SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT
(this
"Agreement"),
dated
as of December 13, 2005, by and among Kaire Holdings Incorporated, a Delaware
corporation (the "Company"),
and
the subscribers identified on the signature page hereto (each a “Subscriber”
and
collectively “Subscribers”).
WHEREAS,
the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “1933
Act”).
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided herein,
and the Subscribers, in the aggregate, shall purchase up to Three Hundred and
Fifty Thousand Dollars ($350,000) (the "Purchase
Price")
of
principal amount of promissory notes of the Company (“Note”
or
“Notes”),
a
form of which is annexed hereto as Exhibit
A,
convertible into shares of the Company's common stock, $.001 par value (the
"Common
Stock")
at a
per share conversion price set forth in the Note (“Conversion
Price”).
One
Hundred and Fifty Thousand Dollars ($150,000) of the Purchase Price
(“Initial
Closing Purchase Price”)
shall
be payable on the Initial Closing Date. One Hundred Thousand Dollars ($100,000)
of the Purchase Price (“Second
Closing Purchase Price”)
shall
be payable on or about February 15, 2006. One Hundred Thousand Dollars
($100,000) of the Purchase Price (“Third
Closing Purchase Price”)
will
be payable on or about March 15, 2006. The Notes and shares of Common Stock
issuable upon conversion of the Notes (the “Shares”)
are
collectively referred to herein as the "Securities";
and
WHEREAS,
the
aggregate proceeds of the sale of the Notes contemplated hereby shall be held
in
escrow pursuant to the terms of a Funds Escrow Agreement to be executed by
the
parties substantially in the form attached hereto as Exhibit
B
(the
"Escrow
Agreement").
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:
1. Closings.
(a) Initial
Closing.
Subject
to the satisfaction or waiver of the terms and conditions of this Agreement,
on
the Initial Closing Date, each Subscriber shall purchase and the Company shall
sell to each Subscriber a Note in the principal amount designated on the
signature page hereto (“Initial
Closing Notes”).
The
aggregate amount of the Notes to be purchased by the Subscribers on the Initial
Closing Date shall, in the aggregate, be equal to the Initial Closing Purchase
Price. The “Initial
Closing Date”
shall
be the date that subscriber funds representing the net amount due the Company
from the Initial Closing Purchase Price of the Offering is transmitted by wire
transfer or otherwise to or for the benefit of the Company. The consummation
of
the transactions contemplated herein for all closings 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. Each of the Initial Closing Date, Second Closing Date and Third
Closing Date is referred to as a “Closing
Date”.
(b) Second
Closing.
From
February 7, 2006 through February 15, 2006, Subscriber may elect by written
notice to the Company its option to purchase the Second Closing Notes. The
closing date in relation to the Second Closing Purchase Price shall be on or
about February 15, 2006 (the “Second
Closing Date”).
Subject to the satisfaction or waiver of the terms and conditions of this
Agreement on the Second Closing Date, each Subscriber shall purchase and the
Company shall sell to each Subscriber a Note in the principal amount designated
on the signature page hereto (“Second
Closing Notes”).
The
aggregate Purchase Price of the Second Closing Notes for all Subscribers shall
be equal to the Second Closing Purchase Price. The Second Closing Note shall
be
identical to the Note issuable on the Initial Closing Date and have the same
maturity date as the Notes issued on the Initial Closing Date. The Conversion
Price (defined in Section 2.1 (b) of the Note) shall be equitably adjusted
to
offset the effect of stock splits, stock dividends, pro rata distributions
of
property or equity interests to the Company’s shareholders after the Initial
Closing Date.
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(c) Conditions
to Second Closing.
The
occurrence of the Second Closing is expressly contingent on (i) the truth and
accuracy on the Second Closing Date of the representations and warranties of
the
Company and Subscriber contained in this Agreement, (ii) continued compliance
with the covenants of the Company set forth in this Agreement, (iii) the
non-occurrence of any Event of Default (as defined in the Note) or other default
by the Company of its obligations and undertakings contained in this Agreement,
and (iv) the delivery on the Second Closing Date of Second Closing Notes.
(d) Second
Closing Deliveries.
On the
Second Closing Date, the Company will deliver the Second Closing Notes to the
Escrow Agent and each Subscriber will deliver his portion of the Purchase Price
to the Escrow Agent. On the Second Closing Date, the Company will deliver a
certificate (“Second
Closing Certificate”)
signed
by its chief executive officer or chief financial officer (i) representing
the
truth and accuracy of all the representations and warranties made by the Company
contained in this Agreement, as of the Initial Closing Date and the Second
Closing Date, as if such representations and warranties were made and given
on
all such dates, (ii) certifying that the information contained in the schedules
and exhibits hereto is substantially accurate as of the Second Closing Date,
(iii) adopting and renewing the covenants and conditions set forth in Sections
3, 5, 6, 7, 8, 9 and 10 of this Agreement in relation to the Second Closing
Date
and Second Closing Notes, and (iv) certifying that an Event of Default has
not
occurred. A legal opinion nearly identical to the legal opinion referred to
in
Section 5 of this Agreement shall be delivered to each Subscriber at the Second
Closing in relation to the Company, and Second Closing Notes (“Second
Closing Legal Opinion”).
(e) Third
Closing.
From
March 1, 2006 through March 15, 2006, Subscriber may elect by written notice
to
the Company its option to purchase the Third Closing Notes. The closing date
in
relation to the Third Closing Purchase Price shall be on or about March 15,
2006
(the “Third
Closing Date”).
Subject to the satisfaction or waiver of the terms and conditions of this
Agreement on the Third Closing Date, each Subscriber shall purchase and the
Company shall sell to each Subscriber a Note in the principal amount designated
on the signature page hereto (“Third
Closing Notes”).
The
aggregate Purchase Price of the Third Closing Notes for all Subscribers shall
be
equal to the Third Closing Purchase Price. The Third Closing Note shall be
identical to the Note issuable on the Initial Closing Date and have the same
maturity date as the Notes issued on the Initial Closing Date. The Conversion
Price shall be equitably adjusted to offset the effect of stock splits, stock
dividends, pro rata distributions of property or equity interests to the
Company’s shareholders after the Initial Closing Date.
(f) Conditions
to Third Closing.
The
occurrence of the Third Closing is expressly contingent on (i) the truth and
accuracy on the Third Closing Date of the representations and warranties of
the
Company and Subscriber contained in this Agreement, (ii) continued compliance
with the covenants of the Company set forth in this Agreement, (iii) the
non-occurrence of any Event of Default (as defined in the Note) or other default
by the Company of its obligations and undertakings contained in this Agreement,
and (iv) the delivery on the Third Closing Date of Third Closing Notes.
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(g) Third
Closing Deliveries.
On the
Third Closing Date, the Company will deliver the Third Closing Notes to the
Escrow Agent and each Subscriber will deliver his portion of the Purchase Price
to the Escrow Agent. On the Third Closing Date, the Company will deliver a
certificate (“Third
Closing Certificate”)
signed
by its chief executive officer or chief financial officer (i) representing
the
truth and accuracy of all the representations and warranties made by the Company
contained in this Agreement, as of the Initial Closing Date and the Third
Closing Date, as if such representations and warranties were made and given
on
all such dates, (ii) certifying that the information contained in the schedules
and exhibits hereto is substantially accurate as of the Third Closing Date,
(iii) adopting and renewing the covenants and conditions set forth in Sections
3, 5, 6, 7, 8, 9 and 10 of this Agreement in relation to the Third Closing
Date
and Third Closing Notes, and (iv) certifying that an Event of Default has not
occurred. A legal opinion nearly identical to the legal opinion referred to
in
Section 6 of this Agreement shall be delivered to each Subscriber at the Third
Closing in relation to the Company and Third Closing Notes (“Third
Closing Legal Opinion”).
2. Subscriber's
Representations and Warranties.
Each
Subscriber hereby represents and warrants to and agrees with the Company as
to
such Subscriber that:
(a) Information
on Company.
The
Subscriber has been furnished with or has had access at the XXXXX Website of
the
Commission to the Company's Form 10-KSB for the year ended December 31, 2004
as
filed with the Commission, together with all subsequently filed Forms 10-QSB,
8-K, and filings made with the Commission available at the XXXXX website
(hereinafter referred to collectively as the "Reports").
The
Subscriber has had an opportunity to ask questions and receive answers from
representatives of the Company. In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "Other
Written Information"),
and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(b) Information
on Subscriber.
The
Subscriber is, and will be at the time of the conversion of the Notes, 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.
The information set forth on the signature page hereto regarding the Subscriber
is accurate.
(c) Purchase
of Notes.
On each
Closing Date, the Subscriber will purchase the Notes as principal 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 or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933
Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration. In any
event, and subject to compliance with applicable securities laws, the Subscriber
may enter into hedging transactions with third parties, which may in turn engage
in short sales of the Securities in the course of hedging the position they
assume and the Subscriber may also enter into short positions or other
derivative transactions relating to the Securities, or interests in the
Securities, and deliver the Securities, or interests in the Securities, to
close
out their short or other positions or otherwise settle short sales or other
transactions, or loan or pledge the Securities, or interests in the Securities,
to third parties that in turn may dispose of these Securities.
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(e) Shares
Legend.
The
Shares shall bear the following or similar legend:
"THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW
OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO KAIRE HOLDINGS INCORPORATED THAT
SUCH REGISTRATION IS NOT REQUIRED."
(f) Note
Legend.
The
Note shall bear the following legend:
"THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO KAIRE HOLDINGS INCORPORATED THAT SUCH REGISTRATION IS NOT
REQUIRED."
(g) Communication
of Offer.
The
offer to sell the Securities was directly communicated to the Subscriber by
the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(h) Authority;
Enforceability.
This
Agreement and other agreements delivered together with this Agreement or in
connection herewith have been duly authorized, executed and delivered by the
Subscriber and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors' rights generally and to general principles of equity;
and Subscriber has full corporate power and authority necessary to enter into
this Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Subscriber relating
hereto.
(i) No
Market Manipulation.
The
Subscriber 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 or resold.
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(j) Correctness
of Representations.
Subscriber represents as to such Subscriber that the foregoing representations
and warranties are true and correct as of the date hereof and will be true
and
correct as of each closing date and unless a Subscriber otherwise notifies
the
Company prior to any closing date, shall be true and correct as of such closing
dates. The foregoing representations and warranties shall survive the latest
Closing Date for a period of three years.
3. Company
Representations and Warranties.
The
Company represents and warrants to and agrees with each Subscriber
that:
(a) Due
Incorporation.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
corporate power to own its properties and to carry on its business is disclosed
in the Reports.
The
Company is duly qualified as a foreign corporation to do business and is in
good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a “Material
Adverse Effect”
shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken as a whole. For purposes
of this Agreement, “Subsidiary”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by such
entity. All the Company’s Subsidiaries as of the Initial Closing Date are set
forth on Schedule
3(a)
hereto.
(b) Outstanding
Stock.
All
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
(c) Authority;
Enforceability.
This
Agreement, the Note, the Escrow Agreement, and any other agreements delivered
together with this Agreement or in connection herewith (collectively
“Transaction
Documents”)
have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
(d) Additional
Issuances.
There
are no outstanding agreements or preemptive or similar rights affecting the
Company's common stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described on Schedule
3(d).
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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 OTC Bulletin Board (“Bulletin
Board”),
any
Principal Market (as defined in Section 9(b) of this Agreement), nor the
Company's shareholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation,
the
issuance and sale of the Securities.
(f) No
Violation or Conflict.
Assuming the representations and warranties of the Subscribers in Section 2
are
true and correct, neither the issuance and sale of the Securities nor the
performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default in any material respect) of a material nature
under (A) the articles or certificate of incorporation, charter or bylaws of
the
Company, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company of any
court, governmental agency or body, or arbitrator having jurisdiction over
the
Company or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence
of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or
any
of its Affiliates is a party, by which the Company or any of its Affiliates
is
bound, or to which any of the properties of the Company or any of its Affiliates
is subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company, or any of its Affiliates
is a party except the violation, conflict, breach, or default of which would
not
have a Material Adverse Effect;
or
(ii) result
in
the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates;
or
(iii) except
as
described on Schedule 4(d), result in the activation of any anti-dilution rights
or a reset or repricing of any debt or security instrument of any other creditor
or equity holder of the Company, nor result in the acceleration of the due
date
of any obligation of the Company; or
(iv) result
in
the activation of any piggy-back registration rights of any person or entity
holding securities or debt of the Company or having the right to receive
securities of the Company.
(g) The
Securities.
The
Securities upon issuance:
(i) are,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and
any
applicable state securities laws;
(ii) have
been, or will be, duly and validly authorized and on the date of issuance of
the
Shares will be duly and validly issued, fully paid and nonassessable or if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted);
6
(iii) will
not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders provided Subscriber’s representations herein are true and accurate and
Subscribers take no actions or fail to take any actions required for their
purchase of the Securities to be in compliance with all applicable laws and
regulations; and
(v) will
not
result in a violation of Section 5 under the 1933 Act.
(h) Litigation.
There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates
that
would affect the execution by the Company or the performance by the Company
of
its obligations under the Transaction Documents. Except as disclosed in the
Reports, there is no pending or, to the best knowledge of the Company, basis
for
or threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have
a
Material Adverse Effect.
(i) Reporting
Company.
The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13 of the 1934
Act
and has
a class of common shares registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, the Company has filed all reports
and other materials required to be filed thereunder with the Commission during
the preceding twelve months.
(j) No
Market Manipulation.
The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock to
facilitate the sale or resale of the Securities or affect the price at which
the
Securities may be issued or resold, provided, however, that this provision
shall
not prevent the Company from engaging in normal investor relations/public
relations activities.
(k) Information
Concerning Company.
The
Reports contain all material information relating to the Company and its
operations and financial condition as of their respective dates and all the
information required to be disclosed therein. Since the date of the most recent
audited financial statements included in the Reports (“Latest
Financial Date”),
and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no Material Adverse Event relating to the Company's business,
financial condition or affairs not disclosed in the Reports. The Reports do
not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made.
(l) Stop
Transfer.
The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Securities, except as may be required by any
applicable federal or state securities laws and unless contemporaneous notice
of
such instruction is given to the Subscriber.
(m) Defaults.
The
Company is not in violation of its articles of incorporation or bylaws. The
Company is (i) not in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect,
(ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under
any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority
which
violation would have a Material Adverse Effect.
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(n) Not
an
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 0000 Xxx.
(o) No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 0000 Xxx)
in
connection with the offer or sale of the Securities.
(p) Listing.
The
Company's common stock is quoted on the Bulletin Board. The Company has not
received any oral or written notice that its common stock is not eligible nor
will become ineligible for quotation on the Bulletin Board nor that its common
stock does not meet all requirements for the continuation of such quotation
and
the Company satisfies all the requirements for the continued quotation of its
common stock on the Bulletin Board.
(q)
No
Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written Information, other
than
those incurred in the ordinary course of the Company's business since Lastest
Financial Date and which, individually or in the aggregate, would reasonably
be
expected to have a Material Adverse Effect, except as disclosed on
Schedule 3(q).
(s) Capitalization.
The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and the Initial Closing Date (not including the Securities) are set
forth on Schedule
3(d).
Except
as set forth on Schedule
3(d),
there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company or any of its
Subsidiaries. All of the outstanding shares of Common Stock of the Company
have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) Dilution.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment
that
the issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Notes is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company or parties entitled to receive equity of the
Company.
8
(u) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and
lawyers.
(v) Investment
Company.
Neither
the Company nor any Affiliate is an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.
(w) Subsidiary
Representations.
The
Company makes each of the representations contained in Sections 3(a), (b),
(d),
(e), (f), (h), of this Agreement, as same relate to each Subsidiary of the
Company.
(x) Company
Predecessor.
All
representations made by or relating to the Company of a historical or
prospective nature and all undertaking described in this Section shall relate
and refer to the Company, its predecessors, and the Subsidiaries.
(y) Correctness
of Representations.
The
Company represents that the foregoing representations and warranties are true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to each Closing Date, shall
be
true and correct in all material respects as of each Closing Date.
(z) Survival.
The
foregoing representations and warranties shall survive until three years after
the latest Closing Date.
4. Regulation
D Offering.
The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder. On each Closing Date, the Company will provide an
opinion reasonably acceptable to Subscriber from the Company's legal counsel
opining on the availability of an exemption from registration under the 1933
Act
as it relates to the offer and issuance of the Securities and other matters
reasonably requested by Subscribers. A form of the legal opinion is annexed
hereto as Exhibit
C.
The
Company will provide, at the Company's expense, such other legal opinions in
the
future as are reasonably necessary for the issuance and/or resale of the Common
Stock issuable upon conversion of the Notes pursuant to an effective
registration statement. Subscriber agrees that any legal opinions required
hereunder or under any other Transaction Documents may be supplied by the
Company’s in house General Counsel.
5.1. Conversion
of Note.
(a) Upon
the
conversion of the Note or part thereof, the Company shall, at its own cost
and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue
stock
certificates in the name of Subscriber (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, unless waived by the Subscriber, the Shares will be free-trading, and
freely transferable, and will not contain a legend restricting the resale or
transferability of the Shares provided the Shares are being sold pursuant to
an
effective registration statement covering the Shares or are otherwise exempt
from registration.
9
(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
(a
form of which is annexed to Exhibit
A
to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 11(a) of this Agreement. The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied. Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date. The Company will
itself or cause the Company’s transfer agent to transmit the Company's Common
Stock certificates representing the Shares issuable upon conversion of the
Note
to the Subscriber via express courier for receipt by such Subscriber within
three (3) business days after receipt by the Company of the Notice of Conversion
(the "Delivery
Date").
In
the event the Shares are electronically transferable, then delivery of the
Shares must
be made
by electronic transfer provided request for such electronic transfer has been
made by the Subscriber. A Note representing the balance of the Note not so
converted will be provided by the Company to the Subscriber if requested by
Subscriber, provided the Subscriber delivers an original Note to the Company.
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.
(c) The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 5 hereof, or the Mandatory Redemption Amount
described in Section 5.2 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 to the Subscriber for late issuance of Shares in the form required
pursuant to Section 6 hereof upon Conversion of the Note in the amount of $100
per business day after the Delivery Date for each $10,000 of Note principal
amount being converted, of the corresponding Shares which are not timely
delivered. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Furthermore, in addition to any other
remedies which may be available to the Subscriber, in the event that the Company
fails for any reason to effect delivery of the Shares by the Delivery Date
or
make payment by the Mandatory Redemption Payment Date, the Subscriber will
be
entitled to revoke all or part of the relevant Notice of Conversion or rescind
all or part of the notice of Mandatory Redemption by delivery of a notice to
such effect to the Company whereupon the Company and the Subscriber shall each
be restored to their respective positions immediately prior to the delivery
of
such notice, except that 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.
10
5.2. Mandatory
Redemption at Subscriber’s Election.
In the
event the Company is prohibited from issuing Shares, or fails to timely deliver
Shares on a Delivery Date, or upon the occurrence of any other Event of Default
(as defined in the Note or in this Agreement) that is not cured during any
applicable cure period and an additional ten days thereafter, then at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber, at the Subscriber’s election, a sum of
money determined by (i) multiplying up to the outstanding principal amount
of
the Note designated by the Subscriber by 115%, or (ii) multiplying the number
of
Shares otherwise deliverable upon conversion of an amount of Note principal
and/or interest designated by the Subscriber (with the date of giving of such
designation being a “Deemed
Conversion Date”)
at the
then Conversion Price that would be in effect on the Deemed Conversion Date
by
the highest closing price of the Common Stock on the principal market for the
period commencing on the Deemed Conversion Date until the day prior to the
receipt of the Mandatory Redemption Payment, whichever is greater, together
with
accrued but unpaid interest thereon and any other sums arising and outstanding
under the Transaction Documents ("Mandatory
Redemption Payment").
The
Mandatory Redemption Payment must be received by the Subscriber on the same
date
as the Company Shares otherwise deliverable or within ten (10) business days
after request, whichever is sooner ("Mandatory
Redemption Payment Date").
Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 5.1(c) hereof, that have been paid or accrued
for
the twenty day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment calculated pursuant to subsections (i) and (ii) above of this Section
5.2. In the event of a “Change
in Control”
(as
defined below), the Subscriber may demand, and the Company shall pay, a
Mandatory Redemption Payment equal to 115% of the outstanding principal amount
of the Note designated by the Subscriber together with accrued but unpaid
interest thereon and any other sums arising and outstanding under the
Transaction Documents. For purposes of this Section 5.2, “Change
in Control”
shall
mean (i) the Company no longer having a class of shares publicly tradable and
listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
entity or merging into or with another entity, (iii) a majority of the board
of
directors of the Company as of the Closing Date no longer serving as directors
of the Company, other than due to natural causes, (iv) if the holders of the
Company’s Common Stock as of the Closing Date beneficially owning at any time
after the Closing Date less than thirty-five percent of the Common stock owned
by them on the Closing Date, or (v) the sale, lease, license or transfer of
substantially all the assets of the Company or Subsidiaries.
5.3. Maximum
Conversion.
The
Subscriber shall not be entitled to convert on a Conversion Date that amount
of
the Note in connection with that number of shares of Common Stock which would
be
in excess of the sum of (i) the number of shares of common stock beneficially
owned by the Subscriber and its affiliates on a Conversion Date, and (ii) the
number of shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Subscriber
and its affiliates of more than 4.99% of the outstanding shares of common stock
of the Company on such Conversion Date. For the purposes of the provision to
the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 4.99% and
aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber may
void the conversion limitation described in this Section 5.3 upon and effective
after 61 days prior written notice to the Company. The Subscriber may allocate
which of the equity of the Company deemed beneficially owned by the Subscriber
shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
5.4. Injunction
- Posting of Bond.
In the
event a Subscriber shall elect to convert a Note or part thereof, the Company
may not refuse conversion or exercise based on any claim that such Subscriber
or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction from a court,
on notice, restraining and or enjoining conversion of all or part of said Note
or exercise of all or part of said Warrant shall have been sought and obtained
and the Company has posted a surety bond for the benefit of such Subscriber
in
the amount of 130% of the amount of the Note, or aggregate purchase price of
the
Warrant Shares which are subject to the injunction, which bond shall remain
in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment.
11
5.5. 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 ten (10) days after the Delivery Date the Subscriber
purchases (in an open market transaction or otherwise) shares of Common Stock
to
deliver in satisfaction of a sale by such Subscriber of the Common Stock 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. The delivery date by which Common Stock must be delivered pursuant
to this Section 5.5 shall be tolled for the amount of days that the Subscriber
does not deliver information reasonably requested by the Company’s transfer
agent.
5.6 Adjustments. The
Conversion Price, and amount of Shares issuable upon conversion of the Notes
shall be adjusted as described in this Agreement and the Notes.
5.7. Redemption.
The
Note shall not be redeemable or callable except as described in the
Note.
6. Legal
Fee. The
Company shall pay to Grushko & Xxxxxxx, P.C., a fee of $5,000 (“Legal
Fees”)
as
reimbursement for services rendered to the Subscribers in connection with this
Agreement and the purchase and sale of the Notes (the “Offering”)
and
acting as Escrow Agent for the Offering. The Legal Fees will be payable out
of
the funds held pursuant to the Escrow Agreement.
7. Covenants
of the Company.
The
Company covenants and agrees with the Subscribers as follows:
(a) Listing.
The
Company shall promptly secure the listing of the Shares upon each national
securities exchange, or electronic or automated quotation system upon which
they
are or become eligible for listing and shall maintain such listing so long
as
any Notes are outstanding. The Company will maintain the listing of its Common
Stock on the American Stock Exchange, Nasdaq SmallCap Market, Nasdaq National
Market System, OTC Bulletin Board, Pink Sheets or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange or
market for the Common Stock (the “Principal
Market”)),
and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common
Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.
(b) Market
Regulations.
The
Company shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to Subscriber.
12
(c) Filing
Requirements.
From
the date of this Agreement and until the sooner of (i) three (3) years after
the
Third Closing Date, or (ii) until all the Shares have been resold or transferred
by all the Subscribers pursuant to Rule 144, without regard to volume
limitation, the Company will (A) cause its Common Stock to continue to be
registered under Section 12(b) or 12(g) of the 1934 Act, (B) comply in all
respects with its reporting and filing obligations including permissible
extensions under the 1934 Act, (C) comply with all reporting requirements that
are applicable to an issuer with a class of shares registered pursuant to
Section 12(b) or 12(g) of the 1934 Act, as applicable, and (D) comply with
all
filing requirements related to any registration statement filed pursuant to
this
Agreement. The Company will use its best efforts not to take any action or
file
any document (whether or not permitted by the 1933 Act or the 1934 Act or the
rules thereunder) to terminate or suspend such registration or to terminate
or
suspend its reporting and filing obligations under said acts until three (3)
years after the Third Closing Date. Until the resale of the Shares by each
Subscriber, the Company will use its best efforts to continue the listing or
quotation of the Common Stock on a Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market. The Company agrees to timely file
a
Form D with respect to the Securities if required under Regulation D and to
provide a copy thereof to each Subscriber promptly after such
filing.
(d) Use
of
Proceeds.
The
proceeds of the Offering will be employed by the Company for the purposes set
forth on Schedule
7(d)
hereto.
Except as set forth on Schedule
7(d),
the
Purchase Price may not and will not be used for payment of financing related
debt, redemption of outstanding notes or equity instruments of the Company,
litigation related expenses or settlements, brokerage fees, nor non-trade
obligations outstanding on each Closing Date. For so long as any Notes are
outstanding, the Company will not prepay any financing related debt
obligations.
(e) Reservation.
Prior
to the Initial Closing Date, the Company undertakes to reserve, pro rata,
on
behalf of the Subscribers from its authorized but unissued common stock, a
number of common shares equal to 150%
of
the amount of Common Stock necessary to allow each Subscriber to be able to
convert all Notes issuable pursuant to this Agreement and interest thereon.
Failure to have sufficient shares reserved pursuant to this Section 7(e) for
five (5) consecutive business days or fifteen (15) days in the aggregate shall
be a material default of the Company’s obligations under this Agreement and an
Event of Default under the Note.
(f) Taxes.
From
the date of this Agreement and until the sooner of (i) three (3) years after
the
Third Closing Date, or (ii) until all the Shares have been resold or transferred
by all the Subscribers pursuant to Rule 144, without regard to volume
limitations, the Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall
have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
(g) Insurance.
From
the date of this Agreement and until the sooner of (i) three (3) years after
the
Third Closing Date, or (ii) until all the Shares have been resold or transferred
by all the Subscribers pursuant to Rule 144, without regard to volume
limitations, the Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss
or
damage by fire, explosion and other risks customarily insured against by
companies in the Company’s line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured; and
the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable
terms.
13
(h) Books
and Records.
From the
date of this Agreement and until the sooner of (i) three (3) years after the
Third Closing Date, or (ii) until all the Shares have been resold or transferred
by all the Subscribers pursuant to Rule 144, without regard to volume
limitations, the Company will keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions
in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.
(i) Governmental
Authorities.
From the
date of this Agreement and until the sooner of (i) three (3) years after the
Third Closing Date, or (ii) until all the Shares have been resold or transferred
by all the Subscribers pursuant to Rule 144, without regard to volume
limitations, the Company shall duly observe and conform in all material respects
to all valid requirements of governmental authorities relating to the conduct
of
its business or to its properties or assets.
(j) Intellectual
Property.
From
the date of this Agreement and until the sooner of (i) three (3) years after
the
Third Closing Date, or (ii) until all the Shares have been resold or transferred
by all the Subscribers pursuant to Rule 144, without regard to volume
limitations, the Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for
value.
(k) Properties.
From the
date of this Agreement and until the sooner of (i) three (3) years after the
Third Closing Date, or (ii) until all the Shares have been resold or transferred
by all the Subscribers pursuant to Rule 144, without regard to volume
limitations, the Company will keep its properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make
all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a Material Adverse
Effect.
(l) Confidentiality/Public
Announcement.
From the
date of this Agreement and until the sooner of (i) three (3) years after the
Third Closing Date, or (ii) until all the Shares have been resold or transferred
by all the Subscribers pursuant to Rule 144, without regard to volume
limitations, the Company agrees that except in connection with a Form 8-K or
the
Registration Statement or as otherwise required in any other Commission filing,
it will not disclose publicly or privately the identity of the Subscribers
unless expressly agreed to in writing by a Subscriber, only to the extent
required by law and then only upon five days prior notice to Subscriber. In
any
event and subject to the foregoing, the Company shall make
a
public announcement describing the Offering not later than the first business
day after the Closing Date. In the public announcement, the Company will
specifically disclose the amount of common stock outstanding immediately after
the Closing. A form of the proposed public announcement to be employed in
connection with the Closing is annexed hereto as Exhibit
D.
14
(m) Non-Public
Information.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf will provide any Subscriber or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber shall
be
relying on the foregoing representations in effecting transactions in securities
of the Company.
8. Covenants
of the Company and Subscriber Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation
by
Company or breach of any warranty by Company in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into by
the
Company and Subscriber relating hereto.
(b) Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, affiliates, control
persons against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the
Company or any such person which results, arises out of or is based upon (i)
any
material misrepresentation by such Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by such Subscriber of any covenant or undertaking to
be
performed by such Subscriber hereunder, or any other agreement entered into
by
the Company and Subscribes relating hereto.
(c) In
no
event shall the liability of any Subscriber or permitted successor hereunder
or
under any other agreement delivered in connection herewith be greater in amount
than the dollar amount of the net proceeds received by such Subscriber upon
the
sale of Registrable Securities (as defined herein) giving rise to such
indemnification obligation.
(d) The
procedures set forth in Section 9.5 shall apply to the indemnifications set
forth in Sections 8(a) and 8(b) above.
9.1. Registration
Rights.
The
Company hereby grants the following registration rights to holders of the
Securities. If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the registrable securities (“Registrable
Securities”)
for
sale to the public, provided the Registrable Securities are not otherwise
registered for resale by the Subscribers or Holder pursuant to an effective
registration statement, each such time it will give at least 15 days' prior
written notice to the record holder of the Registrable Securities of its
intention so to do. Upon the written request of the holder, received by the
Company within 10 days after the giving of any such notice by the Company,
to
register any of the Registrable Securities not previously registered, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by
the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller").
In
the event that any registration pursuant to this Section 9.1 shall be, in whole
or in part, an underwritten public offering of common stock of the Company,
the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 9.1 without thereby incurring
any liability to the Seller.
15
9.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 9.1 to effect
the
registration of any shares of Registrable Securities under the 1933 Act, the
Company will, as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 10, 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;
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with
the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with
the Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish
to the Seller, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement;
(d) use
its
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, provided, however, that the Company shall not
for
any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately
notify the Seller when a prospectus relating thereto is required to be delivered
under the 1933 Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact
or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing; and
(g) provided
same would not be in violation of the provision of Regulation FD under the
1934
Act, make available for inspection by the Seller, and any attorney, accountant
or other agent retained by the Seller or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents
and
properties of the Company, and cause the Company's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the seller, attorney, accountant or agent in connection
with such registration statement.
16
9.3. Provision
of Documents.
In
connection with each registration described in this Section 9, 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.
9.4. Expenses.
All
expenses incurred by the Company in complying with Section 9, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or "blue sky" laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
and registrars, costs of insurance and fee of one counsel for all Sellers are
called "Registration
Expenses".
All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any additional
counsel to the Seller, are called "Selling
Expenses".
The
Company will pay all Registration Expenses in connection with the registration
statement under Section 9. 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 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.
9.5. Indemnification
and Contribution.
(a) In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 9, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 9, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions
of
Section 9.5(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
to
the Seller to the extent that any such damages arise out of or are based upon
an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by
the
Company to the Seller with or prior to the delivery of written confirmation
of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement
or
alleged untrue statement or such omission or alleged omission, or (iii) to
the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller,
or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In
the
event of a registration of any of the Registrable Securities under the 1933
Act
pursuant to Section 9, each Seller severally but not jointly will, to the extent
permitted by law, indemnify and hold harmless the Company, and each person,
if
any, who controls the Company within the meaning of the 1933 Act, each officer
of the Company who signs the registration statement, each director of the
Company, each underwriter and each person who controls any underwriter within
the meaning of the 1933 Act, against all losses, claims, damages or liabilities,
joint or several, to which the Company or such officer, director, underwriter
or
controlling person may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement under which such
Registrable Securities were registered under the 1933 Act pursuant to Section
9,
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 gross proceeds received by the
Seller from the sale of Registrable Securities covered by such registration
statement.
17
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 9.5(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 9.5(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake
the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.5(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
9.5 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 9.5 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may
be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
9.5;
then, and in each such case, the Company and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will not
be
required to contribute any amount in excess of the public offering price of
all
such securities offered by it pursuant to such registration statement; and
(z)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 10(f) of the 0000 Xxx) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent
misrepresentation.
18
9.6. Delivery
of Unlegended Shares.
(a) Within
three (3) business days (such third business day, the “Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a notice that Registrable
Securities have been sold either pursuant to the Registration Statement or
Rule
144 under the 1933 Act, (ii) a representation that the prospectus delivery
requirements, or the requirements of Rule 144, as applicable, have been
satisfied, and (iii) the original share certificates representing the shares
of
Common Stock that have been sold, the Company at its expense, (y) shall deliver,
and shall cause legal counsel selected by the Company to deliver, to its
transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, for the delivery of shares of Common Stock without
any
legends including the legends set forth in Sections 2(e) and 2(g) above,
issuable pursuant to any effective and current registration statement described
in Section 9 of this Agreement or pursuant to Rule 144 under the 1933 Act (the
“Unlegended
Shares”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
unsold shares of Common Stock, if any, to the Subscriber at the address
specified in the notice of sale, via express courier, by electronic transfer
or
otherwise on or before the Unlegended Shares Delivery Date.
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, if
the
Company’s transfer agent is participating in the Depository Trust Company
(“DTC”)
Fast
Automated Securities Transfer program, upon request of a Subscriber, so long
as
the certificates therefore do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the
Company shall cause its transfer agent to electronically transmit the Unlegended
Shares by crediting the account of Subscriber’s prime Broker with DTC through
its Deposit Withdrawal Agent Commission system. Such delivery must be made
on or
before the Unlegended Shares Delivery Date.
(c) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 9 hereof beyond the Unlegended Shares Delivery Date could
result in economic loss to a Subscriber. As compensation to a Subscriber for
such loss, the Company agrees to pay late payment fees (as liquidated damages
and not as a penalty) to the Subscriber for late delivery of Unlegended Shares
in the amount of $100 per business day after the Delivery Date for each $10,000
of purchase price of the Unlegended Shares subject to the delivery default.
If
during any 360 day period, the Company fails to deliver Unlegended Shares as
required by this Section 9.6 for an aggregate of thirty (30) days, then each
Subscriber or assignee holding Securities subject to such default may, at its
option, require the Company to purchase all or any portion of the Shares and
Restricted
Shares
subject to such default at a price per share equal to 130% of the Purchase
Price
of such Shares and Restricted
Shares.
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
19
(d) In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares within ten (10) calendar days after
the Unlegended Shares Delivery Date and the Subscriber purchases (in an open
market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber anticipated receiving from the Company (a "Buy-In"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of common stock so purchased exceeds (B) the aggregate purchase
price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the
Buy-In.
(e) In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 9.6 and the Company is required to deliver such Unlegended Shares
pursuant to Section 9.6, the Company may not refuse to deliver Unlegended Shares
based on any claim that such Subscriber or any one associated or affiliated
with
such Subscriber has been engaged in any violation of law, or for any other
reason, unless, an injunction or temporary restraining order from a court,
on
notice, restraining and or enjoining delivery of such Unlegended Shares or
exercise of all or part of said Warrant shall have been sought and
obtained
and the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the amount of the aggregate purchase price of the Common
Stock
which are subject to the injunction or temporary restraining order, which bond
shall remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Subscriber to the
extent Subscriber obtains judgment in Subscriber’s favor.
10.
(a) Option
Plan Restrictions.
The
only officer, director, employee and consultant stock option or stock incentive
plan currently in effect or contemplated by the Company has been submitted
to
the Subscribers or is described with Reports. No other plan will be adopted
nor
may any options or equity not included in such plan be issued until after
the
Exclusion Period.
(b) Paid
In Kind.
The
Subscriber may demand that some or all of the sums payable to the Subscriber
pursuant to Sections 5.1(c), 5.2, 5.5, and 9.6 that are not paid within ten
business days of the required payment date be paid in shares of Common Stock
valued at the Conversion Price in effect at the time Subscriber makes such
demand or, at the Subscriber’s election, at such other valuation described in
the Transaction Documents. In addition to any other rights granted to the
Subscriber herein, the Subscriber is also granted the registration rights set
forth in Section 9.1 hereof in relation to such shares of Common Stock and
the
Common Stock issuable pursuant to this Section 10(b). For purposes only of
determining any liquidated damages pursuant to the Transaction Documents, the
entire Purchase Price shall be allocated to the Notes and none to the Warrants;
and the Warrant Shares shall be valued at the actual exercise price
thereof.
(c) Maximum
Exercise of Rights.
In the
event the exercise of the rights described in Section 10(b) would
result in the issuance of an amount of common stock of the Company that would
exceed the maximum amount that may be issued to a Subscriber calculated in
the
manner described in Section 7.3 of this Agreement, then the issuance of such
additional shares of common stock of the Company to such Subscriber will be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such common stock without exceeding the maximum amount set
forth calculated in the manner described in Section 7.3 of this Agreement.
The
determination of when such common stock may be issued shall be made by each
Subscriber as to only such Subscriber.
20
11. Miscellaneous.
(a) Notices.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: Kaire
Holdings Incorporated, 000
Xxxxx
Xxxxxx, Xxxxx X, Xxxxxxxx, XX 00000, telecopier number: (000) 000-0000, with
a
copy by telecopier only to: Xxxx X. Xxxxxxxxx, Esq., Xxxxxxxxx & Associates,
00000 Xxx Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxx, XX 00000, telecopier: (000)
000-0000, and (ii) if to the Subscriber, to: the address and telecopier number
indicated 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.
(b) Closing.
The
consummation of the transactions contemplated herein (“Closing”)
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.
(c) Entire
Agreement; Assignment.
This
Agreement and other documents delivered in connection herewith represent the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No right
or obligation of either party shall be assigned by that party without prior
notice to and the written consent of the other party.
(d) Counterparts.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature
is
delivered by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.
(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. The parties
and
the individuals executing this Agreement and other agreements referred to herein
or delivered in connection herewith on behalf of the Company agree to submit
to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's
fees
and costs. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under
any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
21
(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. 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.
22
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (A)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
KAIRE
HOLDINGS INCORPORATED
A
Delaware Corporation
/s/
Xxxxxx Xxxxxxxx
By:_________________________________
Name:
Title:
Dated
as
of December 13, 2005
|
SUBSCRIBER
|
INITIAL
CLOSING PURCHASE PRICE
|
SECOND
CLOSING PURCHASE PRICE
|
THIRD
CLOSING PURCHASE PRICE
|
|
LONGVIEW
FUND, LP
000
Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxxxxxxx, XX 00000
Fax:
(000) 000-0000
__________________________________________
(Signature)
By:
|
$150,000
|
$100,000
|
$100,000
|
23
LIST
OF EXHIBITS AND SCHEDULES
Exhibit
A Form
of
Note
Exhibit
B Escrow
Agreement
Exhibit
C Form
of
Legal Opinion
Exhibit
D Form
of
Public Announcement
Schedule
3(a) Subsidiaries
Schedule
3(d) Additional
Issuances / Capitalization
Schedule
3(q) Undisclosed
Liabilities
Schedule
7(d) Use
of
Proceeds
24
