SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and ICOA, Inc., a
Nevada corporation (the "Company") hereby agrees to issue and to sell to the
Subscriber, 9% Convertible Notes (the "Notes") convertible in accordance with
the terms thereof into shares of the Company's $.0001 par value common stock
(the "Company Shares") for the aggregate consideration as set forth on the
signature page hereof ["Purchase Price"]. The form of Convertible Note is
annexed hereto as Exhibit A. (The Company Shares are sometimes referred to
herein as the "Shares" or "Common Stock"). (The Notes, the Company Shares,
Common Stock Purchase Warrants ("Warrants") issuable to the recipients
identified on Schedule B hereto, the Common Stock issuable upon exercise of the
Warrants, and the Put Securities (as herein defined) are collectively referred
to herein as, the "Securities"). Upon acceptance of this Agreement by the
Subscriber, the Company shall issue and deliver to the Subscriber the Note
against payment, by federal funds (U.S.) wire transfer of the Purchase Price.
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with the Company's audited financial statements for the year ended
September 30, 1999 (hereinafter referred to as the "Reports"). In addition, the
Subscriber has received from the Company such other information concerning its
operations, financial condition and other matters as the Subscriber has
requested, and considered all factors the Subscriber deems material in deciding
on the advisability of investing in the Securities (such information in writing
is collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (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.
(c) Purchase of Note. On the Closing Date, the
Subscriber will purchase the Note for its own account and not with a view to any
distribution thereof.
(d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act by reason of their issuance in a transaction that does not require
registration under the 1933 Act, in reliance upon Rule 903 of Regulation S under
the 1933 Act, and that such Securities must be held unless a subsequent
disposition is registered under the 1933 Act or is exempt from such
registration.
(e) Company Shares Legend. The Company Shares, and
the shares of Common Stock issuable upon the exercise of the Warrants, shall
bear the following legend:
"THESE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), OR APPLICABLE STATE OR FOREIGN SECURITIES LAWS.
THESE SHARES MAY NOT BE TRANSFERRED OR RESOLD IN THE UNITED
STATES, OR TO A U.S. PERSON, OR TO OR FOR THE ACCOUNT OR
BENEFIT OF A U.S. PERSON (AS SUCH TERMS ARE DEFINED IN RULE
902 OF REGULATION S UNDER THE 1933 ACT) FOR A PERIOD OF ONE
YEAR EXPIRING ON AUGUST 28, 2001, EXCEPT IN ACCORDANCE WITH
THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT OR UNLESS
REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS THE HOLDER PROVIDES THE COMPANY WITH AN OPINION
FROM COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE AT THE TIME OF SUCH
TRANSFER. HEDGING TRANSACTIONS INVOLVING THESE SHARES MAY NOT
BE CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933 ACT."
(f) Warrants Legend. The Warrants shall bear the
following 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 (THE "1933 ACT"), OR APPLICABLE STATE OR
FOREIGN SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE TRANSFERRED
OR RESOLD IN THE UNITED STATES, OR TO A U.S. PERSON, OR TO OR
FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON (AS SUCH TERMS ARE
DEFINED IN RULE 902 OF REGULATION S UNDER THE 1933 ACT) AND
THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S.
PERSON FOR A PERIOD OF ONE YEAR EXPIRING ON AUGUST 28, 2001,
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER
THE 1933 ACT OR UNLESS REGISTERED UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE HOLDER PROVIDES
THE COMPANY WITH AN OPINION FROM COUNSEL ACCEPTABLE TO THE
COMPANY STATING THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE AT THE TIME OF SUCH TRANSFER. HEDGING TRANSACTIONS
INVOLVING THIS WARRANT OR THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE 1933 ACT."
(g) Note Legend. The Note shall bear the following
legend:
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"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE OR
FOREIGN SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES
ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE TRANSFERRED
OR RESOLD IN THE UNITED STATES, OR TO A U.S. PERSON, OR TO OR
FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON (AS SUCH TERMS ARE
DEFINED IN RULE 902 OF REGULATION S UNDER THE 1933 ACT) FOR A
PERIOD OF ONE YEAR EXPIRING ON AUGUST 28, 2001, EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933
ACT OR UNLESS REGISTERED UNDER THE 1933 ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS THE HOLDER PROVIDES THE
COMPANY WITH AN OPINION FROM COUNSEL ACCEPTABLE TO THE COMPANY
STATING THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE AT
THE TIME OF SUCH TRANSFER. HEDGING TRANSACTIONS INVOLVING THIS
NOTE OR THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933
ACT."
(h) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber. 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. To the
knowledge of the Subscriber, the offer to sell the Securities was not the result
of "directed selling efforts" (as that term is defined in Regulation S) by any
Distributor (as that term is defined in Regulation S) or any affiliate thereof.
(i) Offshore Transaction. Subscriber further
represents and warrants to Company as follows:
(i) Subscriber is not, and at the time the
offer to purchase the Securities was made to Subscriber was not, a "U.S.
Person", as that term is defined under Regulation S of the 1933 Act ("Regulation
S").
(ii) Subscriber is outside of the United
States, as of the date of the execution of this Subscription Agreement.
(iii) No resale of any of the Securities
subscribed for under this Agreement has been pre-arranged with a purchaser in
the United States.
(iv) Subscriber is not a Distributor (as that
term is defined under Regulation S) and is not purchasing Securities with the
intent of distributing the Securities on behalf of the Company or a Distributor
or any of their affiliates, and to the knowledge of the Subscriber there is no
Distributor of the Securities.
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(v) Subscriber is purchasing the Securities for
its own account (and/or for the account of other non-U.S. Persons who are
outside of the United States) and not for the account or benefit of any U.S.
Person.
(vi) Subscriber hereby covenants and agrees to
transfer or resell any of the Securities only in accordance with the provisions
of Regulation S including, without limitation, Rules 902(c), 902(d), 902(g),
902(h), 902(k), 903(a), 903(b)(3) and 903(b)(5) thereof, pursuant to
registration of the Securities under the 1933 Act or pursuant to an available
exemption from registration under the 1933 Act.
(vii) Subscriber hereby covenants and agrees
not to engage in hedging transactions with regard to the Securities unless in
compliance with the 1933 Act.
(viii) The certificates representing the
Securities will bear the legends in Sections 1(e), 1(f) and 1(g) above.
(j) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing Date (as hereinafter defined), shall be true and
correct as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or prospects or condition (financial
or otherwise) of the Company.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable.
Schedule 2(b) annexed hereto is a description of the authorized capitalization
of the Company and the equity and rights to acquire equity outstanding as of
July 31, 2000.
(c) Authority; Enforceability. This Agreement has
been duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and the Company has full
corporate power and authority necessary to enter into this Agreement and to
perform its obligations hereunder and all other agreements entered into by the
Company relating hereto.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other Written
Information.
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(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the NASD, NASDAQ or the
Company's Shareholders is required for execution of this Agreement, and all
other agreements entered into by the Company relating thereto, including,
without limitation issuance and sale of the Securities, and the performance of
the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this Agreement,
neither the issuance and sale of the Securities nor the performance of its
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach
of, or constitute a default (or an event which with the giving of notice or the
lapse of time or both would be reasonably likely to constitute a default) under
(A) the articles of incorporation, charter or bylaws of the Company or any of
its affiliates, (B) to the Company's knowledge, any decree, judgment, order,
law, treaty, rule, regulation or determination applicable to the Company or any
of its affiliates of any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its affiliates or over the
properties or assets of the Company or any of its affiliates except as to
foreign law applicable to the Subscriber, (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; 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.
(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 State laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Note is converted, and the Warrants are exercised, the
Securities will be duly and validly issued, fully paid and nonassessable (and if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted, provided that the
Subscriber complies with the Prospectus delivery requirements);
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company;
(iv) will not subject the holders thereof to
personal liability by reason of being such holders; and
(h) Litigation. Except as set forth in Schedule 2(h)
hereto, there is no pending or, to the best knowledge of the Company, threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any of its
affiliates that would affect the execution by the Company or the performance by
the Company of its obligations under this Agreement, and all other agreements
entered into by the Company relating hereto.
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(i) Disability. The Company has no knowledge of any
impediment, nor is there any present impediment which would or could prevent the
Company from becoming a fully reporting company with a class of common stock
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "1934 Act").
(j) No Market Manipulation. The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued.
(k) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective dates
which information is required to be disclosed therein. Since the date of the
financial statements included in the Reports, and except as modified in the
Other Written Information, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed in the Reports.
The Reports and Other Written Information do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
(l) Dilution. The number of Shares issuable upon
conversion of the Note may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the trading
price of the Common Stock declines prior to conversion of the Note. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Note and exercise of the Warrants is
binding upon the Company and enforceable, except as otherwise described in this
Subscription Agreement or the Note, regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
(m)Stop Transfer. The Securities are restricted
securities as of the date of this Agreement. The Company will not issue any stop
transfer order or other order impeding the sale and delivery of the Securities
at such time as the Securities are registered for public sale or an exemption
from registration is available.
(n) Defaults. Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation or ByLaws. Neither
the Company nor any of its subsidiaries is (i) in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a material adverse effect on the Company, (ii) in default with
respect to any order of any court, arbitrator or governmental body or subject to
or party to any order of any court or governmental authority arising out of any
action, suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or (iii) to
its knowledge in violation of any statute, rule or regulation of any
governmental authority which violation would have a material adverse effect on
the Company.
(o) No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the 1933
6
Act which would prevent the Company from selling the Securities under the 1933
Act, or any applicable exchange-related stockholder approval provisions. Nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.
(p) 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 Act) in connection with the offer
or sale of the Securities.
(q) Listing. The Company's Common Stock is listed for
trading on the OTC Pink Sheets ("Pink Sheets") and satisfies all requirements
for the continuation of such listing. The Company has not received any notice
that its common stock will be delisted from the Pink Sheets or that the Common
Stock does not meet all requirements for the continuation of such listing.
(r) Offshore Transaction. The Company further
represents and warrants to Subscriber as follows:
(i) The Company is not a reporting issuer as
defined by Rule 902 of Regulation S.
(ii) The Company has not offered the Securities
to any person in the United States or to any U.S. Person (as that term is
defined in Regulation S).
(iii) In connection with the offering of the
Securities, the Company has not engaged in any "directed selling efforts" (as
that term is defined in Regulation S) nor has the Company conducted any general
solicitation relating to the offering of the Securities to persons residing
within the United States or to U.S. Persons (as that terms is defined in
Regulation S).
(iv) The Company is not a Distributor (as that
term is defined under Regulation S) and is not issuing the Securities with the
intent of distributing the Securities on behalf of any Distributor or any
affiliate thereof, and to the knowledge of the Company there is no Distributor
of the Securities.
(v) Pursuant to Rule 903(c)(3)(iii)(B)(4) under
the 1933 Act, the Company hereby agrees for the benefit of all holders of the
Securities that it will refuse to register any transfer of the Securities not
made in accordance with the provisions of Regulation S and this Subscription
Agreement.
(s) 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, will be true and correct
as of the Closing Date, and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
3. Regulation S Offering. This Offering is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded by
Regulation S promulgated thereunder. On the Closing Date, the Company will
provide an opinion acceptable to Subscriber from the Company's legal counsel
opining on the availability of the Regulation S exemption as it relates to the
offer and issuance of the Securities. A form of the legal opinion is annexed
hereto as Exhibit C. The Company will provide, at
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the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrants.
4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to dispose of such Securities pursuant to Rule 144(k) under the Act, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the Act. The Company agrees to cooperate with the Subscriber in
connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested representations from the Subscriber and
selling broker, if any.
5. Redemption. The Company may not redeem the Securities
without the consent of the holder of the Securities except as otherwise
described herein.
6. Fees/Warrants.
(a) The Company shall pay to counsel to the
Subscriber its fee of $17,000 ($8,500 of which has already been paid) for
services rendered to Subscribers in reviewing this Agreement and other
Subscription Agreements for aggregate subscription amounts of up to $500,000
(the "Initial Offering"), and acting as escrow agent for the Initial Offering.
The Company will pay a cash fee in the amount of ten percent (10%) of the
Purchase Price and Put Purchase Price designated on the signature page hereto
("Finder's Fee") and of the actual cash proceeds received by the Company in
connection with the exercise of the Warrants issued in connection with the
Initial Offering ("Initial Warrants") and Warrants issuable in connection with
the Put ("Put Warrants") ("Warrant Exercise Compensation") to the Finders
identified on Schedule B hereto. Collectively, the Initial Warrants and Put
Warrants are referred to herein as Warrants. The Finder's Fee must be paid each
Closing Date and Put Closing Date. The Warrant Exercise Compensation must be
paid within ten (10) days of Warrant exercise to the Finders identified on
Schedule B hereto. The Finder's Fee and legal fees will be payable out of funds
held pursuant to a Funds Escrow Agreement to be entered into by the Company,
Subscriber and an Escrow Agent.
(b) The Company will also issue and deliver to the
Warrant Recipients, Warrants in the amounts designated on Schedule B hereto in
connection with the Initial Offering and exercise of the Put. A form of Warrant
is annexed hereto as Exhibit D. The per share "Purchase Price" of Common Stock
as defined in the Warrant shall be equal to the lowest bid price of the Common
Stock as reported on the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Market System, American Stock Exchange, 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"), or
such other principal market or exchange where the Common Stock is listed or
traded for the ten (10) trading days preceding but not including the Closing
Date or Put Closing Date, as the case may be. The aggregate number of Common
Shares purchasable upon exercise of the Initial Warrants and Put Warrants is
equal to 12% of the Common Shares issued upon conversion of the Notes and Put
Notes. The Warrants must be delivered no later than the Delivery Date (defined
in Section 9.1(b) hereof) in relation to the relevant Conversion Date. In the
event the Notes issued in the Initial Offering are not fully converted as of the
Maturity Date of the Notes, then at the election of each Warrant Recipient, the
Maturity Date (as defined in the Note) shall be deemed a Conversion Date (as
defined in the Note) and the Conversion Price (as defined in the Note) will be
deemed to be 78% of the average of the three lowest closing bid prices of the
Common Stock as reported by the Principal Market for the ten trading days
preceding but not including the Maturity Date. Failure to timely deliver the
Finder's Fee, Warrant Exercise Compensation or the Warrants shall be deemed an
Event of Default as defined in Article III of the Note and Put Note.
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(c) The Finder's Fee and legal fees will be paid to
the Finders and attorneys only when, as, and if a corresponding subscription
amount is released from escrow to the Company. All the representations,
covenants, warranties, undertakings, and indemnification, other rights including
but not limited to registration rights, and rights in Section 9 hereof, made or
granted to or for the benefit of the Subscriber are hereby also made and granted
to the Warrant Recipients in respect of the Warrants and Company Shares issuable
upon exercise of the Warrants.
7.1. Covenants of the Company. The Company covenants and
agrees with the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange 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) The Company shall promptly secure the listing of
the Company Shares, and Common Stock issuable upon the exercise of the Warrants
upon each national securities exchange, or 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 so long as any other shares of Common
Stock shall be so listed. The Company will use its best efforts to maintain the
listing of its 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 National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company will provide the Subscriber copies of
all notices it receives notifying the Company of the threatened and actual
delisting of the Common Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD 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
Subscriber and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the
effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 10.1(iv) hereof, the Company will
(i) cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of Shares registered
pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Act or the Exchange 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 later of (y) two (2) years
after the effective date of the Registration Statement on Form SB-2 or such
other Registration Statement described in Section 10.1(iv) hereof, or (z) the
sale by the Subscribers of all the Company Shares issuable by the Company
pursuant to this Agreement. Until at least two (2) years after the Warrants have
been exercised, the Company will use its commercial best efforts to initiate the
listing of the Common Stock on the NASD OTC Bulletin Board and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and NASDAQ.
(e) The Company undertakes to use the proceeds of the
Subscriber's funds for working capital and expenses of this offering.
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8. Covenants of the Company and Subscriber Regarding
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Indemnification.
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(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber, Subscriber'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 Subscriber which results,
arises out of or is based upon (i) any misrepresentation by Company or breach of
any warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or Reports or other Written Information; or (ii) any breach or
default in performance by Company of any covenant or undertaking to be performed
by Company hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company at all times against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company which results, arises out of or
is based upon (a) any misrepresentation by Subscriber in this Agreement or in
any Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall
apply to the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion of Note.
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(a) Upon the conversion of the Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or its
nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of
common stock issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that the Shares will be
unlegended, free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Company Shares provided the
Subscriber has notified the Company of Subscriber's intention to sell the Shares
and the Shares are included in an effective registration statement or are
otherwise exempt from registration when sold.
b. Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying an
executed and completed Notice of conversion ("Notice of Conversion") to the
Company. 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 or cause the transfer agent
to transmit the Company's Common Stock certificates representing the Shares
issuable upon conversion of the Note (and a Note representing the balance of the
Note not so converted, if requested by Subscriber) to the Subscriber via express
courier for receipt by such Subscriber within five business days after receipt
by the Company of the Notice of Conversion (the "Delivery Date"). To the extent
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.
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c. The Company understands that a delay in the
delivery of the Shares in the form required pursuant to Section 9 hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the Delivery
Date or 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 late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment charges described
above shall be payable through the date notice of revocation or rescission is
given to the Company.
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.
9.2. Mandatory Redemption. In the event the Company may not
issue Shares on a Delivery Date or at any time when the Note is convertible, for
any reason, then at the Subscriber's election, the Company must pay to the
Subscriber five (5) business days after request by the Subscriber or on the
Delivery Date (if requested by the Subscriber) a sum of money determined by
multiplying the principal of the Note not convertible by 130%, 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 five (5) 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.
9.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this proviso 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 proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99%. The Subscriber may void the conversion limitation
described in this Section 9.3 upon 75 days prior notice to the Company. The
Subscriber may allocate which of the equity of the Company deemed beneficially
owned by the Subscriber shall be included in the 4.99% amount described above
and which shall be allocated to the excess above 4.99%.
11
9.4. Injunction - Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of said Note shall have been sought and obtained and
the Company posts a surety bond for the benefit of such Subscriber in the amount
of 130% of the amount of the Note, which is 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 it obtains judgment.
9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after 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 which the Subscriber anticipated receiving 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.
10.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing
151 days after the Closing Date, but not later than three years after the
Closing Date ("Request Date"), the Company, upon a written request therefor from
any record holder or holders of more than 50% of the aggregate of the Company's
Shares issued and issuable upon conversion of the Note and the Put Notes which
are actually issued (the Securities, Put Securities and securities issued or
issuable by virtue of ownership of the Securities, and Put Securities, being,
the "Registrable Securities"), shall prepare and file with the SEC a
registration statement under the Act covering the Registrable Securities which
are the subject of such request, unless such Registrable Securities are the
subject of an effective registration statement. In addition, 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 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 10.1(i). As
a condition precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests. The obligation of the Company under this Section 10.1(i)
shall be limited to one registration statement.
(ii) If the Company at any time proposes to
register any of its securities under the 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 Subscriber or Holder pursuant to an effective registration statement, each
such time it will give at least 30 days' prior written notice to the record
holder of the Registrable Securities of its
12
intention so to do. Upon the written request of the holder, received by the
Company within 30 days after the giving of any such notice by the Company, to
register any of the Registrable Securities, 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"). In the event that any
registration pursuant to this Section 10.1(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 forgoing provisions, or Section 10.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 10.1(ii) without thereby incurring any
liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(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, such
written request shall be deemed to have been given pursuant to Section 10.1(ii)
rather than Section 10.1(i), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section 10.1(ii)
except that the Company or underwriter, if any, may not withdraw such
registration or limit the amount of Registrable Securities included in such
registration.
(iv) The Company shall file with the Commission
within 90 days of the Closing Date (the "Filing Date"), and use its reasonable
commercial efforts to cause to be declared effective a Form SB-2 registration
statement (or such other form that it is eligible to use) within 150 days of the
Closing Date in order to register the Registrable Securities for resale and
distribution under the Act. The registration statement described in this
paragraph must be declared effective by the Commission within 150 days of the
Closing Date (as defined herein) ("Effective Date"). The Company will register
not less than 45,000,000 shares of Common Stock in the aforedescribed
registration statement of which not less than 33,000,000 Shares shall be
reserved for issuance upon conversion of the Notes and exercise of the Warrants
issuable in connection with the Notes and the remaining registered Shares shall
be reserved for issuance upon conversion of the Put Notes and exercise of the
Warrants issuable in connection with the Put Notes. The Registrable Securities
shall be reserved and set aside exclusively for the benefit of the Subscriber
and Warrant Recipients, as the case may be, and not issued, employed or reserved
for anyone other than the Subscriber and Warrant Recipients. Such registration
statement will be promptly amended or additional registration statements will be
promptly filed by the Company as necessary to register additional Company Shares
to allow the public resale of all Common Stock included in and issuable by
virtue of the Registrable Securities. No securities of the Company other than
the Registrable Securities will be included in the registration statement
described in this Section 10.1(iv).
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of Registrable Securities copies of all
filings and Commission letters of comment;
13
(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 the latest of: (i) six months after the latest
exercise period of the Warrants; (ii) twelve months after the Maturity Date of
the Note or Put Note; or (iii) two years after the Closing Date, and comply with
the provisions of the Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, 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) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each
underwriter under such registration statement at any time when a prospectus
relating thereto is required to be delivered under the 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;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, 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,
underwriter, attorney, accountant or agent in connection with such registration
statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand
for registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration hereunder,
the 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. In connection with each registration
pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public
offering, the Company and the Seller agree to enter into a written agreement
with the managing underwriter in such form and containing such provisions as are
customary in the securities
14
business for such an arrangement between such underwriter and companies of the
Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber
agree that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 90 days after
written request by the Holder and not declared effective by the Commission
within 150 days after such request [or the Filing Date and Effective Date,
respectively, in reference to the Registration Statement on Form SB-2 or such
other form described in Section 10.1(iv)], and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement described in Sections 10.1(i) or 10.1(ii) is not
filed within 90 days of such written request, or is not declared effective by
the Commission on or prior to the date that is 120 days after such request, or
(ii) the registration statement on Form SB-2 or such other form described in
Section 10.1(iv) is not filed on or before the Filing Date or not declared
effective on or before the sooner of the Effective Date, or within five days of
receipt by the Company of a communication from the Commission that the
registration statement described in Section 10.1(iv) will not be reviewed, or
(iii) any registration statement described in Sections 10.1(i), 10.1(ii) or
10.1(iv) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
30 days in the aggregate per year but not more than 20 consecutive calendar days
(defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) (each such event referred to in clauses (i),
(ii) and (iii) of this Section 10.4 is referred to herein as a "Non-Registration
Event"), then, for so long as such Non-Registration Event shall continue, the
Company shall pay in cash as Liquidated Damages to each holder of any
Registrable Securities an amount equal to one (1%) percent per month (ratably
applied for any part thereof) for the first forty-five (45) days and two percent
(2%) per month (ratably applied for any part thereof) thereafter during the
pendency of such Non-Registration Event, of (i) the principal of the Notes
issued in connection with the Initial Offering, whether or not converted; (ii)
the principal amount of Put Notes actually issued, whether or not converted,
then owned of record by such holder or issuable because of a prior Put Notice
(as hereinafter defined), as of or subsequent to the occurrence of such
Non-Registration Event. Payments to be made pursuant to this Section 10.4 shall
be due and payable immediately upon demand in immediately available funds. In
the event a Mandatory Redemption Payment is demanded from the Company by the
Holder pursuant to Section 9.2 of this Subscription Agreement, then the
Liquidated Damages described in this Section 10.4 shall no longer accrue on the
portion of the Purchase Price underlying the Mandatory Redemption Payment, from
and after the date the Holder receives the Mandatory Redemption Payment. It
shall be deemed a Non-Registration Event to the extent that all the Common Stock
underlying the Registrable Securities is not included in an effective
registration statement as of and after the Effective Date at the Conversion
Prices in effect from and after the Effective Date.
10.5. Expenses. All expenses incurred by the Company in
complying with Section 10, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional counsel,
if any.
The Company will pay all Registration Expenses in connection
with the registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne by
the Seller and may be apportioned among the Sellers in proportion to the
15
number of shares sold by the Seller relative to the number of shares sold under
such registration statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, 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 Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter 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 Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the 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 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 Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the
16
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c) 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 10.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
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 Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 10.6 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 10.6 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
11.1. Obligation To Purchase.
----------------------
(a) The Subscriber agrees to purchase from the
Company convertible notes ("Put Notes") in up to the principal amount set forth
on the signature page hereto for up to the aggregate amount of Put Note
principal designated on the signature page hereto (the "Put"). Collectively the
Put Notes, Warrants issuable in connection with the Put, and Common Stock
issuable upon conversion of the Put Notes and exercise of the Warrants are
referred to as the "Put Securities".) The Warrants issuable in connection with
the Put Notes are referred to herein as Warrants or Put Warrants. Except as
described in Section 11.1(c) hereof, each Put Note will be identical to the Note
except that the Maturity Date will be three years from
17
each Put Closing Date (as hereinafter defined). The Holders of the Put
Securities are granted all the rights, undertakings, remedies, liquidated
damages and indemnification granted to the Subscriber in connection with the
Note, including but not limited to, the rights and procedures set forth in
Section 9 hereof and the registration rights described in Section 10 hereof.
(b) The agreement to purchase the Put Notes is
contingent on the following any, some or all of which may be waived by the
Subscriber:
(i) As of a Put Date and Put Closing Date,
200% of the Common Shares issuable upon conversion of a Put Note (employing the
Conversion Price as of such date) and sufficient Common Shares to allow the full
exercise of the Put Warrants issuable in connection with the Put Note (assuming
exercise of such Put Warrants on such date) must be included in an effective
registration statement described in Section 10 hereof.
(ii) As of a Put Date and Put Closing Date,
the Company will be a full reporting company with the class of Shares registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934.
(iii) No material adverse change in the
Company's business or business prospects shall have occurred after the date of
the most recent financial statements included in the Reports. Material adverse
change is defined as any effect on the business, operations, properties,
prospects, or financial condition of the Company that is material and adverse to
the Company and its subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement, or any other agreement entered into or to be entered into
in connection herewith, in any material respect. There shall not have been a
material negative restatement of the Company's financial statements referred to
in Paragraph 1(a) hereof.
(iv) The non-occurrence (whether or not
continuing) of an Event of Default as described in Article III of the Note.
(v) The execution and delivery to the
Subscriber of a certificate signed by its chief executive officer representing
the truth and accuracy of all the Company's representations and warranties
contained in this Subscription Agreement as of the Put Date, and Put Closing
Date and confirming the undertakings contained herein, and representing the
satisfaction of all contingencies and conditions required for the exercise of
the Put.
(vi) The Company's listing on, and
compliance with the listing requirements of a Principal Market other than the
Pink Sheets.
(vii) The Company's not having received
notice from the OTC Bulletin Board (or any Principal Market) that the Company is
not in compliance with the requirements for continued listing which notice has
not been resolved in a manner affirming the Company's compliance with such
requirements.
18
(viii) The execution by the Company and
delivery to the Subscriber of all required documents in relation to the Put set
forth in Section 11.2 below and such other documents which may be reasonably
requested by the Subscriber.
(c) Subject to the adjustments set forth in the Note,
the Conversion Price of the Put Note shall be as follows:
(i) The Conversion Price of the initial
5.263% of the aggregate Put Note Purchase Price set forth on the signature page
hereto shall be the lesser of 80% of the average of the three lowest closing bid
prices of the Common Stock on the Principal Market for the thirty (30) trading
days prior to the Put Closing Date or 70% of the average of the three lowest
closing bid prices of the Common Stock on the Principal Market for the sixty
(60) trading days prior to the Conversion Date.
(ii) The Conversion Price of the balance of
the Put Note Purchase Price shall be 72% of the average of the three lowest
closing bid prices of the Common Stock on the Principal Market for the fifteen
(15) trading days prior to the Conversion Date subject to the following
increases for the designated time periods:
(x) If during the seventh (7th)
through twelfth (12th) months after the effectiveness of the registration
statement described in Section 10.1(iv) hereof, the average closing bid price of
the Common Stock for twenty-two (22) consecutive trading days as reported on the
Principal Market is more than $.40, then for all Put Notices issued during such
period, the Conversion Price shall be 75% of the average of the three (3) lowest
closing bid prices of the Common Stock on the Principal Market for the fifteen
(15) trading days prior the Conversion Date of such Put Notes.
(y) If during the thirteenth (13th)
through eighteenth (18th) months after the effectiveness of the registration
statement described in Section 10.1(iv) hereof, the average closing bid price of
the Common Stock for twenty-two (22) consecutive trading days as reported on the
Principal Market is more than $.70, then for all Put Notices issued during such
period, the Conversion Price shall be 78% of the average of the three (3) lowest
closing bid prices of the Common Stock on the Principal Market for the fifteen
(15) trading days prior the Conversion Date of such Put Notes.
(z) If during the nineteenth (19th)
through thirty-sixth (36th) months after the effectiveness of the registration
statement described in Section 10.1(iv) hereof, the average closing bid price of
the Common Stock for twenty-two (22) consecutive trading days as reported on the
Principal Market is more than $1.00, then for all Put Notices issued during such
period, the Conversion Price shall be 80% of the average of the three (3) lowest
closing bid prices of the Common Stock on the Principal Market for the fifteen
(15) trading days prior the Conversion Date of such Put Notes.
11.2. Exercise of Put.
---------------
(a) The Company's right to exercise the Put commences
on the actual effective date of the registration statement described in Section
10.1(iv) hereof and expires three (3) years after the Effective Date ("Put
Exercise Period").
(b) The Put may be exercised by the Company by giving
the Subscriber written notice of exercise ("Put Notice") not more often than one
time each thirty (30) consecutive calendar days
19
during the Put Exercise Period in relation to up to the maximum principal amount
of Put Note that the Subscriber has agreed to purchase subject to the limits
described in this Agreement. The date a Put Notice is given is a Put Date. Each
Put Notice must be accompanied by (i) the officer's certificate described in
Section 11.1(b)(v) above; (ii) a legal opinion relating to the Put Securities in
form reasonably acceptable to Subscriber; and (iii) such other documents and
certificates reasonably requested by the Subscriber.
(c) Unless otherwise agreed to by the Subscribers,
Put Notices must be given to all Subscribers in proportion to the amounts agreed
to be purchased by all Subscribers undertaking to purchase Put Notes in the
Initial Offering.
(d) Payment by the Subscriber in relation to a Put
Notice relating to a Put must be made within fourteen (14) business days after
receipt of a Put Notice and the items set forth in Section 11.2(b) above.
Payment will be made against delivery to the Subscriber or an escrow agent to be
agreed upon by the Company and Subscriber, of the Put Securities, and delivery
to the Finders of the Put Commissions relating to the Put being exercised.
(e) Maximum Put Exercise. The Company may not give
the Subscriber a Put Notice in connection with that amount of Put Note which
could be converted as of the Put Date into a number of shares of Common Stock
which would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Subscriber and its affiliates on such Put Date, and
(ii) the number of shares of Common Stock issuable upon the conversion of the
Put Note with respect to which the determination of this proviso is being made
on a Put 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 Put Date. For the purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Subject to the foregoing, the Subscriber shall not be limited
to aggregate conversions of only 4.99%. The Subscriber may revoke the
restriction described in this paragraph upon 75 days prior notice to the
Company. The Subscriber shall have the right to determine which of the equity of
the Company deemed beneficially owned by the Subscriber shall be included in the
4.99% described above and which shall be allocated to the excess above 4.99%.
The aggregate amount of all Put Notices to all Subscribers of the Initial
Offering may not exceed $9,500,000. The aggregate maximum principal amount of
Put Notes for which Put Notices may be given during any thirty (30) consecutive
calendar days to all Subscribers in the Initial Offering may not exceed twelve
(12%) of the average of the closing bid prices of the Common Stock reported on a
Principal Market (other than the Pink Sheets), during the thirty (30)
consecutive calendar days prior to the giving of the Put Notice, multiplied by
the aggregate reported trading volume of the Company's Common Stock during such
prior month ("Trading Volume Limitation"). The foregoing Trading Volume
Limitation notwithstanding and provided all other preconditions to Put exercise
are satisfied, the Company may exercise the Put for up to the amount designated
on the signature page hereto as "Section 11.2(e) Put Amount" during the thirty
(30) consecutive calendar days following the actual effective date of the
registration statement described in Section 10.1(iv) hereof. In any event, the
Conversion Price of the initial Put Purchase Price amount equal to the Section
11.2(e) amount shall be the same Conversion Price as for the Notes issued in the
Initial Offering.
11.3. Put Finders Fees. The Finders identified on Schedule B
hereto shall receive on each Put Closing Date aggregate Finder's Fees as
described in Section 6 hereof in connection with the closing of each Put as set
forth on Schedule B hereto. Put Finder's Fees shall be payable only in
connection with the Put Purchase Price actually paid by a Subscriber. The Put
Finder's Fees and reasonable legal fees for
20
counsel to the Subscriber shall be paid at each Put Closing. The minimum legal
fee to be paid by the Company to one counsel for the Subscribers to the Initial
Offering is $2,500 per Put Closing.
11.4. Warrants.
--------
(a) The Company shall issue Warrants to the Warrant
Recipients in the amounts designated on Schedule B hereto and as described in
Section 6 of this Subscription Agreement. The Put Warrants will be in the form
of Exhibit D hereto. The Put Warrants will be exercisable immediately upon
issuance and for five years thereafter.
(b) In the event, for any reason except for
Subscriber's unwillingness to purchase greater amounts of Put Notes because of
the beneficial ownership limitations of Section 11.2(e), the Put in the amount
of at least 21.05% of the Put Note Purchase Price set forth on the signature
page ("Minimum Principal") has not been exercised as of the first anniversary of
the Effective Date, then the Company will issue Put Warrants to the Warrant
Recipients in an amount determined by subtracting the actual amount of Put Note
Principal for which Put Notices have been validly given from the Minimum
Principal (the result being the "Unexercised Put") and issuing Put Warrants in
connection with such Unexercised Put as if the amount of Put Notes issuable in
connection with the Unexercised Put were actually issued and the first
anniversary of the Closing Date was the Conversion Date of such Put Notes.
(c) In the event, for any reason except for
Subscriber's unwillingness to purchase greater amounts of Put Notes because of
the beneficial ownership limitations of Section 11.2(e), the Put in the amount
of 42.1% of the Put Note Purchase Price set forth on the signature page hereto
("Majority Principal") has not been exercised as of the second anniversary of
the Effective Date, then the Company will issue Put Warrants to the Warrant
Recipients in an amount determined by subtracting the actual amount of Put Note
Principal for which Put Notices have been validly given and the amount of Put
Note Principal deemed converted pursuant to Section 11.4(b) above from the
Majority Principal (the result being the "Interim Unexercised Put") and issuing
Put Warrants in connection with such Interim Unexercised Put as if the amount of
Put Notes issuable in connection with the Interim Unexercised Put were actually
issued and the second anniversary of the Closing Date was the Conversion Date of
such Put Notes.
(d) In the event, for any reason except for
Subscriber's unwillingness to purchase greater amounts of Put Notes because of
the beneficial ownership limitations of Section 11.2(e), the entire Put in the
amount of 63.157% of the Put Note Purchase Price set forth on the signature page
hereto ("Maximum Principal") has not been exercised as of the third anniversary
of the Effective Date, then the Company will issue Put Warrants to the Warrant
Recipients in an amount determined by subtracting the actual amount of Put Note
Principal for which Put Notices have been validly given and the amount of Put
Note Principal deemed converted pursuant to Sections 11.4(a) and 11.4(b) above
from the Maximum Principal (the result being the "Unexercised Put Balance") and
issuing Put Warrants in connection with such Unexercised Put Balance as if the
amount of Put Notes issuable in connection with the Unexercised Put Balance were
actually issued and the third anniversary of the Closing Date was the Conversion
Date of such Put Notes.
(e) In the event the Company has properly given a Put
Notice and the Subscriber has wrongfully failed to comply with the Put Notice
then after such default by the Subscriber Put Warrants otherwise issuable
pursuant to Sections 11.4(b), 11.4(c) and 11.4(d) will not be issued with
respect to anniversaries of the Effective Date occurring after such default.
21
(f) The Conversion Price to be employed when
calculating the number of Common Shares issuable upon exercise of Put Warrants
described in Sections 11.4(b), 11.4(c) and 11.4(d) shall be 78% of the average
of the three lowest closing bid prices of the Common Stock as reported on the
Principal Market for the fifteen (15) trading days prior to the assumed
Conversion Date.
(g) Failure to timely pay Finder's Fees, legal fees
or deliver any Warrants issuable in connection with the Initial Offering and Put
shall be deemed an Event of Default under the Note and a material breach of the
Company's obligations hereunder, for which no notice to cure is required.
11.5 Assignment of Put. Anything to the contrary herein
notwithstanding, the Subscriber may assign to another party either before or
after exercise of the Put by the Company, the Subscriber's right to pay all or
some of the Put Purchase Price and receive the corresponding Put Securities.
Such assignment must be in writing. The assignment will be effective only if the
assignee consents in writing to be bound by all of the Subscriber's obligations
to the Company in connection with such assignment. Upon an effective assignment,
the assignee will succeed to all of the Subscriber's rights under this
Subscription Agreement, and all other agreements relating to the assigned
portion of the Put.
12. (a) Right of First Refusal. Until 120 days after the
actual effective date of the Registration Statement described in Section
10.1(iv) hereof ("Actual Effective Date"), the Subscriber shall be given not
less than ten (10) business days prior written notice of any proposed sale by
the Company of its common stock or other securities or debt obligations except
as disclosed in the Reports or Other Written Information or stock or stock
options granted to employees or directors of the Company; or equity or debt
issued in connection wit h an acquisition of a business or assets by the
Company; or the Notes, Warrants or any shares of Common Stock issuable upon
conversion of the Notes or exercise of the Warrants; or any Permitted Financing
Warrants as hereinafter defined, or equity issued upon any exercise thereof; or
the issuance by the Company of stock in connection with the establishment of a
joint venture, partnership or licensing arrangement (these exceptions
hereinafter referred to as the "Excepted Issuances"). The Subscriber shall have
the right during the ten (10) business days following receipt of the notice to
agree to purchase an amount of Company Shares in the same proportion as being
purchased in the Initial Offering of those securities proposed to be issued and
sold, in accordance with the terms and conditions set forth in the notice of
sale. In the event such terms and conditions are modified during the notice
period, the Subscriber shall be given prompt notice of such modification and
shall have the right during the original notice period or for a period of ten
(10) business days following the notice of modification, whichever is longer, to
exercise such right. In the event the right of first refusal described in this
Section is exercised by the Subscriber and the Company thereby receives net
proceeds from such exercise, then commissions and fees will be paid by the
Company to the Finders in the same amounts as specified in the notice of sale.
(b) Offering Restrictions. Except with respect to the
Excepted Issuances and securities otherwise disclosed in the Reports or Other
Written Information, the Company will not issue any equity, convertible debt or
other securities which are or could be (by conversion or registration)
free-trading securities prior to the expiration of 180 days after the Actual
Effective Date (the "Exclusion Period"). This restriction shall not prohibit the
Company from issuing any equity, convertible debt or other securities prior to
the expiration of the Exclusion Period, provided that such equity, convertible
debt or other securities are not free-trading when issued and remain not
free-trading until the expiration of the Exclusion Period. The foregoing
notwithstanding, the Company may issue up to 8,333,333 common stock purchase
warrants in connection with any equity or debt financing of the Company and/or
any subsidiary for not less than
22
$500,000 of gross proceeds to the Company and/or any subsidiary provided (i)
that the per share exercise prices of such warrants is not less than $.10, $.15,
$.20 and $.25, respectively, for each one-quarter of such warrants, and (ii) the
Common Stock issuable upon exercise of such warrants will not be free-trading
until 90, 150, 210 and 270 days, respectively, after the Actual Effective Date
for each one-quarter of such warrants (warrants meeting these criteria are
referred to herein as "Permitted Financing Warrants").
13. Miscellaneous.
-------------
(a) Notices. All notices or other communications
given or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied (provided that a
copy is delivered by first class mail) to the party to receive the same at its
address set forth below or to such other address as either party shall hereafter
give to the other by notice duly made under this Section: (i) if to the Company,
to ICOA, Inc., 000 Xxxxxxx Xxxx, Xxxxx 0, Xxxxxxx, X.X. 00000, telecopier
number: (000) 000-0000, with a copy by telecopier only to Xxxxxx Xxxxxx LLP, 000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, telecopier number: (000) 000-0000, and
(ii) if to the Subscriber, to the name, address and telecopy number set forth on
the signature page hereto, with a copy by telecopier only to Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number:
(000) 000-0000. Any notice that may be given pursuant to this Agreement, or any
document delivered in connection with the foregoing may be given by the
Subscriber on the first business day after the observance dates in the United
States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur, the first two
days of the Feast of Tabernacles, Shemini Atzeret, Simchat Torah, the first two
and final two days of Passover and Pentecost, with such notice to be deemed
given and effective, at the election of the Subscriber on a holiday date that
precedes such notice. Any notice received by the Subscriber on any of the
aforedescribed holidays may be deemed by the Subscriber to be received and
effective as if such notice had been received on the first business day after
the holiday.
(b) Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Xxxxxxx, P.C.,
000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of
all conditions to Closing set forth in this Agreement. The closing date shall be
the date that subscriber funds representing the net amount due the Company from
the Purchase Price are transmitted by wire transfer to the Company (the "Closing
Date"). The closing date for the Put shall be the date on which Subscriber funds
representing the net amount due the Company from the Put Purchase Price is
transmitted to or on behalf of the Company ("Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement
represents 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. No right or obligation of either party shall be assigned by that party
without prior notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.
(e) Law Governing this Agreement. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing
23
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Agreement or
any other agreement delivered in connection herewith is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction.
The Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
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 of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Confidentiality. The Company agrees that it will
not disclose publicly or privately the identity of the Subscriber unless
expressly agreed to in writing by the Subscriber or only to the extent required
by law.
(h) Automatic Termination. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the tenth (10th) business day following the
date this Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
24
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.
ICOA, INC.
By: /s/ Xxxxxx Xxxxxxxxxxxxxx
---------------------------------
Xxxxxx Xxxxxxxxxxxxxx
President and Secretary
Dated: August 28, 2000
Purchase Price: $185,000.00
PUT
---
Put Note Purchase Price (aggregate): $3,515,000
Section 11.2(e) Put Amount: $185,000.00
ACCEPTED: Dated as of August 28, 2000
KESHET L.P. - Subscriber
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
By: /s/ illegible
------------------------------
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.
ICOA, INC.
By: /s/ Xxxxxx Xxxxxxxxxxxxxx
---------------------------------
Xxxxxx Xxxxxxxxxxxxxx
President and Secretary
Dated: August 28, 2000
Purchase Price: $57,500.00
PUT
---
Put Note Purchase Price (aggregate): $1,092,500
Section 11.2(e) Put Amount: $57,500.00
ACCEPTED: Dated as of August 28, 2000
NESHER LTD. - Subscriber
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
By:/s/ illegible
------------------------------
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.
ICOA, INC.
By: /s/ Xxxxxx Xxxxxxxxxxxxxx
---------------------------------
Xxxxxx Xxxxxxxxxxxxxx
President and Secretary
Dated: August 28, 2000
Purchase Price: $57,500.00
PUT
---
Put Note Purchase Price (aggregate): $1,092,500
Section 11.2(e) Put Amount: $57,500.00
ACCEPTED: Dated as of August 28, 2000
TALBIYA B. INVESTMENTS LTD. - Subscriber
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
By:/s/ illegible
------------------------------
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.
ICOA, INC.
By: /s/ Xxxxxx Xxxxxxxxxxxxxx
---------------------------------
Xxxxxx Xxxxxxxxxxxxxx
President and Secretary
Dated: August 28, 2000
Purchase Price: $200,000.00
PUT
---
Put Note Purchase Price (aggregate): $3,800,000
Section 11.2(e) Put Amount: $200,000.00
ACCEPTED: Dated as of August 28, 2000
TUSK INVESTMENTS, INC. - Subscriber
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
By:/s/ illegible
------------------------------
SCHEDULE B TO SUBSCRIPTION AGREEMENT
------------------------------------
-------------------------------------------- ----------------------------------------- ------------------------------------------
FINDERS INITIAL OFFERING PUT FINDER'S FEES
-------------------------------------------- ----------------------------------------- ------------------------------------------
ALON ENTERPRISES LTD. $40,000 (8%) $760,000 (8%)
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
-------------------------------------------- ----------------------------------------- ------------------------------------------
LIBRA FINANCE, S.A. $10,000 (2%) $190,000 (2%)
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
-------------------------------------------- ----------------------------------------- ------------------------------------------
TOTAL $50,000 (10%) $950,000 (10%)
-------------------------------------------- ----------------------------------------- ------------------------------------------
PROPORTIONATE SHARE OF AGGREGATE WARRANTS ISSUABLE
--------------------------------------------------
--------------------------------------------- ---------------------------------------- ------------------------------------------
WARRANT RECIPIENTS INITIAL WARRANTS* PUT WARRANTS*
--------------------------------------------- ---------------------------------------- ------------------------------------------
TALBIYA B. INVESTMENTS LTD. 60% 60%
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
--------------------------------------------- ---------------------------------------- ------------------------------------------
LIBRA FINANCE, S.A. 40% 40%
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
--------------------------------------------- ---------------------------------------- ------------------------------------------
TOTAL 100% 100%
--------------------------------------------- ---------------------------------------- ------------------------------------------
* The percentages in these columns represent the amount of common shares
purchasable upon exercise of the Warrants.
WARRANT EXERCISE COMPENSATION
-----------------------------
----------------------------------------------------------------- ---------------------------------------------------------------
FINDERS PROPORTIONATE SHARE OF 10% CASH
COMMISSIONS PAYABLE ON WARRANT
EXERCISE
----------------------------------------------------------------- ---------------------------------------------------------------
ALON ENTERPRISES LTD. 80%
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
----------------------------------------------------------------- ---------------------------------------------------------------
LIBRA FINANCE, S.A. 20%
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
----------------------------------------------------------------- ---------------------------------------------------------------
TOTAL 100%
----------------------------------------------------------------- ---------------------------------------------------------------
Schedule 2(b)
The following is description of the authorized capitalization of the Company and
the equity and rights to acquire equity outstanding as of July 31, 2000.
---------------------------------- ------------------------ --------------------
Class of Equity Number of Shares Number of Shares
Authorized at Issued at
July 31, 2000(1) July 31, 2000
---------------------------------- ------------------------ --------------------
---------------------------------- ------------------------ --------------------
Common Stock, $.005 par value(2) 50,000,000 38,780,607
---------------------------------- ------------------------ --------------------
As of July 31, 2000, there are no rights to acquire any equity of the
Company outstanding.
-----------------
1 Subsequent to July 31, 2000, the Company increased the number of authorized
shares of Common Stock to 150,000,000.
2 Subsequent to July 31, 2000, the Company changed the par value to $.0001
per share.
Schedule 2(h)
Except as set forth below, there is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under this Agreement, and all
other agreements entered into by the Company relating hereto.
Xxxxxxxx X. Xxxxxx v. ICOA, Inc. and Xxxxxx Xxxxxxxxxxxxxx, Superior Court, Kent
----------------------------------------------------------
County, RI, CA. No. KC98-951. Pursuant to a Stock Purchase Agreement between the
Company and the plaintiff dated June 24, 1997, the plaintiff purchased 200,000
shares of Common Stock of ICOA (the "Shares"). The Stock Purchase Agreement
provided the plaintiff with rights to redeem the Shares under certain
conditions. The plaintiff attempted to redeem the stock, the Company denied
liability, and the plaintiff filed suit. On October 18, 1999, a Judgment was
entered in the above referenced matter in the amount of $39,000 plus
pre-judgment interest of $3,744.00 plus $8,115.75 in attorneys' fees plus
pre-judgment interest. As of November 8, 1999, the total amount due was
$51,409.75. The Company is in the process of attempting to settle this matter,
and has offered the plaintiff $5,000 per month towards the debt owned. As a
condition of the settlement, the plaintiff will agree to stay execution on the
judgment for so long as the monthly payments are made. Should the plaintiff be
able to sell the Shares, the proceeds will be credited toward the debt owed.
Counsel for the plaintiff has agreed in principle to the settlement, pending
further information regarding the specific details of the settlement
transaction.
EXHIBIT A
---------
See Exhibits 10.3(a), 10.3(b), 10.3(c) and 10.3(d)
EXHIBIT C
---------
The Chrysler Building
000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000
(000)000-0000 Fax (000)000-0000
August 28, 2000
TO: SUBSCRIBERS AND WARRANT RECIPIENTS IDENTIFIED ON
SCHEDULE A HERETO
We have acted as counsel to ICOA, Inc., a Nevada corporation (the
"Company"), in connection with the sale on the date hereof by the Company of
$500,000 principal amount of Convertible Notes, the sale of Convertible Put
Notes (the Convertible Put Notes, together with the Convertible Notes are
referred to herein as the "Notes") and the issuance of common stock purchase
warrants ("Warrants") to Subscribers and Warrant Recipients identified on
Schedule A hereto (the "Purchasers"). Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Subscription
Agreement (the "Agreement") by and between the Company and the Subscribers
entered into at or about the date hereof. The Agreement and the agreements and
instruments listed below on lines (a) through (g), inclusive, are sometimes
hereinafter referred to collectively as the "Documents", and the Documents
listed below on lines (a), (b), (c) and (d) are thereafter referred to
collectively as the "Transaction Documents".
In connection with the opinions expressed herein, we have made such
examination of law as we considered appropriate or advisable for purposes
hereof. As to matters of fact material to the opinions expressed herein, we have
relied, with your permission, upon the representations and warranties as to
factual matters contained in, and made by the Company and the Purchasers
pursuant to, the Transaction Documents and upon certificates and statements of
certain government officials and of officers of the Company as described below.
We have also examined originals or copies of certain agreements and corporate
documents or records of the Company as follows:
(a) Form of Agreement;
(b) Form of Notes;
(c) Form of Common Stock Purchase Warrants;
(d) Funds Escrow Agreement;
(e) Resolutions of the Company's Board of Directors approving the
transactions contemplated by the Agreement (copies of such
resolutions certified by the Secretary of the Company are
annexed hereto as Exhibit A);
(f) Articles of Incorporation of the Company, as amended (the
"Articles of Incorporation"); and
(g) Bylaws of the Company.
We have also made such examination of law and have examined originals
or copies, certified or otherwise, of such corporate records and documents of
the Company, such agreements, certificates of officers or representatives of the
Company, and such other records, certificates, including certificates of public
officials, and documents as we have deemed relevant and necessary as a basis for
the opinions hereinafter expressed.
In rendering this opinion, we have, with your permission, assumed: (a)
the authenticity of all documents submitted to us as originals; (b) the
conformity to the originals of all documents submitted to us as copies; (c) the
genuineness of all signatures other than the signatures of officers of the
Company; (d) the legal capacity of natural persons; (e) the truth, accuracy and
completeness of the information, factual matters, representations and warranties
contained in all of such documents; (f) the due authorization, execution and
delivery of all such documents, and the legal, valid and binding effect thereof;
and (g) the truth, accuracy and completeness of the representations and
warranties made by the Company and the Subscribers, respectively, as set forth
in the Documents, and that the Company and the Purchasers will act in accordance
with their agreements and their respective representations and warranties as set
forth in the Documents.
As to any facts relevant to the opinions expressed below, we have
relied upon certificates and written representations of officers of the Company
(including the representations of the Company set forth in the Transaction
Documents) and public officials. All references herein to contracts, instruments
or other documents of the Company are limited to such documents as have been
provided to us by the Company or of which we have actual knowledge. As to our
opinion in paragraphs 2 and 3(a) set forth below, we have examined only the
Articles of Incorporation, the Bylaws and the resolutions of the Board of
Directors of the Company relating to the Documents and issuances of securities
contemplated thereby, and our opinion set forth in such paragraphs is limited
thereto. We have not examined or reviewed any communication, instrument,
agreement, document or other item or conducted any independent inquiry or
investigation of any matter except as otherwise expressly set forth above. We
have also assumed that the Agreement and the other Transaction Documents have
been executed and delivered by and are binding on each of the parties thereto
(other than the Company).
The opinions expressed below with respect to compliance with certain
statutes, rules and regulations are based upon a review of those statutes, rules
and regulations that, in our experience, are applicable to transactions of the
type contemplated by the Agreement and to businesses such as the Company's. Our
opinion as to the good standing of the Company in Nevada set forth in the first
sentence of paragraph 1 below is based solely upon our examination of a
certificate of existence with status in good standing dated August 7, 2000
provided by the Secretary of State of Nevada, and such opinion is given solely
as of such date.
We express no opinion respecting the enforceable nature of the
Agreement, the other Transaction Documents, or any document or instrument
executed pursuant thereto or in connection therewith, insofar as the enforceable
nature thereof, or any right, power, privilege, remedy or interest intended to
be created thereunder, may be limited (i) by applicable bankruptcy, insolvency,
moratorium, fraudulent conveyance, reorganization or other laws or judicial
decisions affecting any rights, powers, privileges, remedies or interests of
creditors generally, (ii) by rules or principles of equity affecting the
enforcement of obligations generally, whether at law, in equity or otherwise,
(iii) by the exercise of the discretionary powers of any court or other
authority before which may be brought any proceeding seeking equitable or other
remedies,
including, without limitation, specific performance, injunctive relief and
indemnification or (iv) insofar as rights to indemnity and/or contribution are
concerned, by federal or state securities laws or the public policy underlying
such laws.
Where reference is made in this opinion to matters within or to our
knowledge, to the best of our knowledge, or to facts or circumstances known to
us or which have come to our attention, such reference means the actual
knowledge of those attorneys in our firm who have given substantive attention to
the preparation of the Agreement and other Transaction Documents and their
review of documents in connection with this engagement, without, however,
independent investigation of any matter unless expressly set forth herein.
We call your attention to the fact that we are counsel admitted to
practice in the State of New York, and we do not express any opinion with
respect to the applicable laws, or the effect or applicability of the laws, of
any jurisdiction other than those of the State of New York and the securities
laws of the United States of America. In particular, but without limitation, we
do not express any opinion with respect to the Blue Sky or securities laws of
any state or other jurisdiction (other than the federal securities laws of the
United States of America), or any law relating specifically to
telecommunications or patents, trademarks or other intellectual property rights.
Accordingly, and notwithstanding anything contained in any document or
instrument to the contrary, for purposes of the opinions expressed below, we
have assumed that notwithstanding any choice of law provision contained in the
Agreement and in the other Transaction Documents, the internal laws of the State
of New York will be applied to the Agreement and to each other document and
instrument with respect to which we opine below and that the Agreement and each
other document and instrument with respect to which we opine below will be
governed by, and construed and enforced in accordance with, the laws of the
State of New York, without regard to principles of conflicts or choice of law.
Special rulings of authorities administering any of such laws or opinions of
other counsel have not been sought or obtained by us in connection with
rendering the opinions expressed herein.
With regard to our opinion set forth in paragraph 5 below, we have
assumed as of the date hereof and hereafter, in addition to the foregoing
matters, the following: (a) neither the Company nor anyone acting on its behalf
has engaged or will engage in any "directed selling efforts" as defined in Rule
902(c) under the Securities Act of 1933, as amended (the "Act"); (b) there is no
Distributor (as defined in Rule 902(d) under the Act) nor will there be a
Distributor of the Notes and Warrants, and the Common Stock issuable upon
conversion of the Note, and exercise of the Warrants; (c) Offering Restrictions
(as defined in Rule 902(g) under the Act) were and will continue to be
implemented; (d) the offering of the Notes and Warrants, and the Common Stock
issuable upon conversion of the Note, and exercise of the Warrants, are each an
Offshore Transaction (as defined in Rule 902(h) under the Act); and (e) the
conditions contained in Rule 903(a), Rule 903(b)(3), and with regard to the
Warrants Rule 903(b)(5) under the Act have been and will remain fulfilled. We
express no opinion on the conditions under which the Notes and Warrants, and the
Common Stock issuable upon conversion of the Notes, and exercise of the
Warrants, may be resold.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is incorporated, validly existing and in good standing
in the State of Nevada and has the requisite corporate power and authority to
conduct its business, and to own, lease and operate its properties.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Transaction Documents,
and the Transaction Documents have been duly approved by the Board of Directors
of the Company. The issuance of the Notes and Warrants, and the reservation and
issuance of 50,400,000 shares of Common Stock issuable upon conversion of the
Notes and exercise of the Warrants, have been duly approved by the Board of
Directors of the Company. Provided
there is a sufficient number of shares authorized by the Company's Articles of
Incorporation, all the Securities, when issued and delivered in accordance with
the terms of the Agreement and the other Transaction Documents, will be validly
issued, and the Common Stock issued upon conversion of the Notes and exercise of
the Warrants in accordance with the terms of the Agreement and the other
Transaction Documents, will be fully paid and non-assessable.
3. The execution, delivery and performance of the Transaction Documents
by the Company and the consummation of the transactions contemplated thereby,
will not, with or without the giving of notice or the passage of time or both:
(a) Violate the provisions of the Articles of Incorporation or
bylaws of the Company; or
(b) To the best of counsel's knowledge, violate any judgment,
decree, order or award of any court binding upon the Company.
4. The Agreement, Notes, Warrants and Funds Escrow Agreement constitute
the valid and legally binding obligations of the Company and are enforceable
against the Company in accordance with their respective terms.
5. The offer, issue, sale, and delivery of the Notes and Warrants, and
the Common Stock issuable upon conversion of the Notes and exercise of the
Warrants, have not been registered under the Act or under the laws of any state
or other jurisdiction, and provided they are issued in accordance with the terms
and conditions set forth in the Transaction Documents, are or will constitute
exempted transactions under the registration provisions of the Act.
This opinion is rendered as of the date first written above, is solely
for your benefit in connection with the Agreement and may not be relief upon or
used by, circulated, quoted, or referred to nor may any copies hereof by
delivered to any other person without our prior written consent. We disclaim any
obligation to update this opinion letter or to advise you of facts,
circumstances, events or developments which hereafter may be brought to our
attention and which may alter, affect or modify the opinions expressed herein.
Very truly yours,
/s/XXXXXX XXXXXX LLP
XXXXXX XXXXXX LLP
SCHEDULE A TO LEGAL OPINION
KESHET L.P. - Subscriber
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
NESHER LTD. - Subscriber
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
TALBIYA B. INVESTMENTS LTD. - Subscriber and Warrant
Recipient
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
TUSK INVESTMENTS, INC. - Subscriber
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
LIBRA FINANCE, S.A. - Warrant Recipient
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-000
EXHIBIT D
---------
Included as Exhibit 10.4 to the ICOA, Inc. Registration Statement on Form SB-2,
filed on November 30, 2000.
