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Exhibit 2.3
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PATIENT PORTAL TECHNOLOGIES, INC,
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SUBSCRIPTION AGREEMENT
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$7,000,000 Of Company's Five-Year Senior Secured Debentures
Convertible Into The Company's Common Stock.
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SUBSCRIPTION PROCEDURES
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Convertible Debentures (the "Debentures") of Patient Portal
Technologies, Inc., a Delaware corporation ("Company") are being offered
pursuant to this Subscription Agreement ("Subscription Agreement"). This
offering is being made in accordance with the exemptions from registration
provided under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 of Regulation D promulgated under the Securities
Act.
In order to purchase Debentures, each subscriber must complete and
execute this Subscription Agreement and the accompanying investor questionnaire
(the "Questionnaire"). In addition, Holder, as defined herein, must make a
payment for the amount being subscribed for hereunder directly to Company. All
subscriptions are subject to acceptance by Company, which shall not occur until
Company has returned the signed "Company Signature Page".
The Questionnaire is designed to enable Holder to demonstrate the
minimum legal requirements under federal and state securities laws to purchase
the Debentures. The signature page for the Questionnaire and the Subscription
Agreement contain representations relating to the subscription and should be
reviewed carefully by each subscriber.
If Holder is a foreign person or foreign entity, Holder may be subject
to a withholding tax equal to thirty percent (30%) of any dividends paid by
Company. In order to eliminate or reduce such withholding tax, Holder must
submit a properly executed I.R.S. Form 4224 "Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of a Trade or Business in the
United States" or I.R.S. Form 1001 "Ownership Exemption or Reduced Trade
Certificate", claiming exemption from withholding or eligibility for treaty
benefits in the form of a lower rate of withholding tax on interest or
dividends.
Payment of the full subscription amount will be made by wire transfer
by Dutchess Private Equities Fund, Ltd ("Holder") on or prior to the closing per
the wire instructions that will be established. In the event of a termination of
the offering or the rejection of a subscription, subscription funds will be
returned by Company without interest or charges.
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SUBSCRIPTION AGREEMENT
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THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND ARE
BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER SUCH LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION (THE "SEC" OR THE "COMMISSION") OR ANY OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR
ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING
MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Patient Portal Technologies, Inc.
This Subscription Agreement is made between Patient Portal
Technologies, Inc., a Delaware corporation ("Company"), and the undersigned
prospective Holder ("Holder") who is subscribing hereby for Company's secured
convertible debentures (the "Debentures") on November 1, 2007. This subscription
is submitted to you in accordance with and subject to the terms and conditions
described in this Subscription Agreement, together with any Exhibits hereto,
relating to an offering (the "Offering") of Seven Million dollars ($7,000,000)
of the Debentures. The Offering is limited to accredited investors and is made
in accordance with the exemptions from registration provided for under Section
4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the
Securities Act ("Regulation D").
Contemporaneously with the execution and delivery of this Subscription
Agreement, the parties hereto are executing and delivering a Security Agreement,
Warrant Agreement, Debenture Registration Rights Agreement and Senior Debenture,
all of even date herewith (collectively with the documents referenced in the
foregoing documents, the "Transaction Documents").
1. Subscription.
(a) The closing shall be deemed to have occurred on November 1, 2007
(the "Closing Date" or a "Closing"); simultaneously with the acquisition by
Company of TB&A Hospital Television, Inc. and all of its Subsidiaries (as
defined below) ("Acquisition") and the purchase of certain hospital contracts
from Worldnet Communications, Inc. as outlined on Exhibit G and incorporated
herein by reference ("Asset Purchase"). Company shall pay twelve percent (12%)
interest per annum on the unpaid principal amount of the Debenture at such times
and in such amounts as outlined in the Debenture.
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(b) Upon receipt by Company of the requisite payment for the Debentures
being purchased, the Debentures so purchased will be forwarded by Company to
Holder or its broker, as listed on the signature page, and the name of Holder
will be registered on the Debenture transfer books of Company as the record
owner of such Debentures.
(c) As long as Holder owns the Debenture, Holder shall have the right,
to change the terms for the balance of the Debenture it then holds, to match the
terms of any other offering of securities made by Company.
(d) Holder shall fund (i) five million five hundred thousand dollars
($5,750,000) upon the Closing, and an additional (ii) one million five hundred
thousand dollars ($1,250,000) upon the filing of the Registration Statement with
the SEC.
(e) Holder will be granted a security interest in all of Company's and
its Subsidiaries' assets, currently owned or hereinafter acquired, (as defined
in Schedule 3(a) of this Subscription Agreement), as more fully set forth in the
Security Agreement.
2. Representations And Warranties Of Holder.
Holder hereby represents and warrants to, and agrees with, Company as
follows:
(a) Holder has been furnished with, and has carefully read the
applicable form of the Debenture and is familiar with and understands
the terms of the Offering. With respect to tax and other economic
considerations involved in his investment, Holder is not relying on
Company. Holder has carefully considered and has, to the extent Holder
believes such discussion necessary, discussed with Holder's
professional legal, tax, accounting and financial advisors the
suitability of an investment in Company, by purchasing the Debentures,
for Holder's particular tax and financial situation and has determined
that the investment being made by Holder is a suitable investment for
Holder.
(b) Holder acknowledges that all documents, records, and books
pertaining to this investment which Holder has requested, have been
made available for inspection, or Holder has had access thereto.
(c) Holder has had a reasonable opportunity to ask questions of
and receive answers from a person or persons acting on behalf of
Company concerning the Offering, and if such opportunity was taken,
then all such questions have been answered to the full satisfaction of
Holder.
(d) Holder will not sell, or otherwise dispose of the Debentures
or the common stock of Company, par value $0.001 per share (the "Common
Stock") issued upon conversion of the Debentures without registration
under the Securities Act or applicable state securities laws or
compliance with an exemption therefrom including but not limited to
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Rule 144(b) and 144(k) under the Securities Act (an "Exemption"). The
Debentures have not been registered under the Securities Act or under
the securities laws of any state. Resales of the Common Stock
underlying the Debentures or issued in payment of accrued interest on
the Debentures are to be registered by Company pursuant to the terms of
the Debenture Registration Rights Agreement incorporated herein and
made a part hereof.
(e) Holder recognizes that an investment in the Debentures
involves substantial risks, including loss of the entire amount of such
investment. Further, Holder has carefully read and considered the
schedules attached hereto.
(f) Holder acknowledges that each certificate representing the
Debentures (and the shares of Common Stock issued upon conversion of
the Debentures, unless registered or with an Exemption) or in payment
of interest on the Debentures shall be stamped or otherwise imprinted
with a legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
SUCH ACT.
If Holder sends a Notice of Conversion (see Exhibit A attached
hereto), and a registration statement under the Securities Act is in
effect as to the sale, then in such event Company shall have its
transfer agent send Holder the appropriate number of shares of Common
Stock without restrictive legends (other than a legend referring to the
resale registration and prospectus delivery requirements) and not
subject to stop transfer instructions.
(g) If this Subscription Agreement is executed and delivered on
behalf of a corporation or legal entity other than a natural person:
(i) such corporation or other entity has the full legal right and power
and all authority and approval required (a) to execute and deliver, or
authorize execution and delivery of this Subscription Agreement and all
other Transaction Documents executed and delivered by or on behalf of
such corporation in connection with the purchase of the Debentures, and
(b) to purchase and hold the Debentures; and (ii) the signature of the
party signing on behalf of such corporation or entity is binding upon
such corporation.
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(h) Holder is not subscribing for the Debentures as a result of,
or pursuant to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or
meeting, or any other general solicitation.
(i) Holder is purchasing the Debentures for its own account for
investment, and not with a view toward the resale or distribution
thereof, except pursuant to sales registered or exempted from
registration under the Securities Act. Holder has not offered or sold
any portion of the Debentures being acquired nor does Holder have any
present intention of dividing the Debentures with others or of selling,
distributing or otherwise disposing of any portion of the Debentures
either currently or after the passage of a fixed or determinable period
of time or upon the occurrence or non-occurrence of any predetermined
event or circumstance in violation of the Securities Act provided,
however, that by making the representations herein, Holder does not
agree to hold any of the Debentures for any minimum or other specific
term and reserves the right to dispose of the Debentures at any time in
accordance with or pursuant to a registration statement or an exemption
under the Securities Act. Holder is neither an underwriter of, nor a
dealer in, the Debentures or the Common Stock issuable upon conversion
thereof or upon the payment of interest thereon and is not
participating in the distribution or resale of the Debentures or the
Common Stock issuable upon conversion or exercise thereof.
Notwithstanding anything in this Section to the contrary, Holder
reserves the right to pledge any of the Debenture for margin purposes
and dispose of the Debentures at any time in accordance with federal
and state securities laws applicable to such dispositions.
(j) Holder or Holder's representatives, as the case may be, has
such knowledge and experience in financial, tax and business matters so
as to enable Holder to utilize the information made available to Holder
in connection with the Offering to evaluate the merits and risks of an
investment in the Debentures and to make an informed investment
decision with respect thereto.
3. Representations And Warranties Of Company.
Except as set forth in the Schedules attached hereto, Company hereby
represents and warrants to, and agrees with Holder, as follows:
a. Organization and Qualification. Company and its "Subsidiaries"
(which for purposes of this Subscription Agreement means any entity in which
Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the respective jurisdictions of their incorporation, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Both Company and its Subsidiaries are duly
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qualified to do business and are in good standing in every jurisdiction in which
their ownership of property or the nature of the business conducted by them
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Subscription Agreement, the term "Material Adverse Effect" means
any material adverse effect on the business, properties, assets, operations,
results of operations, financial condition or prospects of Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of Company to perform its obligations
under the Transaction Documents (as defined in Section 3(b) hereof).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents, and to issue the
Debentures in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents by Company and the consummation by it
of the transactions contemplated hereby and thereby, including without
limitation the reservation for issuance and the issuance of the Debentures
pursuant to this Subscription Agreement, have been duly and validly authorized
by Company's Board of Directors and no further consent or authorization is
required by Company, its Board of Directors, or its shareholders, (iii) the
Transaction Documents have been duly and validly executed and delivered by
Company, and (iv) the Transaction Documents constitute the valid and binding
obligations of Company enforceable against Company in accordance with their
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.
c. Capitalization. As of the date hereof, the authorized capital stock
of Company consists of 100,000,000 shares of Common Stock, of which as of the
date hereof, approximately 29,602,046 shares are issued and outstanding. All of
such outstanding shares have been, or upon issuance will be, validly issued and
are fully paid for and nonassessable. Except as disclosed in Schedule 3(c),
which is attached hereto and made a part hereof, (i) no shares of Company's
capital stock are subject to preemptive rights or any other similar rights or
any liens or encumbrances suffered or permitted by Company, (ii) there are no
outstanding debt securities, (iii) there are no outstanding shares of capital
stock, options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of Company or
any of its Subsidiaries, (iv) there are no agreements or arrangements under
which Company or any of its Subsidiaries is obligated to register the sale of
any of their securities under the Securities Act (except the as otherwise set
forth in the Transaction Documents), (v) there are no outstanding securities of
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which Company or any of its Subsidiaries is or may become bound
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to redeem a security of Company or any of its Subsidiaries, (vi) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities as described in this
Subscription Agreement, (vii) Company does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement,
and (viii) there is no dispute as to the class of any shares of Company's
capital stock. Company has furnished to Holder, or Holder has had access through
XXXXX to, true and correct copies of Company's Articles of Incorporation, as in
effect on the date hereof (the "Articles Of Incorporation"), and Company's
Bylaws, as in effect on the date hereof (the "Bylaws").
d. Issuance of Debentures. A sufficient number of Debentures issuable
pursuant to this Subscription Agreement, but not more than four and ninety-nine
one hundredths percent (4.99%) of the shares of Common Stock outstanding as of
the date hereof (if, and only if, Company becomes listed on Nasdaq or the
American Stock Exchange), has been duly authorized and reserved for issuance
pursuant to this Subscription Agreement. Upon issuance in accordance with this
Subscription Agreement, the Debentures will be validly issued, fully paid for
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof. In the event Company cannot register a sufficient number of
shares of Common Stock, due to the remaining number of authorized shares of
Common Stock being insufficient, Company will use its best efforts to register
the maximum number of shares it can based on the remaining balance of authorized
shares and will use its best efforts to increase the number of its authorized
shares as soon as reasonably practicable.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by Company and the consummation by Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of Company or the Bylaws
or (ii) conflict with, or constitute a material default (or an event which with
notice or lapse of time or both would become a material default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, contract, indenture mortgage, indebtedness or instrument
to which Company or any of its Subsidiaries is a party, or result in a violation
of any law, rule, regulation, order, judgment or decree, including United States
federal and state securities laws and regulations and the rules and regulations
of the principal securities exchange or trading market on which the Common Stock
is traded or listed (the "Principal Market"), applicable to Company or any of
its Subsidiaries or by which any property or asset of Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 3(e), neither
Company nor its Subsidiaries is in violation of any term of, or in default
under, the Articles of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of Company
or the Bylaws or their organizational charter or bylaws, respectively, or any
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to Company or its
Subsidiaries, except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
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the aggregate have a Material Adverse Effect. The business of Company and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, statute, ordinance, rule, order or regulation of any governmental
authority or agency, regulatory or self-regulatory agency, or court, except for
possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Subscription Agreement and as required under the Securities
Act, Company is not required to obtain any consent, authorization, permit or
order of, or make any filing or registration (except the filing of a
registration statement) with, any court, governmental authority or agency,
regulatory or self-regulatory agency or other third party in order for it to
execute, deliver or perform any of its obligations under, or contemplated by,
the Transaction Documents in accordance with the terms hereof or thereof. All
consents, authorizations, permits, orders, filings and registrations which
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof and are in full force and
effect as of the date hereof. Except as disclosed in Schedule 3(e), Company and
its Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing. Company is not, and will not be, in violation of the
listing requirements of the Principal Market as in effect on the date hereof and
on each of the Closing Dates and is not aware of any facts which would
reasonably lead to delisting of the Common Stock by the Principal Market in the
foreseeable future.
f. SEC Documents; Financial Statements. Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities and Exchange
Act of 1934, as amended ("Exchange Act") (all of the foregoing filed since the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). Company has delivered to Holder
or its representatives, or they have had access through XXXXX, to true and
complete copies of the SEC Documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, and are not misleading. As of their respective dates, the financial
statements of Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
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footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of Company as of the dates thereof and
the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of Company
to Holder which is not included in the SEC Documents, including, without
limitation, information referred to in Section 3(d) hereof, contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstance under which they
are or were made, and are not misleading.
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g) or
the SEC Documents filed at least thirty (30) days prior to the date hereof,
there has been no change or development in the business, properties, assets,
operations, financial condition, results of operations or prospects of Company
or its Subsidiaries which has had or reasonably could have a Material Adverse
Effect. Company has not taken any steps, and does not currently expect to take
any steps, to seek protection pursuant to any bankruptcy law nor does Company or
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. Except as set forth in Company's SEC filings,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the executive officers of Company or any of its
Subsidiaries, threatened against or affecting Company, the Common Stock or any
of Company's Subsidiaries or any of Company's or Company's Subsidiaries'
officers or directors in their capacities as such, in which an adverse decision
could have a Material Adverse Effect.
i. Acknowledgment Regarding the Purchase of Debentures. Company
acknowledges and agrees that Holder is acting solely in the capacity of an
arm's-length investor with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. Company further acknowledges that
Holder is not acting as a financial advisor or fiduciary of Company (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by Holder or any of its
respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to Holder's purchase of the Debentures. Company further represents to
Holder that Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by Company and its representatives.
j. Intentionally omitted.
k. Employee Relations. Neither Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of Company or any of
its Subsidiaries, is any such dispute threatened. Neither Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and Company and
its Subsidiaries believe that relations with their employees are good. No
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executive officer (as defined in Rule 501(f) under the Securities Act) has
notified Company that such officer intends to leave Company's employ or
otherwise terminate such officer's employment with Company.
l. Intellectual Property Rights. All patents, patent applications,
trademark registrations and applications for trademark registration held by
Company are owned free and clear of all mortgages, liens, charges or
encumbrances whatsoever. No licenses have been granted with respect to these
items and Company and its Subsidiaries do not have any knowledge of any
infringement by Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service xxxx registrations, trade secret or other similar rights of
others, and, except as set forth on Schedule 3(l), there is no claim, action or
proceeding being made or brought against, or to Company's knowledge, being
threatened against, Company or its Subsidiaries regarding trademark, trade name,
patents, patent rights, invention, copyright, license, service names, service
marks, service xxxx registrations, trade secret or other infringement; and
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing. Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual property.
m. Environmental Laws. Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses, and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
n. Title. Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(n) or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by Company or any of its Subsidiaries. Any
real property and facilities held under lease by Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by Company and its
Subsidiaries.
o. Insurance. Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of Company believes to be prudent and
customary in the businesses in which Company and its Subsidiaries are engaged.
Neither Company nor any such Subsidiary has been refused any insurance coverage
sought or applied for and neither Company nor any such Subsidiary has any reason
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to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
have a Material Adverse Effect.
p. Regulatory Permits. Company and its Subsidiaries have in full force
and effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate, approval,
authorization or permit, except for such certificates, approvals, authorizations
or permits which if not obtained, or such revocations or modifications which,
would not have a Material Adverse Effect.
q. Internal Accounting Controls. Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
r. No Materially Adverse Contracts. Neither Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither Company nor any of its Subsidiaries is a party to any contract
or agreement which in the judgment of Company's officers has or is expected to
have a Material Adverse Effect.
s. Tax Status. Company has filed all federal and state income tax
returns, as required and Company and each of its Subsidiaries has made or filed
all United States federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject. Company
represents that there are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of Company
know of no basis for any such claim.
t. Certain Transactions. Except as set forth in the SEC Documents filed
at least ten days prior to the date hereof and except for arm's-length
transactions pursuant to which Company makes payments in the ordinary course of
business upon terms no less favorable than Company could obtain from third
parties and other than the grant of stock options disclosed on Schedule 3(c)
none of the officers, directors, or employees of Company is presently a party to
any transaction with Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
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for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
u. Dilutive Effect. Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Subscription Agreement will increase in certain circumstances including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines following the effective date of the registration statement
covering the Common Stock underlying the Debentures (the "Effective Date").
Company's executive officers and directors have studied and fully understand the
nature of the transactions contemplated by this Subscription Agreement and
recognize that they have a potential dilutive effect. The board of directors of
Company has concluded, in its good faith business judgment that such issuance is
in the best interests of Company. Company specifically acknowledges that,
subject to such limitations as are expressly set forth in the Transaction
Documents, its obligation to issue shares of Common Stock upon purchases
pursuant to this Subscription Agreement is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests of
other shareholders of Company.
v. Additional Financings. Company shall not, directly nor indirectly,
without the prior written consent of Holder, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its Common Stock or securities
convertible into Common Stock, or file any registration statement, including
those on Form S-8 for any securities (a "Subsequent Financing"), increase the
Company's debt, in either case ending on the later to occur of (i) three hundred
and sixty (360) days after the effective date of the registration statement
covering resale of the shares of Common Stock underlying the Debentures (also
the "Effective Date") or (ii) the date on which the full Face Amount (as that
term is defined in the Debenture), accrued interest and penalties, if any, on
the Debentures have been paid ("Lock Up Period"), as set forth in the Debenture.
Company further agrees that any and all of its officers, insiders, affiliates or
other related parties, whether an individual, trust, business or other, shall
refrain from selling any Stock during the Lock-Up Period, unless approved by
Holder.
Company hereby unconditionally and irrevocably grants to Holder a right
of first refusal ("Right of First Refusal") to provide any additional financing
that Company may required during the Option Period (as hereinafter defined), on
the terms and subject to the conditions contained in this provision. If during
the Option Period, Company desires to secure any financing from any third party
("Proposed Financing"), Company must first deliver a notice of the Proposed
Financing ("Proposed Financing Notice") to Holder no less than forty-five (45)
days prior to the consummation of such Proposed Financing. Such Proposed
Financing Notice shall contain the material terms and conditions (including
price and form of consideration) of the Proposed Financing and the identity of
the prospective source of Proposed Financing. To exercise its Right of First
Refusal, Holder must deliver a notice to Company ("Company Notice") within five
(5) days after delivery of the Proposed Financing Notice. In the event of a
conflict between this Agreement and any other agreement that may have been
entered into by Company and Holder that contains a preexisting right of first
refusal, Company and Holder acknowledge and agree that the terms of this
13
Agreement shall control and the preexisting right of first refusal shall be
deemed satisfied in full by compliance with this provision. In the event of a
conflict between this Agreement and the Company's Bylaws containing a
preexisting right of first refusal, the terms of the Bylaws will control and
compliance with the Bylaws shall be deemed full compliance with this provision.
For purposes hereof, the term "Option Period" shall mean that period of time
commencing on the Closing Date and terminating twenty-four (24) months
thereafter.
If at any time while the Debenture is outstanding, Company issues or
agrees to issue any Common Stock or securities convertible into or exercisable
for shares of Common Stock (or modify any of the foregoing which may be
outstanding prior to the execution of this Agreement) to any person or entity at
a price per share or conversion or exercise price per share less than the
Maximum Conversion Price (as such term is defined in the Debenture), with or
without the consent of Holder, the Maximum Conversion Price shall be reduced to
a price equal to ten percent (10%) less than the price of the new issuance.
Notwithstanding the foregoing, prior to the final determination of the Maximum
Conversion Price , Company shall not sell any Common Stock to any person or
entity at a share price less than $0.46 nor shall Company offer any registration
rights with respect to such shares. Additionally, if Company shall issue or
agree to issue any of the aforementioned securities to any person, firm or
corporation at terms deemed by Holder to be more favorable to the other person
or entity than the terms or conditions of this Offering, then Holder is granted
the right, at its election, to modify any term of this Offering to match any
more favorable term provided by Company to such person or entity. The rights of
Holder in this Section are in addition to any other right Holder has pursuant to
this Subscription Agreement and the Transaction Documents.
In the event the exercise of the rights described in the preceding
paragraph would result in the issuance of an amount of Common Stock of Company
that would exceed the maximum amount that may be issued to Holder calculated in
the manner described in Section 3(d) of this Subscription Agreement, then the
issuance of such additional shares of Common Stock of Company to such Holder
will be deferred in whole or in part until such time as such Holder is able to
beneficially own such Common Stock without exceeding the maximum amount set
forth calculated in the manner described in Section 3(d) of this Subscription
Agreement. The determination of when such Common Stock may be issued shall be
made by Holder.
The Holder shall permit the Company to close on a revolving credit
facility with a bank for general working capital on terms that are mutually
agreeable to both the Holder and the Company, in amount not exceeding eight
hundred and thirty thousand dollars ($830,000).
14
x. Xxxxxxxx-Xxxxx Compliance. Company hereby acknowledges that they are
current with the requirement of Xxxxxxxx-Xxxxx Act of 2002 ("SOX"), and will
remain compliant with SOX and its rules and regulations for reporting
requirements in the time frame required by SOX, and any updates to deadlines
imposed by SOX.
x. Code of Ethics. Company has adopted a Code of Ethics and has filed
such Code of Ethics with the SEC.
y. No Disagreements with Accountants, Auditors and Lawyers. There are
no disagreements of any kind presently existing, or reasonably anticipated by
Company to arise, between Company and the accountants, auditors and lawyers
formerly or presently used by Company, including but not limited to disputes or
conflicts over payment owed to such accountants, auditors or lawyers.
z. Investment Company. Neither Company nor any Affiliate is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
aa. Company Predecessor. All representations made by or relating to
Company of a historical nature and all undertaking described herein shall relate
and refer to Company, its predecessors, and the Subsidiaries.
bb. Option Plan Restrictions. The only officer, director, employee and
consultant stock option or stock incentive plan currently in effect or
contemplated by Company has been submitted to Holder or is described in past
filings with the SEC. No other plan will be adopted nor may any options or
equity not included in such plan be issued until after the Debenture is paid in
full.
4. Covenants Of Company.
a. Best Efforts. Company shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in this Subscription
Agreement.
b. Blue Sky. Company shall, at its sole cost and expense, make all
filings and reports relating to the offer and sale of the Debentures and the
Common Stock underlying the Debentures as required under the applicable
securities or "Blue Sky" laws of such states of the United States as specified
by Holder or as required by law.
c. Reporting Status. Until the earlier of (i) the date that Holder may
sell all of the Common Stock underlying the Debentures acquired pursuant to this
Subscription Agreement without restriction pursuant to Rule 144(k) under the
Securities Act, or (ii) the date on which Holder shall have sold all the Common
Stock underlying the Debentures, Company shall file all reports required to be
filed with the SEC pursuant to the Exchange Act, and Company shall not terminate
its status as a reporting company under the Exchange Act.
15
d. Use of Proceeds. Company shall use the entire proceeds from the
Debenture exclusively to further the growth and interest of Company. Any other
use of the funds contemplated herein, shall be considered a breach of contract
and an Event of Default (as such term is defined in the Debenture).
e. Conditions to Closing. Company shall sign and be in compliance with
the Transaction Documents with Holder.
f. Financial Information. Company agrees to make available to Holder
via XXXXX or other electronic means the following: (i) within five (5) business
days after the filing thereof with the SEC, a copy of its annual reports on Form
10-KSB, its quarterly reports on Form 10-QSB, any current reports on Form 8-K
and any registration statements or amendments filed pursuant to the Securities
Act; (ii) on the same day as the release thereof, facsimile copies of all press
releases issued by Company or any of its Subsidiaries, (iii) copies of any
notices and other information made available or given to the shareholders of
Company generally, contemporaneously with the making available or giving thereof
to the shareholders and (iv) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc. (the "NASD")
g. Reservation of Common Stock. Subject to the following sentence,
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Common Stock underlying the Debentures.
In the event that Company determines that it does not have a sufficient number
of authorized shares of Common Stock to reserve and keep available for issuance,
Company shall use its best efforts to increase the number of authorized shares
of Common Stock by seeking shareholder approval for the authorization of such
additional shares. Holder shall have the right to reasonably determine the
amount of shares to be re-registered such as are necessary to satisfy the terms
of the Subscription Agreement.
h. Listing. Company shall promptly secure the listing of all of the
Common Stock underlying the Debentures upon the Principal Market and each other
national securities exchange and automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and shall maintain, such listing. Company shall maintain the Common Stock's
authorization for quotation on the Principal Market, unless Holder and Company
agree otherwise. Neither Company nor any of its Subsidiaries shall take any
action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market (excluding suspensions of
not more than one trading day resulting from business announcements by Company).
Company shall promptly provide to Holder copies of any notices it receives from
the Principal Market regarding the continued eligibility of the Common Stock for
listing on such automated quotation system or securities exchange. Company shall
pay all fees and expenses in connection with satisfying its obligations under
this Section.
16
i. Transactions With Affiliates. During the Lock Up Period, Company
shall not, and shall cause each of its Subsidiaries not to, enter into, amend,
modify or supplement, or permit any Subsidiary to enter into, amend, modify or
supplement, any agreement, transaction, commitment or arrangement with any of
its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two years, shareholders who
beneficially own five percent (5%) or more of the Common Stock, or affiliates or
with any individual related by blood, marriage or adoption to any such
individual or with any entity in which any such entity or individual owns a five
percent (5%) or more beneficial interest (each a "Related Party") during the
Lock Up Period; except for (i) customary employment arrangements and benefit
programs on reasonable terms (including changes currently under discussion with
Company's Board of Directors concerning the compensation, to be payable in
stock, of the Chairman of the Board), (ii) any agreement, transaction,
commitment or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, or (iii) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of Company. For
purposes hereof, any director who is also an officer of Company or any
Subsidiary of Company shall not be a disinterested director with respect to any
such agreement, transaction, commitment or arrangement. "Affiliate" for purposes
hereof means, with respect to any person or entity, another person or entity
that, directly or indirectly, (i) has a five percent (5%) or more equity
interest in that person or entity, (ii) has five percent (5%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "Control" or "Controls"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
j. Corporate Existence. Company shall use its commercially reasonable
best efforts to preserve and continue the corporate existence of Company.
k. Notice of Certain Events Affecting Registration. Company shall
promptly notify Holder upon the occurrence of any of the following events in
respect of a registration statement or related prospectus covering the Common
Stock underlying the Debentures: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the registration statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of any registration statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Common Stock underlying the Debentures for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
registration statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of a registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
17
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate, and Company shall
promptly make available to Holder any such supplement or amendment to the
related prospectus.
l. Indemnification. In consideration of Holder's execution and delivery
of this Subscription Agreement and the Debenture Registration Rights Agreement
and acquiring the Debentures hereunder and in addition to all of Company's other
obligations under the Transaction Documents, Company shall defend, protect,
indemnify and hold harmless Holder and all of its shareholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Subscription
Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by Company in the Transaction Documents or any
other certificate, instrument or document contemplated hereby or thereby, (ii)
any breach of any covenant, agreement or obligation of Company contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iii) any cause of action, suit or claim brought
or made against such Indemnitee by a third party and arising out of or resulting
from the execution, delivery, performance or enforcement of the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (iv) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Debentures, (v)
the status of Holder as an investor in Company, except, in the case of any of
such clauses, insofar as any such Indemnified Liability was attributable to
gross negligence, willful misconduct or any illegal activity on the part of
Holder and, in the case of clause, (v) only, insofar as any such Indemnified
Liability was attributable to an untrue statement, alleged untrue statement,
omission or alleged omission made in reliance upon and in conformity with
written information furnished to Company by Holder which is specifically
intended by Holder for use in the preparation of any Registration Statement,
preliminary prospectus or prospectus. To the extent that the foregoing
undertaking by Company may be unenforceable for any reason, Company shall make
the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. The indemnity
provisions contained herein shall be in addition to any cause of action or
similar rights Holder may have, and any liabilities to which Holder may be
subject. Notwithstanding the foregoing, Company shall have no indemnification
responsibility in the event Holder fails to timely notify Company of a claim or
potential claim for which indemnification is sought, but only to the extent
Company is prejudiced thereby. Company shall have the right to control the
18
defense of any such claim and Holder shall not consent to any settlement of any
such claim without the prior written consent of Company (which shall not be
unreasonably withheld or delayed). Holder shall provide indemnification
comparable in scope and coverage to Company and corresponding related persons in
respect of any Indemnified Liability if and to the extent attributable to gross
negligence, willful misconduct or any illegal activity on the part of Holder,
and shall be obligated to reimburse Company and such persons to the same extent
as Company's reimbursement obligations under Section 4(m) hereof.
m. Reimbursement. If (i) Holder, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of Company, in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Holder is impleaded in any such
action, proceeding or investigation by any person, or (ii) Holder, other than by
reason of its gross negligence or willful misconduct or by reason of its trading
of the Common Stock in a manner that is illegal under the federal securities
laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving Company or in connection
with or as a result of the consummation of the transactions contemplated by the
Transaction Documents, or if Holder is impleaded in any such action, proceeding
or investigation by any person, then in any such case, Company will reimburse
Holder for its reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith, as such
expenses are incurred. In addition, other than with respect to any matter in
which Holder is a named party, Company will pay to Holder the charges, as
reasonably determined by Holder, for the time of any officers or employees of
Holder devoted to appearing and preparing to appear as witnesses, assisting in
preparation for hearings, trials or pretrial matters, or otherwise with respect
to inquiries, hearing, trials, and other proceedings relating to the subject
matter of this Subscription Agreement. The reimbursement obligations of Company
under this Section shall be in addition to any liability which Company may
otherwise have, shall extend upon the same terms and conditions to any
affiliates of Holder that are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees, attorneys,
accountants, auditors and controlling persons (if any), as the case may be, of
Holder and any such affiliate, and shall be binding upon and inure to the
benefit of any successors of Company, Holder and any such affiliate and any such
person.
n. Transfer Agent. Company covenants and agrees that, in the event that
Company's agency relationship with the transfer agent should be terminated for
any reason prior to the Maturity Date (as defined in the Debenture), and Company
shall immediately appoint a new transfer agent. Company shall be up to date with
all payments to the transfer agent, and continue to pay transfer agent as
outlined in the Irrevocable Transfer Agent Agreement.
19
5. Opinion Letter/Board Resolution.
Prior to or on the Closing Date, Company shall deliver to Holder an
opinion letter signed by counsel for Company in the form attached hereto as
Exhibit D.
If so requested by Holder, Company shall instruct counsel to write a
Rule 144 opinion letter provided the necessary paperwork has been submitted and
the Exemption applies (as defined herein). If Company's counsel fails to provide
a Rule 144 opinion letter in a timely manner, then Company shall: (a) pay the
Investor's counsel to write said Rule 144 opinion letter; and (b) instruct the
designated transfer agent to accept and rely upon the Rule 144 opinion letter
attached hereto as Exhibit E. Also, prior to or on the Closing Date, Company
shall deliver to Holder a signed Board Resolution authorizing this Offering,
which shall be attached hereto as Exhibit F.
6. Delivery Instructions; Fees.
The Debentures being purchased hereunder shall be delivered to Holder
on the Closing Date at which time funds will be wired to the escrow account and
the Debentures will be delivered to Holder, per Holder's instructions.
7. Understandings.
Holder understands, acknowledges and agrees as follows:
a. No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures or Company.
b. The representations, warranties and agreements of Holder and Company
contained herein shall be true and correct in all material respects on and as of
the date of the sale of the Debentures as if made on and as of such date and
shall survive the execution and delivery of this Subscription Agreement and the
purchase of the Debentures.
c. In making an investment decision, Holder is relying on its own
examination of Company and the terms of the Offering, including the merits and
risks involved. The shares have not been recommended by any federal or state
securities commission or regulatory authority. Furthermore, the foregoing
authorities have not confirmed the accuracy or determined the adequacy of this
document. Any representation to the contrary is a criminal offense.
d. The Offering is intended to be exempt from registration by virtue of
Section 4(2) of the Securities Act and the provisions of Regulation D
thereunder, which is in part dependent upon the truth, completeness and accuracy
of the statements made by the undersigned herein and in the Questionnaire.
20
e. It is understood that in order not to jeopardize the Offering's
exempt status under Section 4(2) of the Securities Act and Regulation D, Holder
may, at a minimum, be required to fulfill the investor suitability requirements
thereunder.
f. The shares may not be resold except as permitted under the
securities act and applicable state securities laws, pursuant to registration or
exemption therefrom. Holder should be aware that they will be required to bear
the financial risks of this investment for an indefinite period of time.
8. Disputes Subject To Arbitration Governed By Massachusetts Law.
a. The parties to this Subscription Agreement will submit all disputes
arising under it to arbitration in Boston, Massachusetts before a single
arbitrator of the American Arbitration Association ("AAA"). The arbitrator shall
be selected by application of the rules of the AAA, or by mutual agreement of
the parties, except that such arbitrator shall be an attorney admitted to
practice law in the Commonwealth of Massachusetts. No party to this agreement
will challenge the jurisdiction or venue provisions as provided in this section.
Nothing in this section shall limit Secured Party's right to obtain an
injunction for a breach of this Subscription Agreement from a court of law.
9. Miscellaneous.
a. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Subscription Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to Company: Attn: Xxxxx Xxxxx
Patient Portal Technologies, Inc.
0000 Xxxxxxx Xxxxx, Xxx. 000
Xxxx Xxxxx Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Fax:
------------------------------
If to Holder: Dutchess Capital Management, LLC
00 Xxxxxxxxxxxx Xxx, Xxxxx 0
Xxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
21
Each party shall provide five (5) business days prior notice to the
other party of any change in address, phone number or facsimile number.
b. All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
c. Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked or canceled,
except by an instrument in writing signed by the party effecting the same
against whom any change, discharge or termination is sought.
d. Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by facsimile transmission: (i) if to Company, at it's executive offices,
or (ii) if to Holder, at the address for correspondence set forth in the
Questionnaire, or at such other address as may have been specified by written
notice given in accordance with this paragraph.
e. This Subscription Agreement and all related instruments and
documents and the rights and obligations of the parties hereunder and thereunder
shall, in all respects, be governed by, and construed in accordance with, the
internal laws of the Commonwealth of Massachusetts, without regard to conflicts
of law principles.
f. Any provision of this Agreement, or of any other Transaction
Documents, that is prohibited by, or unenforceable under, the laws of any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability, without invalidating the remaining
provisions of this Agreement, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by applicable law, Holder hereby
waives any provision of law which renders any provision of this Agreement or any
other Transaction Documents prohibited or unenforceable in any respect.
g. This Subscription Agreement shall not be assignable.
h. This Subscription Agreement, together with Exhibit A through Exhibit
F and the Schedules attached hereto and made a part of this Subscription
Agreement by this reference, constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing executed by both parties hereto.
i. This Subscription Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Execution and delivery of this Subscription Agreement by exchange of facsimile
copies bearing the facsimile signature of a party shall constitute a valid and
22
binding execution and delivery of this Subscription Agreement by such party.
Such facsimile copies shall constitute enforceable original documents.
j. When in this Subscription Agreement or the Transaction Documents,
reference is made to any party, such reference shall be deemed to include the
successors, assigns, heirs and legal representatives of such party. No party
hereto may transfer any rights under this Subscription Agreement or the
Transaction Documents, unless the transferee agrees to be bound by, and comply
with all of the terms and provision of this Subscription Agreement and the
Transaction Documents, as if an original signatory hereto on the date hereof.
k. Company hereby represent and warrants to Holder that: (i) it has
voluntarily entered into this Subscription Agreement of its own freewill, (ii)
it is not entering into this Subscription Agreement under economic duress, (iii)
the terms of this Subscription Agreement are reasonable and fair to Company, and
(iv) Company has had independent legal counsel of its own choosing review this
Subscription Agreement, advise Company with respect to this Subscription
Agreement, and represent Company in connection with its entering into this
Subscription Agreement.
l. Notwithstanding anything in this Subscription Agreement to the
contrary, the parties hereto hereby acknowledge and agree to the following: (i)
Holder makes no representations or covenants that it will not engage in trading
in the securities of Company; (ii) Company shall, by 8:30 a.m. Boston time on
the trading day following the date hereof, file a current report on Form 8-K
disclosing the material terms of the transactions contemplated hereby and in the
other Transaction Documents; (iii) Company has not and shall not provide
material non-public information to Holder unless prior thereto Holder shall have
executed a written agreement regarding the confidentiality and use of such
information; and (iv) Company understands and confirms that Holder will be
relying on the acknowledgements set forth in clauses (i) through (iii) above if
Holder effects any transactions in the securities of Company.
m. Any capitalized term used but not defined in this Subscription
Agreement shall have the meaning ascribed to it in the Transaction Documents.
10. Closing Costs.
Company shall pay to Holder, upon Closing, $210,000 as a closing
expense.
11. Waiver.
Holder's delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants shall
not waiver, affect, or diminish any right of Holder under this Subscription
Agreement to demand strict compliance and performance herewith. Any waiver by
Holder of any Event of Default shall not waive or affect any other Event of
Default, whether such Event of Default is prior or subsequent thereto and
whether of the same or a different type. None of the undertakings, agreements
and covenants of Company contained in this Subscription Agreement, and no Event
23
of Default, shall be deemed to have been waived by Holder, nor may this
Subscription Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by Holder.
12. Governmental Changes.
In the event that any rules, regulations, oral or written
interpretations or Comments (as defined in the Debenture Registration Rights
Agreement) from the SEC, NASD, NYSE, NASDAQ or other governing or regulatory
body, prohibit or hinder any operation of this Subscription Agreement or the
other Transaction Documents, the parties hereto hereby agree that those specific
terms and conditions shall be negotiated in good faith on similar terms within
five (5) business days, and shall not alter, diminish or affect any other
rights, duties, obligations or covenants in Transaction Documents and that all
terms and conditions will remain in full force and effect except as is necessary
to make those specific terms and conditions comply with applicable rule,
regulation, interpretation or Comment. Failure for Company to agree to on such
new terms as necessary to achieve the intent of the original documents shall
constitute and Event of Default as outlined in Article 6 in the Debenture and
accordingly Holder may elect to take actions as outlined in the Debenture and
the other Transaction Documents.
13. No Oral Agreements.
This Subscription Agreement and the other Transaction Documents
represent the final definitive agreements between Company and Holder and may not
be contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties; there are no unwritten oral agreements among the
parties.
[SIGNATURE PAGE FOLLOWS]
24
PATIENT PORTAL TECHNOLOGIES, INC.
INVESTOR QUESTIONNAIRE
The information contained in this Investor Questionnaire (this
"Questionnaire") is being furnished in order to determine whether the
undersigned's subscription to purchase the Debentures described in the
accompanying Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned understands, however, that Company may present
this Questionnaire to such parties as it deems appropriate if called upon to
establish that the proposed offer and sale of the securities is exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"). Further, the undersigned understands that the offering is required to be
reported to the United States Securities and Exchange Commission (the "SEC" or
the "Commission"), and to various state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY PATIENT
PORTAL TECHNOLOGIES, INC., A DELAWARE CORPORATION ("COMPANY"), THE UNDERSIGNED
MUST COMPLETE FORM W-9.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES.
[ ] 1. The undersigned: (a) has total assets in excess of $5,000,000;
(b) was not formed for the specific purpose of acquiring the
securities; and (c) has its principal place of business in ___________.
[ ] 2. The undersigned is a natural person whose individual net worth*
or joint net worth with his or her spouse exceeds $1,000,000.
[ ] 3. The undersigned is a natural person who had an individual
income* in excess of $200,000 in each of the two most recent years and
who reasonably expects an individual income in excess of $200,000 in
the current year. Such income is solely that of the undersigned and
excludes the income of the undersigned's spouse.
[ ] 4. The undersigned is a natural person who, together with his or
her spouse, has had a joint income* in excess of $300,000 in each of
the two most recent years and who reasonably expects a joint income in
excess of $300,000 in the current year.
* ________ For purposes of this Questionnaire, the term "net worth" means the
excess of total assets over total liabilities. In determining "income", an
investor should add to his or her adjusted gross income any amounts attributable
to tax-exempt income received, losses claimed as a limited partner in any
limited partnership, deductions claimed for depletion, contributions to XXX or
Xxxxx retirement plan, alimony payments and any amount by which income from
long-term capital gains has been reduced in arriving at adjusted gross income.
25
5. The undersigned is:
[ ] (a) a bank as defined in Section 3(a)(2) of the Securities Act; or
[ ] (b) a savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; or
[ ] (c) a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or
[ ] (d) an insurance company as defined in Section 2(13) of the
Securities Act; or
[ ] (e) An investment company registered under the Investment Company
Act of 1940 (the "ICA"), as amended, or a business development company
as defined in Section 2(a)(48) of the ICA; or
[ ] (f) a small business investment company licensed by the U.S. Small
Business Administration under Section 301 (c) or (d) of the Small
Business Investment Act of 1958; or
X 6. The undersigned is an entity in which all of the equity owners
are accredited investors.
26
II. HOLDER INFORMATION.
Name of Entity: Dutchess Private Equities Fund, LTD
Person's Name: Xxxxxxx Xxxxxxxx, Managing Member
State of Organization: Cayman Islands
Principal Business Address: 00 Xxxxxxxxxxxx Xxx., Xxxxx 0
-----------------------------
Xxxx, Xxxxx, Zip Code: Xxxxxx, XX 00000
----------------
Taxpayer Identification Number: ___________
Phone: 000-000-0000 Fax: 000-000-0000
------------ ------------
Send Correspondence to: Same as above
27
PATIENT PORTAL TECHNOLOGIES, INC.
---------------------------------
SIGNATURE PAGE
--------------
Your signature on this Signature Page evidences your agreement to be
bound by the accompanying Questionnaire and the Transaction Documents (as such
term is defined in the accompanying Subscription Agreement).
1. The undersigned hereby represents that (a) the information contained
in the Questionnaire is complete and accurate and (b) the undersigned will
notify Patient Portal Technologies, Inc. ("Company") immediately if any material
change in any of the information occurs prior to the acceptance of the
undersigned's subscription and will promptly send Company written confirmation
of such change.
2. The undersigned signatory hereby certifies that he/she has read and
understands the Transaction Documents, including the Subscription Agreement and
Questionnaire, and the representations made by the undersigned in said documents
are true and accurate.
$7,000,000 November 1, 2007
------------------------------ ------------------------
Amount of Debentures being purchased Date
DUTCHESS PRIVATE EQUITIES FUND, LTD,
By: _________________________
Name: Xxxxxxx X. Xxxxxxxx
Title: Director
28
PATIENT PORTAL TECHNOLOGIES, INC.
---------------------------------
COMPANY ACCEPTANCE PAGE
-----------------------
This Subscription Agreement is hereby accepted and agreed to this 1st
day of November, 2007, by Patient Portal Technologies, Inc.
Patient Portal Technologies, Inc.
By ________________________________
Name: Xxxxx Xxxxx, Chief Executive Officer
By:________________________________
Xxxxxx Xxxxx, Secretary, Acting CFO and Director
By:________________________________
Xxxxx Xxxx , Chief Operating Officer
29
LIST OF EXHIBITS
----------------
EXHIBIT A Notice of Conversion
EXHIBIT B Debenture Registration Rights Agreement
EXHIBIT C Debenture
EXHIBIT D Opinion of Company's Counsel
EXHIBIT E Reliance on Opinion Letter
EXHIBIT F Board Resolution
EXHIBIT G Hospital Contracts
LIST OF SCHEDULES
-----------------
Schedule 3(a) Subsidiaries
-------------
Schedule 3(c) Capitalization
-------------
Schedule 3(e) Conflicts
-------------
Schedule 3(g) Material Changes
-------------
Schedule 3(h) Litigation
-------------
Schedule 3(l) Intellectual Property
-------------
Schedule 3(n) Liens
-------------
Schedule 3(t) Certain Transactions
-------------
30
EXHIBIT A
---------
NOTICE OF CONVERSION
TO: PATIENT PORTAL TECHNOLOGIES, INC.
The undersigned hereby irrevocably elects, as of ________________, to
convert $________________ of its convertible debenture (the "Debenture") into
Common Stock of Patient Portal Technologies, Inc. ("Company") according to the
conditions set forth in the Debenture issued by Company.
Date of Conversion: ________________________________________________
Applicable Conversion Price: ________________________________________
Number of Debentures Issuable upon this Conversion: _______________________
Name(Print): Dutchess Private Equities Fund, LTD
Address: 00 Xxxxxxxxxxxx Xxx, Xxxxxx, XX 00000
Phone: 000-000-0000 Fax: 000-000-0000
------------ ------------
By:_______________________________________
31
EXHIBIT D
---------
OPINION OF COMPANY'S COUNSEL
Law Offices
XXXXXXX X. XXXXXX, ESQ.
000 Xxxxxxxx, Xxxxx 000
Xxx Xxxx, X.X. 00000
(000) 000-0000
(Fax (000) 000-0000
e-mail: XXXxxxxx@xxx.xxx
November 1, 2007
Dutchess Capital Management, LLC
00 Xxxxxxxxxxxx Xxx, Xxxxx 0
Xxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxx
Re: Patient Portal Technologies, Inc.
---------------------------------
Ladies and Gentlemen:
As counsel to Patient Portal Technologies, Inc. ("Company"), we are
familiar with its Articles of Incorporation and Bylaws and with the corporate
proceedings taken by it in connection with the proposed issuance and sale of
convertible debentures (the "Securities") pursuant to the related Subscription
Agreement and the other Transaction Documents (as such term is defined in the
Subscription Agreement) (collectively the "Agreements").
We have been furnished with copies, certified or otherwise identified
to our satisfaction, of the Agreements, and have examined such other documents,
agreements and records as we deemed necessary to render the opinions set forth
below.
In conducting our examination, we have assumed the following: (i) that
each of the Agreements has been executed by each of the parties thereto in the
same form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and accuracy
of all documents submitted to us as originals, and the conformity to originals
of all documents submitted to us as copies, (iii) that each of the Agreements
has been duly and validly authorized, executed and delivered by the party or
parties thereto other than Company, and (iv) that each of the Agreements
constitutes the valid and binding agreement of the party or parties thereto
other than Company, enforceable against such party or parties in accordance with
the Agreements' terms.
Based upon the subject to the foregoing, we are of the opinion that:
32
1. Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to own its properties and conduct
its business as presently conducted.
2. The authorized capital stock of Company consists of 100,000,000
shares of Common Stock, $0.001 par value per share ("Common Stock") and
1,000,000 shares of unclassified Preferred Stock ($.01 par value).
3. To our knowledge, (i) Company's equity securities are not registered
under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and (ii) Company is required to file reports with
the United States Securities and Exchange Commission (the "SEC") pursuant to
Section 15(d) of the Exchange Act.;
4. When duly countersigned by Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities [and any Common Stock to be issued upon the conversion of the
Securities] as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5 Company has the requisite corporate power and authority to enter into
the Subscription Agreement and to sell and deliver the Securities and the Common
Stock to be issued upon the conversion of the Securities as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by Company to our knowledge, no approval of any
governmental or other body is required for the execution and delivery of each of
the Agreements by Company or the consummation of the transactions contemplated
thereby; each of the Agreements has been duly and validly executed and delivered
by and on behalf of Company, and is a valid and binding agreement of Company,
enforceable in accordance with its terms, except as enforceability may be
limited by general equitable principles, public policy, bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other laws affecting
creditors rights generally, and except as to compliance with federal, state, and
foreign securities laws, as to which no opinion is expressed;
6. Neither the execution, delivery and performance of the Subscription
Agreement and Securities by Company and the performance of its obligations
thereunder do not and will not constitute a breach or violation of any of the
terms and provisions of, or constitute a default under or conflict with or
violate any provision of (i) Company's Certificate of Incorporation or Bylaws,
(ii) any indenture, mortgage, deed of trust, agreement or other instrument to
which Company is party or by which it or any of its property is bound, (iii) any
applicable statute or regulation or as other, (iv) or any judgment, decree or
order of any court or governmental body having jurisdiction over Company or any
of its property.
33
7. To the best of our knowledge, there is no pending or threatened
litigation, investigation or other proceedings against Company.
8. Company complies with the eligibility requirements for the use of
Form SB-2, under the Securities Act of 1933, as amended (the "Securities Act").
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of New York and the Delaware General Corporation Law and does not
include an interpretation or statement concerning the laws of any other state or
jurisdiction. Insofar as the enforceability of the Subscription Agreement and
Securities may be governed by the laws of other states, we have assumed that
such laws are identical in all respects to the laws of the State of New York.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Subscription Agreement and
Securities and may not be relied upon by any other person or entity or for any
other purpose without our prior consent.
Very truly yours,
----------------------------
XXXXXXX X. XXXXXX
34
EXHIBIT E
---------
Continental Stock Transfer and Trust Co.
00 Xxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
RE: Issuance of Common Stock
To Whom It May Concern:
Please use this letter as authorization to have the attached request for the
issuance of free trading shares, pursuant to Rule 144 of the Securities Act, to
Dutchess Private Equities Fund, Ltd which acquired the fully paid,
non-assessable securities.
The Company does hereby instruct Continental Stock Transfer and Trust Co. to
rely on the opinion for resale of shares from Xxxxxxx Business Law or Xxxxxxx
Savage, LLP.
The Company represents that Dutchess is not recognized as an affiliate of
Company.
Regards,
Xxxxx Xxxxxx
Chief Executive Officer
Patient Portal Technologies, Inc.
35
EXHIBIT F
---------
BOARD RESOLUTIONS
36
EXHIBIT G
---------
CONTRACTS TO BE ACQUIRED
CONTRACT
HOSPITAL SIGNED/BEG TERM
-------- ---------- ----
Greater Southeast 8/12/1996 12 months
University Hospital 10/3/2006 1 yr.
St. Lukes Memorial No Contract on file
Park Ridge 7/1/2005 3 yrs.
Faxton No Contract on file
Mercy Medical No Contract on file
Delaware County 7/24/2003 5 yrs.
Crozer 7/24/2003 5 yrs.
Monmouth 2/19/2007 2 yrs.
Genesys 7/28/2004 6 mo. Trial
Nanticoke 11/8/2004 3 yrs.
Raritan Bay 11/1/2004 3 yrs.
RIM 7/1/2005 3 yrs.
Monogahela Valley 7/6/2005 7 yrs
Southampton 1/25/2006 3 yrs.
Harrisburg July 2007 3 yrs.
CGOH July 2007 3 yrs.
Meadowlands July 2007 7 yrs.
37
SCHEDULE 3(a)
------------
SUBSIDIARIES
Name State of Incorporation EIN
------------------------------ ---------------------- ----------
Patient Portal Connect, Inc. Delaware 11-3780465
TB&A Hospital Television, Inc. New York 00-0000000
38
SCHEDULE 3(c)
-------------
CAPITALIZATION
39
SCHEDULE 3(e)
-------------
CONFLICTS
40
SCHEDULE 3(g)
-------------
MATERIAL CHANGES
41
SCHEDULE 3(h)
-------------
LITIGATION
None, except as disclosed in Company's SEC Filings.
42
SCHEDULE 3(l)
-------------
INTELLECTUAL PROPERTY
None
43
SCHEDULE 3(n)
-------------
LIENS
44
SCHEDULE 3(t)
-------------
CERTAIN TRANSACTIONS
45
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