without the prior written consent of the Company unless an exemption from
registration is available to the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
19
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.
JOYSTAR, INC.
a California corporation
By: /s/ Xxxxxxx Xxxxxxxx
--------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: CEO
Dated: November 16, 2006
20
---------- --------------- ----------------------- -------------------
SUBSCRIBER PURCHASE PRICE SHARES OF COMMON STOCK SERIES A WARRANTS
---------- --------------- ----------------------- -------------------
--------------------------------------
(Signature)
21
LIST OF EXHIBITS AND SCHEDULES
Attachment 1 Disclosure Schedule
Exhibit A Form of Series A and B Warrants
Exhibit B Escrow Agreement
Exhibit C Form of Legal Opinion
Exhibit D Form of Public Announcement or Form 8-K
Exhibit E Form of Limited Standstill Agreement
Schedule 5(a) Subsidiaries
Schedule 5(d) Additional Issuances / Capitalization
Schedule 5(q) Undisclosed Liabilities
Schedule 9(e) Use of Proceeds
Schedule 9(q) Providers of Limited Standstill Agreements
Schedule 11.1 Other Securities to be Registered
JOYSTAR, INC.
SCHEDULE 5(a)
SUBSIDIARIES
None
22
Schedule 5(d) - Capitalization
Securities Ownership of Certain Beneficial Owners and Management
----------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock of the Company as of October 26, 2006,
by (i) each person who is known by the Company to be the beneficial owner of
more than five percent (5%) of the issued and outstanding shares of common
stock, (ii) each of the Company's directors and executive officers, and (iii)
all directors and executive officers as a group.
Percent of
Number of Outstanding
Name and Address Voting Shares Voting Shares
---------------- ------------- -------------
Xxxxxxx X. Xxxxxxxx 12,798,545 28%
Director, President
CFO & Secretary
00 Xxxxxxxx Xx. Xxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
Xxxxxxxxx X. Xxxx 2,692,340 6%
Director, Ex.VP
00 Xxxxxxxx Xx. Xxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
Xxxx Xxxxx J. 9,336,957 21%
00-00 00xx Xxxxx
Xxxxxxx, XX 00000
All directors and officers 15,490,885 34%
as a group
The Company had 45,586,931 shares of common stock issued and outstanding as of
October 26, 2006. The Company had 141 shareholders as of October 26, 2006.
23
JOYSTAR, INC.
SCHEDULE 5(q)
UNDISCLOSED LIABILITIES
None
24
JOYSTAR, INC.
SCHEDULE 9(e)
USE OF PROCEEDS
PROCEEDS TO BE USED FOR GENERAL WORKING CAPITAL. PROCEEDS FROM THIS OFFERING
WILL NOT BE USED FOR THE RE-PAYMENT OF ANY LOANS MADE BY OFFICERS OR DIRECTORS.
25
JOYSTAR, INC.
SCHEDULE 9(q)
PROVIDERS OF LIMITED STANDSTILL AGREEMENTS
Xxxxxxx X. Xxxxxxxx
Xxxxxxxxx X. Xxxx
26
