EXHIBIT 10.21
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of August 5, 2005,
by and among Savoy Resources Corp., a Colorado corporation (the "Company"), and
the subscribers identified on the signature page hereto (each a "Subscriber" and
collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to Eight Hundred and Fifty Thousand Dollars ($850,000) (the
"Purchase Price") of principal amount of promissory notes of the Company ("Note"
or "Notes"), a form of which is annexed hereto as Exhibit A, convertible into
shares of the Company's common stock, $.001 par value (the "Common Stock"), at a
per share conversion price set forth in the Note ("Conversion Price"); and share
purchase warrants (the "Warrants"), in the form annexed hereto as Exhibit B, to
purchase shares of Common Stock (the "Warrant Shares"). The Notes, shares of
Common Stock issuable upon conversion of the Notes (the "Shares"), the Warrants
and the Warrant Shares are collectively referred to herein as the "Securities";
and
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit C (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement, the Company and the Subscribers hereby
agree as follows:
1. Closing. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the Closing Date, each Subscriber shall
purchase and the Company shall sell to each Subscriber a Note in the principal
amount designated on the signature page hereto. The aggregate amount of the
Notes to be purchased by the Subscribers on the Closing Date shall, in the
aggregate, be equal to the Purchase Price. The "Closing Date" shall be the date
that subscriber funds representing the net amount due the Company from the
Purchase Price of the offering is transmitted by wire transfer or otherwise to
or for the benefit of the Company. The consummation of the Closing 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.
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2. Warrants. On the Closing Date, the Company will issue and deliver Class
D Warrants to the Subscribers. One Class D Warrant will be issued for each Share
that would be issued on the Closing Date, assuming the complete conversion of
the Notes issued on such Closing Date at the Conversion Price in effect on the
Closing Date and assuming such Closing Date were a Conversion Date. The per
Warrant Share exercise price to acquire a Warrant Share upon exercise of a Class
D Warrant shall be $0.28. The Class D Warrants shall be exercisable until four
(4) years after the Closing Date.
3. Security Interest. The Subscribers will be granted a security interest
in all the assets of the Company, including ownership of Subsidiaries, as
defined in Section 5(a) of this Agreement, to be memorialized in a "Security
Agreement," the form of which is annexed hereto as Exhibit D. Each Subsidiary
will execute and deliver to the Subscribers a form of "Guaranty" annexed hereto
as Exhibit E. The Company will execute such other agreements, documents and
financing statements reasonably requested by Subscribers, which will be filed at
the Company's expense with such jurisdictions, states and counties designated by
the Subscribers. The Company will also execute all such documents reasonably
necessary in the opinion of Subscribers to memorialize and further protect the
security interest described herein. The Subscribers will appoint a Collateral
Agent to represent them collectively in connection with the security interest to
be granted to the Subscribers. The appointment will be pursuant to a "Collateral
Agent Agreement," the form of which is annexed hereto as Exhibit F.
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 Notes and
Warrants being sold to it hereunder. The execution, delivery and performance of
this Agreement by such Subscriber and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of such
Subscriber or its Board of Directors, stockholders, partners or members, as the
case may be, is required. This Agreement has been duly authorized, executed and
delivered by 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 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 that 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 Notes or acquire the Warrants in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Subscriber is assuming and relying, in part, upon the accuracy of the relevant
representations and agreements of the Company herein.
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(d) Information on Company. The Subscriber has been furnished with or has
had access at the XXXXX Website of the Commission to the Company's Form 10-KSB
for the year ended December 31, 2004 and all periodic reports as filed with the
Commission (hereinafter referred to 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, and will be at the time
of the conversion of the Notes and exercise of the Warrants, an "accredited
investor,"" as such term is defined in Regulation D promulgated by the
Commission under the 1933 Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof. The information set forth on the
signature page hereto regarding the Subscriber is accurate.
(f) Purchase of Notes and Warrants. On the Closing Date, the Subscriber
will purchase the Notes and Warrants as principal for its own account for
investment only and not with a view toward, or for resale in connection with,
the public sale or any distribution thereof.
(g) Compliance with Securities Act. The Subscriber understands and agrees
that the Securities have not been registered under the 1933 Act or any
applicable state securities laws, by reason of their issuance in a transaction
that does not require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of Subscriber contained herein),
and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. Until the Registration Statement
described in Section 11.1(iv) has been declared effective, or the date that the
requirements of Rule 144 have been satisfied thus rendering the particular
shares freely tradable, whichever is sooner, the Subscriber will not engage in
any shorting, hedging or similar transactions in connection with the Company's
Common Stock or use any of the Shares or the Warrant Shares acquired pursuant to
this Agreement to cover any short position in the Common Stock of the Company.
(h) Shares Legend. The Shares and the Warrant Shares shall bear the
following or similar legend:
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"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 SAVOY RESOURCES CORP. 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 SAVOY RESOURCES CORP. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(j) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO SAVOY RESOURCES
CORP. THAT SUCH REGISTRATION IS NOT REQUIRED."
(k) Communication of Offer. The offer to sell the Securities was directly
communicated to the Subscriber by the Company. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.
(l) 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.
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(m) 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. Affiliate
includes each subsidiary of the Company. For purposes of this definition,
"control" means the power to direct the management and policies of such person
or firm, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
(n) 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.
(o) No Market Manipulation. No Subscriber or any of its Affiliates has
taken, and will not take, directly or indirectly, any blatant or deliberate
action designed to, or that might intentionally 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.
(p) Correctness of Representations. Each Subscriber represents as to such
Subscriber that the foregoing representations and warranties are true and
correct as of the date hereof and, unless a Subscriber otherwise notifies the
Company prior to the Closing Date, shall be true and correct as of the Closing
Date.
(q) Survival. The foregoing representations and warranties shall survive
the Closing Date until three years after the Closing Date.
5. Company Representations and Warranties. The Company represents and
warrants to and agrees with each Subscriber that except as set forth in the
Reports and as otherwise qualified in the Transaction Documents:
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(a) Due Incorporation. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power to own its properties and to
carry on its business as disclosed in the Reports. The Company is duly qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by it
makes such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect. For purpose of
this Agreement, a "Material Adverse Effect" shall mean a material adverse effect
on the financial condition, results of operations, properties or business of the
Company taken as a whole. 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 business entity, is, at the time of determination, owned or controlled,
directly or indirectly through one or more intermediaries, by such entity. All
the Company's Subsidiaries as of the Closing Date are set forth on Schedule 5(a)
hereto.
(b) Outstanding Stock. All issued and outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and nonassessable.
(c) Authority; Enforceability. This Agreement, the Note, the Warrants, the
Escrow Agreement, Security Agreement, Guaranty Agreement, and Collateral Agent
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). The Common Stock of the Company on a fully diluted basis
outstanding as of the last trading day preceding the Closing Date is set forth
on Schedule 5(d).
(e) Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its Affiliates, any Principal Market (as defined in Section 9(b) of
this Agreement) 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:
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(i) violate, conflict with, result in a breach of or constitute a
default (or an event that with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default in any material
respect) of a material nature under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (B) to the Company's
knowledge, any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company of any court, governmental agency
or body, or arbitrator having jurisdiction over the Company or over the
properties or assets of the Company or any of its Affiliates, (C) the terms
of any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage,
deed of trust or other instrument to which the Company or any of its
Affiliates is a party, by which the Company or any of its Affiliates is
bound, or to which any of the properties of the Company or any of its
Affiliates is subject, or (D) the terms of any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company, or
any of its Affiliates is a party, except the violation, conflict, breach or
default of which would not have a Material Adverse Effect; or
(ii) result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company or any
of its Affiliates except as described herein; or
(iii) result in the activation of any anti-dilution rights or a reset
or re-pricing 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 or debt 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 (and, if registered pursuant to the 1933 Act and resold
pursuant to an effective registration statement, will be free trading and
unrestricted);
(iii) will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the Company;
(iv) will not subject the holders thereof to personal liability by
reason of being such holders provided Subscriber's representations herein
are true and accurate and Subscribers take no actions or fail to take any
actions required for their purchase of the Securities to be in compliance
with all applicable laws and regulations; and
(v) will not result in a violation of Section 5 under the 1933 Act.
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(h) Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under the Transaction Documents.
Except as disclosed in the Reports, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates, which
litigation, if adversely determined, would have a Material Adverse Effect.
(i) Reporting Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934 (the "1934 Act") and has a class of common shares registered pursuant to
Section 12(g) of the 1934 Act. Pursuant to the provisions of the 1934 Act, the
Company has 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; provided,
however, that this provision shall not prevent the Company from engaging in
normal investor relations/public relations activities.
(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 and all the information required to be disclosed
therein. Since the date of the most recent audited financial statements included
in the Reports ("Latest Financial Date"), 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.
(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) Not an Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the OTC Bulletin Board ("Bulletin Board") or any Principal Market [as defined in
Section 9(b)] that would impair the exemptions relied upon in this Offering [as
defined in Section 8(b)] or the Company's ability to timely comply with its
obligations hereunder. 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 that would impair the exemptions relied upon in
this Offering or the Company's ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
securities, which would impair the exemptions relied upon in this Offering or
the Company's ability to timely comply with its obligations hereunder.
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(o) No General Solicitation. Neither the Company, nor any of its
Affiliates, nor, to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 0000 Xxx) in connection with the offer or sale
of the Securities.
(p) Listing. The Company's common stock is quoted on the Bulletin Board.
The Company has not received any oral or written notice that its common stock is
not eligible nor will become ineligible for quotation on the Bulletin Board nor
that its common stock does not meet all requirements for the continuation of
such quotation. The Company, to its knowledge, satisfies all the requirements
for the continued quotation of its common stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities or
obligations that 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 the Latest
Financial Date and that, 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 the Latest Financial
Date, 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 Shares upon conversion of the Notes, and the Warrant Shares upon
exercise of the Warrants, is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company or parties entitled to receive equity of the
Company.
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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, except as set forth
on Schedule 5(u) hereto.
(v) DTC Status. The Company's transfer agent is a participant in and the
Common Stock is eligible for transfer pursuant to the Depository Trust Company
Automated Securities Transfer Program. The name, address, telephone number, fax
number, contact person and email of the Company transfer agent is set forth on
Schedule 5(v) hereto.
(w) Investment Company. Neither the Company nor any Affiliate is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(x) Subsidiary Representations. The Company makes each of the
representations contained in Sections 5(a), (b), (d), (e), (f), (h), (k), (m),
(q), (r), (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 undertakings described in
Sections 9(g) through 9(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 until three years after the latest Closing Date.
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 G. The Company will provide, at the
Company's expense, such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants pursuant to an effective
registration statement. Subscriber agrees that any legal opinions required
hereunder or under any other Transaction Documents may be supplied by the
Company's in house General Counsel.
7.1. Conversion of Note.
10
(a) Upon the conversion of a Note or part thereof, the Company shall, at
its own cost and expense, take all necessary action, including obtaining and
delivering an opinion of counsel, to assure that the Company's transfer agent
shall issue stock certificates in the name of Subscriber and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that, unless waived by the
Subscriber, the Shares will be free-trading, and freely transferable, and will
not contain a legend restricting the resale or transferability of the Shares,
provided the Shares are being sold pursuant to an effective registration
statement covering the Shares.
(b) Subscriber will give notice of its decision to exercise its right to
convert the Note, interest and any sum due to the Subscriber under the
Transaction Documents including Liquidated Damages, or part thereof, by
telecopying an executed and completed Notice of Conversion (a form of which is
annexed as Exhibit A to the Note) to the Company via confirmed telecopier
transmission or otherwise pursuant to Section 14(a) of this Agreement. The
Subscriber will not be required to surrender the Note until the Note has been
fully converted or satisfied. Each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall be
deemed a Conversion Date. The Company will itself or cause the Company's
transfer agent to transmit the Company's Common Stock certificates representing
the Shares issuable upon conversion of the Note to the Subscriber via express
courier for receipt by such Subscriber within five (5) business days after
receipt by the Company of the Notice of Conversion (such seventh day being the
"Delivery Date"). In the event the Shares are freely tradable and electronically
transferable, then delivery of the Shares must be made by electronic transfer
provided request for such electronic transfer has been made by the Subscriber
and the Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation, the
prospectus delivery requirements. A Note representing the balance of the Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided that the Subscriber delivers the original Note to the
Company. In the event that a Subscriber elects not to surrender a Note for
reissuance upon partial payment or conversion, the Subscriber hereby indemnifies
the Company against any and all loss or damage attributable to a third-party
claim in an amount in excess of the actual amount then due under the Note.
"Business day" and "trading day" as employed in the Transaction Documents is a
day that the New York Stock Exchange is open for trading for three or more
hours.
(c) The Company understands that a delay in the delivery of the Shares in
the form required pursuant to Section 7.1 hereof, or the Mandatory Redemption
Amount described in Section 7.2 hereof, respectively, after the Delivery Date or
the Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty) to
the Subscriber for late issuance of Shares in the form required pursuant to
Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
business day after the Delivery Date for each $10,000 of Note principal amount
being converted of the corresponding Shares that are not timely delivered. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies that
may be available to the Subscriber, in the event that the Company fails for any
reason to effect delivery of the Shares by the Delivery Date or make payment by
the Mandatory Redemption Payment Date, the Subscriber may revoke all or part of
the relevant Notice of Conversion or rescind all or part of the notice of
Mandatory Redemption by delivery of a notice to such effect to the Company,
whereupon the Company and the Subscriber shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that the liquidated damages described above shall be payable through the date
notice of revocation or rescission is given to the Company.
11
(d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.
7.2. Mandatory Redemption at Subscriber's Election. In the event (i) the
Company is prohibited from issuing Shares, (ii) the Company fails to timely
deliver Shares on a Delivery Date, (iii) upon the occurrence of any other Event
of Default (as defined in the Note or in this Agreement), (iv) of the
liquidation, dissolution or winding up of the Company, or (v) a Change of
Control (as defined below) that continues for more than ten days, then, at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber, at the Subscriber's election, a sum of
money determined by (y) multiplying up to the outstanding principal amount of
the Note designated by the Subscriber by 120%, or (z) multiplying the number of
Shares otherwise deliverable upon conversion of an amount of Note principal
and/or interest designated by the Subscriber (with the date of giving of such
designation being a "Deemed Conversion Date") at the Conversion Price that would
be in effect on the Deemed Conversion Date by the highest closing price of the
Common Stock on the Principal Market for the period commencing on the Deemed
Conversion Date until the day prior to the receipt by the Subscriber of the
Mandatory Redemption Payment, whichever is greater, together with accrued but
unpaid interest thereon ("Mandatory Redemption Payment"). The Mandatory
Redemption Payment must be received by the Subscriber on the same date as the
Company Shares otherwise deliverable or within ten (10) business days after
request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt
of the Mandatory Redemption Payment, the corresponding Note principal and
interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 7.1(c) hereof, which have been paid or accrued
for the twenty-day period prior to the actual receipt of the Mandatory
Redemption Payment by the Subscriber, shall be credited against the Mandatory
Redemption Payment. For purposes of this Section 7.2, "Change in Control" shall
mean (i) the Company no longer having a class of shares publicly traded or
listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
entity, (iii) a majority of the board of directors of the Company as of the
Closing Date no longer serving as directors of the Company except due to natural
causes, (iv) if the holders of the Company's Common Stock as of the Closing Date
beneficially own at any time after the Closing Date less than forty percent of
the Common Stock owned by them on the Closing Date, and (v) the sale, lease or
transfer of substantially all the assets of the Company or Subsidiaries.
7.3. Maximum Conversion. The Subscriber shall not be entitled to convert on
a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock that would be in excess of the sum of (i) the number of
shares of common stock beneficially owned by the Subscriber and its Affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
provision is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its Affiliates of more than 4.99% of the
outstanding shares of common stock of the Company on such Conversion Date. For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Subscriber shall not be limited to aggregate conversions of
only 4.99% and aggregate conversions by the Subscriber may exceed 4.99%. The
Subscriber may waive the conversion limitation described in this Section 7.3, in
whole or in part, upon and effective after 61 days prior written notice to the
Company. The Subscriber may decide whether to convert a Note or exercise
Warrants to achieve an actual 4.99% ownership position.
12
7.4. Mandatory Conversion. Provided an Event of Default (or an event that
with the passage of time or the giving of notice could become an Event of
Default) has not occurred, then, commencing after the date the Registration
Statement described in Section 11.1(iv) hereof has been declared effective
("Actual Effective Date"), the Company will have the option by written notice to
the Subscriber ("Notice of Mandatory Conversion") of compelling the Subscriber
to convert the outstanding and unpaid principal of the Note into Common Stock at
the Conversion Price then in effect ("Mandatory Conversion"). The Notice of
Mandatory Conversion must be given, if at all, on the first business day
following a consecutive ten (10) day trading period ("Lookback Period") during
which the closing bid price for the Company's Common Stock, as reported by
Bloomberg, LP for the Principal Market, is more than $0.50 each day during the
Lookback Period. The date the Notice of Mandatory Conversion is given is the
"Mandatory Conversion Date." The Notice of Mandatory Conversion shall specify
the aggregate principal amount of the Note that is subject to Mandatory
Conversion. Mandatory Conversion Notices must be given proportionately to all
Subscribers of Notes who received Notes similar in terms and tenure as this
Note. A Notice of Mandatory Conversion may not be given unless the Registration
Statement has been effective for the unrestricted public resale of the
Registrable Securities each day during the Lookback Period. The amount of Note
principal included in a Mandatory Redemption Notice shall be further reduced to
an amount that would not cause the Subscriber to exceed the limitations
described in Section 2.3 of the Note and the sale limitations secribed in
section 4(p) of this agreement. A further Mandatory Conversion Notice may not be
given until twenty (20) trading days have elapsed from the preceding Mandatory
Conversion Date. Each Mandatory Conversion Date shall be a deemed Conversion
Date and the Company will be required to deliver the Common Stock issuable
pursuant to a Mandatory Conversion Notice in the same manner and time period as
described in Section 2.1 of the Note.
7.5 Release of Security Interest in Collateral. Upon the later of (i) the
conversion by the Subscribers of an aggregate of not less than $600,000 of
principal amount of Notes, or (ii) until each Subscriber is holding less than
$150,000 of Note principal, the Subscribers and Xxxxxxx Xxxxxxx, the Collateral
Agent provided for in the Security Agreement, shall release their security
interest in all of the assets of the Company, including ownership of
Subsidiaries, which are defined as the "Collateral" in Section 3.2 of the
Security Agreement. For purposes of this Section 7.5, conversion of a Note may
be by exercise by the Subscriber of its right to convert the Note pursuant to
Section 7.1 hereof or by mandatory conversion pursuant to Section 7.4 above.
7.6. Injunction Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof or exercise the Warrant in whole or in part, the
Company may not refuse conversion or exercise based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless, an injunction
from a court, or notice, restraining and or enjoining conversion of all or part
of such Note or exercise of all or part of such Warrant shall have been sought
and obtained by the Company and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 120% of the outstanding principal
and interest of the Note, or aggregate purchase price of the Warrant Shares
which are sought to be subject to the injunction, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment. Notwithstanding the foregoing, if the Company receives an
order restraining it from converting from a court or administration agency of
competent jurisdiction, it shall comply without a bond requirement.
13
7.7. Buy-In. In addition to any other rights available to the Subscriber,
commencing on the first to occur of the date that the Registration Statement
described in Section 11.1(iv) is declared effective or the date that the
requirements of Rule 144 have been satisfied, if the Company fails to deliver to
the Subscriber such shares issuable upon conversion of a Note by the Delivery
Date and if after seven (7) business days after the Delivery Date the Subscriber
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Subscriber of the Common Stock that
the Subscriber was entitled to receive upon such conversion (a "Buy-In"), then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.
7.8 Adjustments. The Conversion Price, Warrant exercise price and amount of
Shares issuable upon conversion of the Notes and exercise of the Warrants shall
be adjusted as described in this Agreement, the Notes and Warrants.
7.9. Redemption. The Notes and Warrants shall not be redeemable or callable
except as described in the Note and Warrants.
8. Finder's Fee/Legal Fees.
(a) Finder's Fee. The Company agrees to indemnify, reimburse, make whole
and hold harmless the Subscribers and their agents and representatives from any
and all liabilities to any persons claiming commissions, finder's fees or
similar payments on account of services purported to have been rendered in
connection with this Agreement, the transactions contemplated hereby, or in
connection with any investment in the Company, whether or not such investment
was consummated. The Company agrees that the Subscribers have no liability to
the Company or any other party, directly or indirectly for any finder's fees,
commissions or similar payments. At the Closing, the Company has agreed to pay
the sum of $68,000 (8% of the gross proceeds of the Offering) as finders' fees
in connection with the transactions contemplated by this Agreement, and, except
as aforesaid, the Company and the Subscribers represent that there are no
parties entitled to receive finder's fees, commissions or similar payments from
the Company in connection with the transactions described in this Agreement.
14
(b) Legal Fees. The Company shall pay to Grushko & Xxxxxxx, P.C., a cash
fee of $15,000 ("Legal Fees") as reimbursement for services rendered to the
Subscribers in connection with this Agreement and the purchase and sale of the
Notes and Warrants (the "Offering"). The Legal Fees and reimbursement for
estimated UCC searches and filing fees (less any amounts paid prior to a Closing
Date) will be payable on the Closing Date 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, as promptly as
possible, but not more than eight hours after the Company receives notice of
issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the listing of the shares of
Common Stock and the Warrant Shares upon each national securities exchange, or
electronic or automated quotation system upon which they are or become eligible
for listing and shall maintain such listing so long as any Notes 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, the Bulletin Board is 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
Subscribers.
(d) Filing Requirements. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will (A) cause its Common Stock to continue
to be registered under Section 12(b) or 12(g) of the 1934 Act, (B) comply in all
respects with its reporting and filing obligations under the 1934 Act, (C)
comply with all reporting requirements that are applicable to an issuer with a
class of shares registered pursuant to Section 12(b) or 12(g) of the 1934 Act,
as applicable, and (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 until the sooner of two (2) years after the Closing
Date or until all of the Shares and Warrant Shares have been resold or
transferred by all of the Subscribers. Until the earlier of the resale of the
Common Stock and the Warrant Shares by each Subscriber or two (2) years after
the Warrants have been exercised, the Company will use its best efforts to
continue the listing or quotation of the Common Stock on 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.
15
(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,
litigation-related expenses or settlements, brokerage fees nor non-trade
obligations outstanding on the Closing Date. For so long as any Notes are
outstanding, the Company will not prepay any financing-related debt obligations
other than the Notes nor redeem any equity instruments of the Company.
(f) Reservation. Prior to the Closing Date, the Company undertakes to
reserve, pro rata, on behalf of the Subscribers from its authorized but unissued
common stock, a number of common shares equal to 105% of the amount of Common
Stock necessary to allow each Subscriber to be able to convert all Notes
issuable pursuant to this Agreement and interest thereon and reserve 100% of the
amount of Warrant Shares issuable upon exercise of the Warrants. Failure to have
sufficient shares reserved pursuant to this Section 9(f) for five (5)
consecutive business days or fifteen (15) days in the aggregate shall be a
material default of the Company's obligations under this Agreement and an Event
of Default under the Note.
(g) Taxes. From the date of this Agreement and until the sooner of (i) two
(2) 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, without regard to volume
limitations, the Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien that
may have attached as security therefor.
(h) Insurance. From the date of this Agreement and until the sooner of (i)
two (2) years after the Closing Date, or (ii) until all the Shares and Warrant
Shares have been resold or transferred by all the Subscribers pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will keep its assets that 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.
16
(i) Books and Records. From the date of this Agreement and until the sooner
of (i) two (2) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company shall duly observe and conform in all
material respects to all valid requirements of governmental authorities relating
to the conduct of its business or to its properties or assets.
(k) Intellectual Property. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company shall maintain in full force and effect its
corporate existence, rights and franchises and all licenses and other rights to
use intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for value.
(l) Properties. From the date of this Agreement and until the sooner of (i)
two (2) years after the Closing Date, or (ii) until all the 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, without regard to volume limitations, the Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.
(m) Confidentiality/Public Announcement. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company agrees that, except in
connection with a Form 8-K or the Registration Statement or as otherwise
required in any other Commission filing, it will not disclose publicly or
privately the identity of the Subscribers unless expressly agreed to in writing
by a Subscriber, only to the extent required by law and then only upon five
days' prior notice to Subscriber. In any event and subject to the foregoing, the
Company shall file a Form 8-K or make a public announcement describing the
Offering not later than the 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
Closing is annexed hereto as Exhibit I.
(n) Further Registration Statements. Except for a registration statement
filed on behalf of the Subscribers pursuant to Section 11 of this Agreement and
as set forth on Schedule 11.1 hereto, the Company will not file any registration
statements or amend any already filed registration statement, including but not
limited to Forms S-8, with the Commission or with state regulatory authorities
without the consent of the Subscriber until the sooner of (i) the Registration
Statement shall have been current and available for use in connection with the
resale of the Registrable Securities (as defined in Section 11.1(i) for a period
of 180 days, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by the Subscribers pursuant to the Registration Statement or Rule
144, without regard to volume limitations ("Exclusion Period"). The Exclusion
Period will be tolled during the pendency of an Event of Default as defined in
the Note.
17
(o) Blackout. Unless first approved in writing by the Subscribers, 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 of ten (10) or more
consecutive days nor more than fifteen (15) days during any consecutive three
hundred and sixty-five (365) day period.
(p) Non-Public Information. The Company covenants and agrees that neither
it nor any other person acting on its behalf will provide any Subscriber or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Subscriber shall have
agreed in writing to receive such information. The Company understands and
confirms that each Subscriber shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
10. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and defend
the Subscribers, the Subscribers' officers, directors, agents, Affiliates,
control persons and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Subscriber or any such person that
results from, arises out of or is based upon (i) any material misrepresentation
by Company or material 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 material
breach or default in performance by the Company of any covenant or undertaking
to be performed by the Company hereunder, or any other agreement entered into by
the Company and Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company's officers, directors, agents,
Affiliates, control persons and principal shareholders, against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal fees)
of any nature, incurred by or imposed upon the Company or any such person that
results from, arises out of or is based upon (i) any material misrepresentation
by such Subscriber or breach of any warranty 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 material 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 Subscriber, 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.
18
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 fifty-one
(151) days after the Closing Date, but not later than two (2) years after the
Closing Date, upon a written request therefor from any record holder or holders
of more than 50% of the Shares issued and issuable upon conversion of the
outstanding Notes and outstanding Warrant Shares, the Company shall prepare and
file with the Commission a registration statement under the 1933 Act registering
the Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall not
include Securities that are (A) registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, or (C) that 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.
19
(iii) If, at the time any written request for registration is received by
the Company pursuant to Section 11.1(i), the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
1933 Act in connection with the proposed offer and sale for cash of any of its
securities for the Company's own account and the Company actually does file such
other registration statement, such written request shall be deemed to have been
given pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights
of the holders of Registrable Securities covered by such written request shall
be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission a Form SB-2 registration
statement (the "Registration Statement") (or such other form that it is eligible
to use) in order to register the Registrable Securities for resale and
distribution under the 1933 Act within forty-five (45) calendar days after the
Closing Date (the "Filing Date"), and cause to be declared effective not later
than one hundred and fifty (150) calendar days after the Filing 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 105%
of the Shares issuable upon conversion of all of the Notes issuable to the
Subscribers, 100% of the Warrant Shares issuable pursuant to this Agreement upon
exercise of the Class D Warrants (collectively the "Registrable Securities").
The Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, pro rata, and not issued,
employed or reserved for anyone other than each such Subscriber and Warrant
holder. The Registration Statement will immediately be amended or additional
registration statements will be immediately filed by the Company as necessary to
register additional shares of Common Stock to allow the public resale of all
Common Stock included in and issuable by virtue of the Registrable Securities.
Except with the written consent of the Subscriber, or as described on Schedule
11.1 hereto, no securities of the Company other than the Registrable Securities
will be included in the Registration Statement. It shall be deemed a
Non-Registration Event if at any time after the date the Registration Statement
is declared effective by the Commission ("Actual Effective Date") the Company
has registered for unrestricted resale on behalf of the Sellers fewer than 125%
of the amount of Common Shares issuable upon full conversion of all sums due
under the Notes and 100% of the Warrant Shares issuable upon exercise of the
Warrants.
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 6:00 PM EST on the second business day that
the Company receives notice that (i) the Commission has no comments or no
further comments on the Registration Statement, and (ii) the registration
statement has been declared effective (failure to timely provide notice as
required by this Section 11.2(a) shall be a material breach of the Company's
obligation and an Event of Default as defined in the Notes and a
Non-Registration Event as defined in Section 10.4 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 or until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers, whichever first occurs, 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;
20
(c) furnish to the Sellers, at the Company's expense, such number of copies
of the registration statement and the prospectus included therein (including
each preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;
(d) use its commercially reasonable best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of New York and such jurisdictions as the
Subscribers 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
Iregistration statement with any securities exchange on which the Common Stock
of the Company is then listed;
(f) notify the Subscribers, as promptly as possible but within not more
than eight 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 that 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.
21
11.4. Non-Registration Events. The Company and the Subscribers agree that
the Subscribers 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 45 days after written request and declared effective by the
Commission within 150 days after such request, and maintained in the manner and
within the time periods contemplated by Section 11 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(A) the Registration Statement is not filed on or before the Filing Date, (B) is
not declared effective on or before the Effective Date, (C) due to the action or
inaction of the Company the Registration Statement is not declared effective
within five (5) 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 45 days after such written request, or is not declared
effective within 150 days after such written request, or (E) any registration
statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and
declared effective but shall thereafter cease to be effective without being
succeeded within fifteen (15) business days by an effective replacement or
amended registration statement or for a period of time that shall exceed 30 days
in the aggregate per year (defined as a period of 365 days commencing on the
Actual Effective Date (each such event referred to in clauses A through E of
this Section 11.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to two percent (2%) for each thirty (30) days or part
thereof of the Purchase Price of the Notes remaining unconverted and purchase
price of Shares issued upon conversion of the Notes owned of record by such
holder that are subject to such Non-Registration Event. The Company must pay the
Liquidated Damages in cash. The Liquidated Damages must be paid within ten (10)
days after the end of each thirty (30) day period or shorter part thereof for
which Liquidated Damages are payable. In the event a Registration Statement is
filed by the Filing Date but is withdrawn prior to being declared effective by
the Commission, then such Registration Statement will be deemed to have not been
filed. 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.
11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses (if required), fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes and fees of transfer agents and registrars, are
called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities are called "Selling
Expenses." The Company will pay all Registration Expenses in connection with the
registration statement under Section 11. Selling Expenses in connection with
each registration statement under Section 11 shall be borne by the Subscribers
and may be apportioned among the Subscribers in proportion to the number of
shares sold by the Subscriber relative to the number of shares sold under such
registration statement or as all Subscribers thereunder may agree.
22
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 Subscriber, each officer of the Subscriber,
each director of the Subscriber, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Subscriber or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Subscriber, 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 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
in light of the circumstances when made, and will, subject to the provisions of
Section 11.6(c), reimburse the Subscriber, 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 Subscriber 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 Subscriberr failed to send or deliver a copy of the final prospectus
delivered by the Company to the Subscriber with or prior to the delivery of
written confirmation of the sale by the Subscriber 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 Subscriber, 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, the Subscribers, jointly and severally, 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, 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 Subscriber 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 Subscriber, as such, furnished in writing to the Company by such Subscriber
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Subscriber hereunder shall be
limited to the net proceeds actually received by the Subscriber from the sale of
Registrable Securities covered by such registration statement.
23
(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 that it may have to
such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability that 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 thath 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 Subscriber,
or any controlling person of a Subscriber, 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 Subscriber or
controlling person of the Subscriber in circumstances for which indemnification
is not provided under this Section 11.6; then, and in each such case, the
Company and the Subscriber 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 Subscriber 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.
24
(a) Within five (5) business days (such fifth business day being the
"Unlegended Shares Delivery Date") after the business day, commencing on the
first to occur of the date that the Registration Statement described in Section
11.1(iv) is declared effective or the date that the requirements of Rule 144
have been satisfied thus rendering the particular shares freely tradable, on
which the Company has received (i) a notice that Shares or Warrant Shares or any
other Common Stock held by a Subscriber have been sold pursuant to the
Registration Statement or Rule 144 under the 1933 Act, (ii) a representation
that the prospectus delivery requirements, or the requirements of Rule 144, as
applicable and if required, have been satisfied, and (iii) the original share
certificates representing the shares of Common Stock that have been sold, and
(iv) in the case of sales under Rule 144, customary representation letters of
the Subscriber and/or Subscriber's broker regarding compliance with the
requirements of Rule 144, the Company at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Company to deliver, to its transfer
agent (with copies to Subscriber) an appropriate instruction and opinion of such
counsel directing the delivery of shares of Common Stock without any legends
including the legend set forth in Section 4(h) above (the "Unlegended Shares");
and (z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted Shares certificate, if any, to the Subscriber at the address specified
in the notice of sale, via express courier, by electronic transfer or otherwise
on or before the Unlegended Shares Delivery Date.
(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 five business days after the
Unlegended Shares Delivery Date could result in economic loss to a Subscriber.
As compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company fails
to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities subject
to such default may, at its option, require the Company to redeem all or any
portion of the Shares and Warrant Shares subject to such default at a price per
share equal to 130% of the Purchase Price of such Common Stock and Warrant
Shares ("Unlegended Redemption Amount"). The amount of the aforedescribed
liquidated damages that has accrued or 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.
25
(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 that 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, or notice, restraining and/or enjoining delivery of such
Unlegended Shares or exercise of all or part of said Warrant shall have been
sought and obtained and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 130% of the amount of the aggregate purchase
price of the Common Stock and Warrant Shares that are subject to the injunction
or temporary restraining order, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber's favor.
12. (a) Right of First Refusal. Until the Notes have been fully paid or
converted, the Subscribers shall be given not less than seven (7) business days
prior written notice of any proposed sale by the Company of its common stock or
other securities or debt obligations, except in connection with (i) full or
partial consideration in connection with a strategic merger, acquisition,
consolidation or purchase of substantially all of the securities or assets of
corporation or other entity whose holders of such securities or debt are not
granted registration rights, (ii) the Company's issuance of securities in
connection with strategic license agreements and other partnering arrangements
so long as such issuances are not for the purpose of raising capital and whose
holders of such securities or debt are not granted registration rights, (iii)
the Company's issuance of Common Stock or the issuances or grants of options to
purchase Common Stock pursuant to stock option plans and employee stock purchase
plans described on Schedule 5(d) hereto, (iv) as a result of the exercise of
Warrants or conversion of Notes that are granted or issued pursuant to this
Agreement, (v) the payment of any interest on the Notes and Liquidated Damages,
(vi) as has been described in the Reports or Other Written Information filed
with the Commission or delivered to the Subscribers prior to the Closing Date,
and (vii) as described on Schedule 11.1 (collectively the foregoing are
"Excepted Issuances"). The Subscribers who exercise their rights pursuant to
this Section 12(a) shall have the right during the seven (7) business days
following receipt of the notice to purchase such offered Common Stock, debt or
other securities in accordance with the terms and conditions set forth in the
notice of sale in the same proportion to each other as their purchase of Notes
in the Offering. In the event such terms and conditions are modified during the
notice period, the Subscribers shall be given prompt notice of such modification
and shall have the right during the seven (7) business days following the notice
of modification to exercise such right.
26
(b) Favored Nations Provision. Other than in connection with the Excepted
Issuances, if at any time Notes or Warrants are outstanding the Company shall
offer, issue or agree to issue any Common Stock or securities convertible into
or exercisable for shares of Common Stock (or modify any of the foregoing that
may be outstanding) to any person or entity at a price per share or conversion
or exercise price per share that shall be less than the Conversion Price in
respect of the Shares, or if less than the Warrant exercise price in respect of
the Warrant Shares, without the consent of each Subscriber holding Notes,
Shares, Warrants or 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 Conversion
Price and Warrant exercise price shall automatically be adjusted as provided in
the Notes and the Warrants. The average Purchase Price of the Shares and average
exercise price in relation to the Warrant Shares shall be calculated separately
for the Shares and Warrant Shares. The foregoing calculation and issuance shall
be made separately for Shares received upon conversion and separately for
Warrant Shares. The delivery to the Subscriber of the additional shares of
Common Stock shall be not later than the closing date of the transaction giving
rise to the requirement to issue additional shares of Common Stock. The
Subscriber is granted the registration rights described in Section 11 hereof in
relation to such additional shares of Common Stock except that the Filing Date
and Effective Date vis-a-vis such additional common shares shall be,
respectively, the sixtieth (60th) and nintieth (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 Conversion
Price or Warrant exercise price in effect upon such issuance. The rights of the
Subscriber set forth in this Section 12 are in addition to any other rights the
Subscriber has pursuant to this Agreement, the Note, any Transaction Document
and any other agreement referred to or entered into in connection herewith.
(c) Paid In Kind. The Subscriber may demand that some or all of the sums
payable to the Subscriber pursuant to Sections 7.1(c), 7.2, 7.5, 11.4, 11.7(c),
11.7(d) and 11.7(e) that are not paid within ten business days of the required
payment date be paid in shares of Common Stock valued at the Conversion Price in
effect at the time Subscriber makes such demand or, at the Subscriber's
election, at such other valuation described in the Transaction Documents. In
addition to any other rights granted to the Subscriber herein, the Subscriber is
also granted the registration rights set forth in Section 11.1(ii) hereof in
relation to the aforedescribed shares of Common Stock.
(d) Maximum Exercise of Rights. In the event the exercise of the rights
described in Sections 12(a), 12(b) and 12(c) would result in the issuance of an
amount of Common Stock of the Company that would exceed the maximum amount that
may be issued to a Subscriber calculated in the manner described in Section 7.3
of this Agreement, then the issuance of such additional shares of Common Stock
of the Company to such Subscriber will be deferred in whole or in part until
such time as such Subscriber is able to beneficially own such Common Stock
without exceeding the maximum amount set forth, calculated in the manner
described in Section 7.3 of this Agreement. The determination of when such
Common Stock may be issued shall be made by each Subscriber only as to such
Subscriber.
27
(e) Offering Restrictions. Until the later of (i) the conversion or
repayment of an aggregate of not less than $600,000 of principal amount of the
Notes, or (ii) until each Subscriber is holding less than $150,000 of Note
principal, the company will not enter in to an agreement 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 my be outstanding at any time,
without the prior written consent of the Subscriber, which consent may be
withheld for any reason at a price per share of Common Stock less than the
Conversion Price in effect at the time of such issuance or agreement.
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: Savoy Resources Corp., 00000
Xxxxxxxx Xxxxx, Xxxxxxxx, Xxxxxxxx 00000, Attn: Xxxxxx Xxxxxxx, President and
CEO, telecopier: 011-27-11-807-1449, with an additional copy by telecopier only
to: Xxxxxxxx Xxxx, Esq., Xxxx & Associates, 00000 Xxxxxxxx Xxxxx, Xxxxxxxx,
Xxxxxxxx 00000, telecopier: (000) 000-0000, and (ii) if to the Subscribers, to:
the one or more addresses and telecopier numbers indicated on the signature
pages hereto, with an additional copy by telecopier only to: Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number:
(000) 000-0000.
(b) Entire Agreement; Assignment. This Agreement and other documents
delivered in connection herewith represent the entire agreement among the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by all 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.
(c) Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile signature and delivered by facsimile transmission.
(d) Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New 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 any party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the civil state courts of New York or in the federal
courts located in New York County. 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 or parties shall be
entitled to recover from the other party or parties 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 that
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscribers acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to one or more preliminary
and final injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity. Subject to Section 13(d) hereof, each of the Company, Subscriber
and any signator hereto in his personal capacity hereby waives, and agrees not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in New York of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Nothing in this Section shall affect
or limit any right to serve process in any other manner permitted by law.
(f) Damages. In the event the Subscriber is entitled to receive any
liquidated damages pursuant to the Transactions, the Subscriber may elect to
receive the greater of actual damages or such liquidated damages.
(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 that 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
29
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.
30
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
SAVOY RESOURCES CORP
a Colorado corporation
By: /s/ Xxxxxx Xxxxxxx
---------------------------------
Name: Xxxxxx Xxxxxxx
Title: President and CEO
Dated: August 5, 2005
------------------------------------- -------------------------
SUBSCRIBER NOTE PRINCIPAL
------------------------------------- -------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT $425,000.00
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Vaduz, Lichenstein
Fax: (000) 00-00000000
/s/ Xxxxxx Xxxxxxxx
-------------------
(Signature)
By: Xxxxxx Xxxxxxxx
------------------------------------- -------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SAVOY RESOURCES CORP
a Colorado corporation
By: /s/ Xxxxxx Xxxxxxx
--------------------------------
Name: Xxxxxx Xxxxxxx
Title: President and CEO
Dated: August 5, 2005
---------------------------------------------- ----------------------------
SUBSCRIBER NOTE PRINCIPAL
---------------------------------------------- ----------------------------
WHALEHAVEN CAPITAL FUND LIMITED $200,000.00
0xx Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
Fax: (000) 000-0000
/s/ Xxxx Xxxxxxxxxxx
-----------------------
(Signature)
By: Xxxx Xxxxxxxxxxx - Director
---------------------------------------------- ----------------------------
32
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SAVOY RESOURCES CORP
a Colorado corporation
By: /s/ Xxxxxx Xxxxxxx
---------------------------------
Name: Xxxxxx Xxxxxxx
Title: President and CEO
Dated: August 5, 2005
------------------------------------------ --------------------------------
SUBSCRIBER NOTE PRINCIPAL
------------------------------------------ --------------------------------
CMS CAPITAL $100,000.00
0000 Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxx
Fax: (000) 000-0000
/s/ Xxxxxxxx Lijahm
--------------------
(Signature)
By: Xxxxxxxx Lijahm
------------------------------------------ --------------------------------
33
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (D)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SAVOY RESOURCES CORP
a Colorado corporation
By: /s/ Xxxxxx Xxxxxxx
-------------------------------
Name: Xxxxxx Xxxxxxx
Title: President and CEO
Dated: August 5, 2005
-------------------------------------------- ------------------------------
SUBSCRIBER NOTE PRINCIPAL
-------------------------------------------- ------------------------------
OSHER CAPITAL INC. $50,000.00
0 Xxxxxxxxx Xxxx
Xxxxxx Xxxxxx, XX 00000
Fax:
/s/ X. Xxxxxx
----------------
(Signature)
By: X. Xxxxxx
-------------------------------------------- ------------------------------
34
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Note
Exhibit B Form of Class D Warrant
Exhibit C Escrow Agreement
Exhibit D Form of Security Agreement
Exhibit E Form of Guaranty Agreement
Exhibit F Form of Collateral Agent Agreement
Exhibit G Form of Legal Opinion
Exhibit H Form of Form 8-K or Public Announcement
Schedule 5(a) Subsidiaries
Schedule 5(d) Additional Issuances / Capitalization
Schedule 5(q) Undisclosed Liabilities
Schedule 5(v) Transfer Agent
Schedule 9(e) Use of Proceeds
35
Schedule 5(a)
-------------
The Company's only subsidiary is Heilongjiang Savoy Minerals Co., Ltd. (the
"Subsidiary"), three of the five members of the Board of Directors of which
company have been appointed by the Company and two of the directors of which
have been appointed by the First Institute of Geology Exploration of
Heilongjiang Province, China (the "First Institute"). After the Company has made
the forthcoming $500,000 capital contribution to the Subsidiary, the Company's
interest will be increased to 40% and the First Institute's interest will be
reduced to 60%. The Company has the potential to become a 70% owner (maximum),
while the Institute will be a 30% owner.
36
Schedule 5(d)
-------------
The Company has outstanding 54,645,267 shares of common stock, $0.001 par
value per share, and options exercisable to purchase 24,536,667 shares of common
stock. Accordingly, the Company has 79,181,934 shares of common stock
outstanding on a fully diluted basis
37
Schedule 5(u)
-------------
The only outstanding indebtedness known to management from the period prior
to the restructuring of the Company is to Xxxxxx Xxxxxx, a Xxxxxxxxx, Xxxxxxx
Xxxxxxxx, Xxxxxx, law firm. Their claim is for services allegedly performed in
the amount of $98,382.20, including interest in the amount of $12,354.94.
Although the Company disputes the claim, management is considering settling the
account. Xx. Xxxxxx X. Deutsch, of Lang Xxxxxxxx LLP, Vancouver, British
Columbia, Canada (formerly of Xxxxxx Xxxxxx), has offered to settle the account
at a substantial discount and management anticipates entering into a settlement
agreement with Lang Xxxxxxxx LLP and Xxxxxx Xxxxxx in the near future.
38
Schedule 5(v)
-------------
The name, address, telephone number, fax number, contact person and e-mail
for the transfer agent and registrar for the Company's common stock is as
follows:
Xx. Xxxxxx Xxxxxxxxxx, President
PacWest Transfer, LLC
00 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000.
Telephone number: (000) 000-0000
Fax number: (540)
351-0472 E-mail: laurel @xxxxxxxxxxxxxxxxx.xxx
39
Schedule 9(e)
-------------
The proceeds of the Offering will be employed for the following purposes:
1. Capital contribution to Heilongjiang Savoy Minerals Co., Ltd.,
including working capital in China: $500,000
2. Working capital: 217,000
3. Finder's fee: 68,000
4. Accrued and unpaid officer/director compensation,
litigation-related expenses and settlements and
outstanding non-trade obligations: 50,000
5. Legal fees of Grushko & Xxxxxxx, P.C.: 15,000
------
TOTAL $850,000
40
Schedule 11.1
-------------
The following Securities, in addition to the Registrable Securities, will
be included in the Registration Statement to be filed by the Company pursuant to
Section 11.1(iv):
1. EIB Capital Corp.:
a. Shares of common stock: 5,200,000
b. Shares of common stock underlying warrants: 16,120,000
2. Alpha Capital Aktiengesellschaft:
a. Shares of common stock: 1,333,333
b. Shares of common stock underlying warrants: 666,667
3. Wall Street Investor Resources Corp.: 107,184
-------
TOTAL 23,427,184
41
