SUBSCRIPTION AGREEMENT
SUBSCRIPTION
AGREEMENT (this “Agreement”) made as of the last date set forth on the signature
page hereof between National Investment Managers Inc., a Florida corporation
(the “Company”), and the undersigned (the “Subscriber”).
W
I T N E
S S E T H:
WHEREAS,
the Company is conducting a private offering (the “Offering”) consisting of up
to 1,000,000 shares (the “Shares”) of Series C Cumulative Convertible Preferred
Stock (“Preferred Stock”), pursuant to Section 4(2) of the Securities Act of
1933, as amended (the “Securities Act”) and Rule 506 promulgated thereunder;
and
WHEREAS,
the Subscriber desires to purchase that number of Shares set forth on the
signature page hereof on the terms and conditions hereinafter set
forth.
NOW,
THEREFORE, in consideration of the premises and the mutual representations
and
covenants hereinafter set forth, the parties hereto do hereby agree as
follows:
I. SUBSCRIPTION
FOR SHARES AND REPRESENTATIONS BY SUBSCRIBER
1.1 Subject
to the terms and conditions hereinafter set forth and in the Confidential
Offering Memorandum dated October 17, 2005 (such memorandum, together with
all
amendments thereof and supplements and exhibits thereto, the “Memorandum”), the
Subscriber hereby irrevocably subscribes for and agrees to purchase from
the
Company such number of Shares, and the Company agrees to sell to the Subscriber
as is set forth on the signature page hereof, at a per share price equal
to
$6.00 per Share. The purchase price is payable by wire transfer of immediately
available funds to:
| Account Name: | Xxxxxx Financial Group, Inc. | ||
| Account # | 123502393465 | ||
| Swift Xxxx | XXXXXX00 | ||
| XXX # | 000000000 | ||
| Xxxx | XX Xxxxxx Chase | ||
|
Address:
|
000 Xxxx Xxxxxx
Xxx
Xxxx, XX 00000
|
1.2 The
Subscriber recognizes that the purchase of the Shares involves a high degree
of
risk including, but not limited to, the following: (a) the Company has limited
operating history and requires substantial funds in addition to the proceeds
of
the Offering; (b) an investment in the Company is highly speculative, and
only
investors who can afford the loss of their entire investment should consider
investing in the Company and the Shares; (c) the Subscriber may not be able
to
liquidate its investment; (d) transferability of the Shares is extremely
limited; (e) in the event of a disposition, the Subscriber could sustain
the
loss of its entire investment; (f) the Company has not paid any dividends
since
its inception and does not anticipate paying any dividends; and (g) the Company
may issue additional securities in the future which have rights and preferences
that are senior to those of the Preferred Stock. Without limiting the generality
of the representations set forth in Section 1.5 below, the Subscriber represents
that the Subscriber has carefully reviewed the section of the Memorandum
captioned “Risk Factors.”
1.3 The
Subscriber represents that the Subscriber is an “accredited investor” as such
term is defined in Rule 501 of Regulation D (“Regulation D”) promulgated under
the Securities Act, as indicated by the Subscriber’s responses to the questions
contained in Article VII hereof, and that the Subscriber is able to bear
the
economic risk of an investment in the Shares.
1.4 The
Subscriber hereby acknowledges and represents that (a) the Subscriber has
knowledge and experience in business and financial matters, prior investment
experience, including investment in securities that are non-listed, unregistered
and/or not traded on a national securities exchange nor on the National
Association of Securities Dealers, Inc. (the “NASD”) automated quotation system
(“NASDAQ”), or the Subscriber has employed the services of a “purchaser
representative” (as defined in Rule 501 of Regulation D), attorney and/or
accountant to read all of the documents furnished or made available by the
Company both to the Subscriber and to all other prospective investors in
the
Shares to evaluate the merits and risks of such an investment on the
Subscriber’s behalf; (b) the Subscriber recognizes the highly speculative nature
of this investment; and (c) the Subscriber is able to bear the economic risk
that the Subscriber hereby assumes.
1.5 The
Subscriber hereby acknowledges receipt and careful review of this Agreement,
the
Memorandum (which includes the Risk Factors), including all exhibits thereto,
and any documents which may have been made available upon request as reflected
therein (collectively referred to as the “Offering Materials”) and hereby
represents that the Subscriber has been furnished by the Company during the
course of the Offering with all information regarding the Company, the terms
and
conditions of the Offering and any additional information that the Subscriber
has requested or desired to know, and has been afforded the opportunity to
ask
questions of and receive answers from duly authorized officers or other
representatives of the Company concerning the Company and the terms and
conditions of the Offering.
1.6
(a)
In
making
the decision to invest in the Shares the Subscriber has relied solely upon
the
information provided by the Company in the Offering Materials. To the extent
necessary, the Subscriber has retained, at its own expense, and relied upon
appropriate professional advice regarding the investment, tax and legal merits
and consequences of this Agreement and the purchase of the Shares hereunder.
The
Subscriber disclaims reliance on any statements made or information provided
by
any person or entity in the course of Subscriber’s consideration of an
investment in the Shares other than the Offering Materials.
(b) The
Subscriber represents that (i) the Subscriber was contacted regarding the
sale
of the Shares by the Company (or an authorized agent or representative thereof)
with whom the Subscriber had a prior substantial pre-existing relationship
and
(ii) no Shares were offered or sold to it by means of any form of general
solicitation or general advertising, and in connection therewith, the Subscriber
did not (A) receive or review any advertisement, article, notice or other
communication published in a newspaper or magazine or similar media or broadcast
over television or radio, whether closed circuit, or generally available;
or (B)
attend any seminar meeting or industry investor conference whose attendees
were
invited by any general solicitation or general advertising.
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1.7 The
Subscriber hereby represents that the Subscriber, either by reason of the
Subscriber’s business or financial experience or the business or financial
experience of the Subscriber’s professional advisors (who are unaffiliated with
and not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly), has the capacity to protect the Subscriber’s
own interests in connection with the transaction contemplated
hereby.
1.8 The
Subscriber hereby acknowledges that the Offering has not been reviewed by
the
United States Securities and Exchange Commission (the “SEC”) nor any state
regulatory authority since the Offering is intended to be exempt from the
registration requirements of Section 5 of the Securities Act, pursuant to
Regulation D. The Subscriber understands that the Shares have not been
registered under the Securities Act or under any state securities or “blue sky”
laws and agrees not to sell, pledge, assign or otherwise transfer or dispose
of
the Shares unless they are registered under the Securities Act and under
any
applicable state securities or “blue sky” laws or unless an exemption from such
registration is available.
1.9 The
Subscriber understands that the Shares have not been registered under the
Securities Act by reason of a claimed exemption under the provisions of the
Securities Act that depends, in part, upon the Subscriber’s investment
intention. In this connection, the Subscriber hereby represents that the
Subscriber is purchasing the Shares for the Subscriber’s own account for
investment and not with a view toward the resale or distribution to others.
The
Subscriber, if an entity, further represents that it was not formed for the
purpose of purchasing the Shares.
1.10 The
Subscriber understands that the common stock issuable upon conversion of
the
Preferred Stock (the “Common Shares”) is quoted on the OTC Bulletin Board and
that there is a limited market for the Common Shares. The Subscriber understands
that even if a public market develops for the Common Shares, Rule 144 (“Rule
144”) promulgated under the Securities Act requires for non-affiliates, among
other conditions, a one-year holding period prior to the resale (in limited
amounts) of securities acquired in a non-public offering without having to
satisfy the registration requirements under the Securities Act. The Subscriber
understands and hereby acknowledges that the Company is under no obligation
to
register any of the Shares under the Securities Act or any state securities
or
“blue sky” laws other than as set forth in Article V.
3
1.11 The
Subscriber consents to the placement of a legend on any certificate or other
document evidencing the Shares and any shares of common stock issuable upon
conversion of the Preferred Stock that such securities have not been registered
under the Securities Act or any state securities or “blue sky” laws and setting
forth or referring to the restrictions on transferability and sale thereof
contained in this Agreement. The Subscriber is aware that the Company will
make
a notation in its appropriate records with respect to the restrictions on
the
transferability of such Shares. The legend to be placed on each certificate
shall be in form substantially similar to the following:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES OR “BLUE
SKY LAWS,” AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY
HAS
RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND
ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
1.12 It
is
agreed that the Company, at its sole discretion, reserves the unrestricted
right, without further documentation or agreement on the part of the Subscriber,
to reject or limit any subscription, to accept subscriptions for fractional
Shares and to close the Offering to the Subscriber at any time and that the
Company will issue stop transfer instructions to its transfer agent with
respect
to such Shares.
1.13 The
Subscriber hereby represents that the address of the Subscriber furnished
by
Subscriber on the signature page hereof is the Subscriber’s principal residence
if Subscriber is an individual or its principal business address if it is
a
corporation or other entity.
1.14 The
Subscriber represents that the Subscriber has full power and authority
(corporate, statutory and otherwise) to execute and deliver this Agreement
and
to purchase the Shares. This Agreement constitutes the legal, valid and binding
obligation of the Subscriber, enforceable against the Subscriber in accordance
with its terms.
1.15 If
the
Subscriber is a corporation, partnership, limited liability company, trust,
employee benefit plan, individual retirement account, Xxxxx Plan, or other
tax-exempt entity, it is authorized and qualified to invest in the Company
and
the person signing this Agreement on behalf of such entity has been duly
authorized by such entity to do so.
1.16 The
Subscriber acknowledges that if he or she is a Registered Representative
of an
NASD member firm, he or she must give such firm the notice required by the
NASD’s Rules of Fair Practice, receipt of which must be acknowledged by such
firm in Section 7.4 below.
1.17 The
Subscriber acknowledges that at such time, if ever, as the Shares are registered
(as such term is defined in Article V hereof), sales of the Shares will be
subject to state securities laws.
1.18 (a)
The
Subscriber agrees not to issue any public statement with respect to the
Subscriber’s investment or proposed investment in the Company or the terms of
any agreement or covenant between them and the Company without the Company’s
prior written consent, except such disclosures as may be required under
applicable law or under any applicable order, rule or regulation.
4
(b) The
Company agrees not to disclose the names, addresses or any other information
about the Subscribers, except as required by law; provided, that the Company
may
use the name of the Subscriber for any offering or in any registration statement
filed pursuant to Article V in which the Subscriber’s shares are
included.
1.19 The
Subscriber agrees to hold the Company and its directors, officers, employees,
affiliates, controlling persons and agents and their respective heirs,
representatives, successors and assigns harmless and to indemnify them against
all liabilities, costs and expenses incurred by them as a result of (a) any
sale
or distribution of the Shares by the Subscriber in violation of the Securities
Act or any applicable state securities or “blue sky” laws; or (b) any false
representation or warranty or any breach or failure by the Subscriber to
comply
with any covenant made by the Subscriber in this Agreement (including the
Confidential Investor Questionnaire contained in Article VII herein) or any
other document furnished by the Subscriber to any of the foregoing in connection
with this transaction.
II. REPRESENTATIONS
BY AND COVENANTS OF THE COMPANY
The
Company hereby represents and warrants to the Subscriber that:
2.1 Organization,
Good Standing and Qualification.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida and has full corporate power and
authority to conduct its business.
2.2 Capitalization
and Voting Rights.
The
authorized, issued and outstanding capital stock of the Company is as set
forth
in the Company’s reports filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 (the “34 Act Reports”) and all
issued and outstanding shares of the Company are validly issued, fully paid
and
nonassessable. Except as set forth in the Offering Materials, there are no
outstanding options, warrants, agreements, convertible securities, preemptive
rights or other rights to subscribe for or to purchase any shares of capital
stock of the Company. Except as set forth in the Offering Materials and as
otherwise required by law, there are no restrictions upon the voting or transfer
of any of the shares of capital stock of the Company pursuant to the Company’s
Articles of Incorporation (the “Articles of Incorporation”), Bylaws or other
governing documents or any agreement or other instruments to which the Company
is a party or by which the Company is bound.
2.3 Authorization;
Enforceability.
The
Company has all corporate right, power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. All corporate
action on the part of the Company, its directors and stockholders necessary
for
the (a) authorization execution, delivery and performance of this Agreement
by
the Company; and (b) authorization, sale, issuance and delivery of the Shares
contemplated hereby and the performance of the Company’s obligations hereunder
has been taken. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
laws of
general application relating to bankruptcy, insolvency and the relief of
debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy. The Shares, when
issued
and fully paid for in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable. The issuance and sale of the
Shares contemplated hereby will not give rise to any preemptive rights or
rights
of first refusal on behalf of any person which have not been waived in
connection with this offering.
5
2.4 No
Conflict; Governmental Consents.
(a) The
execution and delivery by the Company of this Agreement and the consummation
of
the transactions contemplated hereby will not result in the violation of
any
material law, statute, rule, regulation, order, writ, injunction, judgment
or
decree of any court or governmental authority to or by which the Company
is
bound, or of any provision of the Articles of Incorporation or Bylaws of
the
Company, and will not conflict with, or result in a material breach or violation
of, any of the terms or provisions of, or constitute (with due notice or
lapse
of time or both) a default under, any lease, loan agreement, mortgage, security
agreement, trust indenture or other agreement or instrument to which the
Company
is a party or by which it is bound or to which any of its properties or assets
is subject, nor result in the creation or imposition of any lien upon any
of the
properties or assets of the Company.
(b) No
consent, approval, authorization or other order of any governmental authority
is
required to be obtained by the Company in connection with the authorization,
execution and delivery of this Agreement or with the authorization, issue
and
sale of the Shares, except such filings as may be required to be made with
the
SEC, NASD, NASDAQ and with any state or foreign blue sky or securities
regulatory authority.
2.5 Licenses.
Except
as otherwise set forth in the 34 Act Reports, the Company has sufficient
licenses, permits and other governmental authorizations currently required
for
the conduct of its business or ownership of properties and is in all material
respects in compliance therewith.
2.6 Litigation.
Except
as set forth in the 34 Act Reports, the Company knows of no pending or
threatened legal or governmental proceedings against the Company which could
materially adversely affect the business, property, financial condition or
operations of the Company or which materially and adversely questions the
validity of this Agreement or any agreements related to the transactions
contemplated hereby or the right of the Company to enter into any of such
agreements, or to consummate the transactions contemplated hereby or thereby.
The Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality which could materially adversely affect the business, property,
financial condition or operations of the Company. There is no action, suit,
proceeding or investigation by the Company currently pending in any court
or
before any arbitrator or that the Company intends to initiate.
2.7 Disclosure.
The
information set forth in the Offering Materials as of the date hereof contains
no untrue statement of a material fact nor omits to state a material fact
necessary in order to make the statements contained therein, in light of
the
circumstances under which they were made, not misleading.
6
2.8 Investment
Company.
The
Company is not an “investment company” within the meaning of such term under the
Investment Company Act of 1940, as amended, and the rules and regulations
of the
SEC thereunder.
2.9 Brokers.
Neither
the Company nor any of the Company's officers, directors, employees or
stockholders has employed or engaged any broker or finder in connection with
the
transactions contemplated by this Agreement and no fee or other compensation
is
or will be due and owing to any broker, finder, underwriter, placement agent
or
similar person in connection with the transactions contemplated by this
Agreement. The Company is not party to any agreement, arrangement or
understanding whereby any person has an exclusive right to raise funds and/or
place or purchase any debt or equity securities for or on behalf of the
Company.
2.10 Intellectual
Property; Employees.
(a) To
the
best of its knowledge, the Company owns or possesses sufficient legal rights
to
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary
for
its business as now conducted and as presently proposed to be conducted,
without
any known infringement of the rights of others. Except as disclosed in the
Memorandum, there are no material outstanding options, licenses or agreements
of
any kind relating to the foregoing proprietary rights, nor is the Company
bound
by or a party to any material options, licenses or agreements of any kind
with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements arising
from the purchase of “off the shelf” or standard products. The Company has not
received any written communications alleging that the Company has violated
or,
by conducting its business as presently proposed to be conducted, would violate
any of the patents, trademarks, service marks, trade names, copyrights or
trade
secrets or other proprietary rights of any other person or entity.
(b) Except
as
disclosed in the 34 Act Reports, the Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants
or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with
their duties to the Company or that would conflict with the Company’s business
as presently conducted.
(c) Neither
the execution nor delivery of this Agreement, nor the carrying on of the
Company’s business by the employees of the Company, nor the conduct of the
Company’s business as presently conducted, will, to the Company’s knowledge,
conflict with or result in a breach of the terms, conditions or provisions
of,
or constitute a default under, any contract, covenant or instrument under
which
any employee is now obligated.
(d) To
the
Company’s knowledge, no employee of the Company, nor any consultant with whom
the Company has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating
to
the right of any such individual to be employed by, or to contract with,
the
Company because of the nature of the business conducted by the Company; and
to
the Company’s knowledge the continued employment by the Company of its present
employees, and the performance of the Company’s contracts with its independent
contractors, will not result in any such violation. The Company has not received
any written notice alleging that any such violation has occurred. Except
as
described in the Memorandum, no employee of the Company has been granted
the
right to continued employment by the Company or to any compensation following
termination of employment with the Company except for any of the same which
would not have a material adverse effect on the business of the Company.
The
Company is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Company, nor does
the
Company have a present intention to terminate the employment of any officer,
key
employee or group of employees.
7
2.11 Title
to Properties and Assets; Liens, Etc.
Except
as described in the 34 Act Reports, the Company has good and marketable title
to
its properties and assets, including the properties and assets reflected
in the
most recent balance sheet included in the Company’s financial statements, and
good title to its leasehold estates, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than (a) those resulting
from
taxes which have not yet become delinquent; (b) liens and encumbrances which
do
not materially detract from the value of the property subject thereto or
materially impair the operations of the Company; and (c) those that have
otherwise arisen in the ordinary course of business. The Company is in
compliance with all material terms of each lease to which it is a party or
is
otherwise bound.
2.12 Obligations
to Related Parties.
Except
(i) as described in the 34 Act Reports, and (ii) the lease for our office
premises and the M&A agreement entered with Xxxxxx Capital, which is owned
by Xxxxxxx Xxxx, a shareholder of the Company, there are no obligations of
the
Company to officers, directors, stockholders, or employees of the Company
other
than (a) for payment of salary or other compensation for services rendered,
(b)
reimbursement for reasonable expenses incurred on behalf of the Company and
(c)
for other standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company). Except as may be disclosed
in the Memorandum, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.13 Subsidiaries.
The
Company has no direct or indirect Subsidiaries other than as specified in
the
SEC Reports. The Company owns, directly or indirectly, all of the capital
stock
of each Subsidiary free and clear of any and all liens, and all the issued
and
outstanding shares of capital stock of each Subsidiary are validly issued
and
are fully paid, non-assessable and free of preemptive and similar
rights.
2.14 SEC
Reports; Financial Statements.
The
Company has filed all reports required to be filed by it under the Securities
Act and Securities Exchange Act of 1934 (the “Exchange Act”), including pursuant
to Section 13(a) or 15(d) thereof, for the twelve months preceding the date
hereof (or such shorter period as the Company was required by law to file
such
reports) (the foregoing materials being collectively referred to herein as
the
"SEC Reports" and, together with the Schedules to this Agreement (if any),
the
"Disclosure Materials") on a timely basis or has timely filed a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities
Act
and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required
to be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the SEC with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the
notes
thereto, and fairly present in all material respects the financial position
of
the Company and its consolidated Subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.
8
2.15 Press
Releases.
The
press releases disseminated by the Company during the twelve months preceding
the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the
circumstances under which they were made and when made, not
misleading.
2.16
Material
Changes.
Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in the SEC Reports, (i) there has
been
no event, occurrence or development that has had or that could reasonably
be
expected to result in a material adverse effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade
payables, accrued expenses and other liabilities incurred in the ordinary
course
of business consistent with past practice and (B) liabilities not required
to be
reflected in the Company's financial statements pursuant to generally accepted
accounting principles or required to be disclosed in filings made with the
SEC,
(iii) the Company has not altered its method of accounting or the identity
of
its auditors, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, and (v) the Company has not issued any equity securities to any officer,
director or affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the SEC any request for confidential
treatment of information.
2.17
Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company.
2.18
Compliance.
The
Company is in compliance with all effective requirements of the Xxxxxxxx-Xxxxx
Act of 2002, as amended, and the rules and regulations thereunder, that are
applicable to it, except where such noncompliance could not have or reasonably
be expected to result in a material adverse effect.
2.19
Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries
are
engaged. The Company has no reason to believe that it will not be able to
renew
its and the Subsidiaries’ existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business on terms consistent with market for the Company’s and
such Subsidiaries’ respective lines of business.
9
2.20
Internal
Accounting Controls.
The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv)
the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made
known
to the certifying officers by others within those entities, particularly
during
the period in which the Company’s Form 10-K or 10-Q, as the case may be, is
being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures in accordance with
Item
307 of Regulation S-K under the Exchange Act for the Company’s most recently
ended fiscal quarter or fiscal year-end (such date, the "Evaluation Date").
The
Company presented in its most recently filed Form 10-K or Form 10-Q the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in the
Company’s internal controls (as such term is defined in Item 308(c) of
Regulation S-K under the Exchange Act) or, to the Company's knowledge, in
other
factors that could significantly affect the Company's internal
controls.
2.21
Solvency.
Based
on the financial condition of the Company as of the closing date (and assuming
that the closing shall have occurred), (i) the Company's fair saleable value
of
its assets exceeds the amount that will be required to be paid on or in respect
of the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature, (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of
the
business conducted by the Company, and projected capital requirements and
capital availability thereof, and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate
all
of its assets, after taking into account all anticipated uses of the cash,
would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Company does not intend to incur debts beyond
its
ability to pay such debts as they mature (taking into account the timing
and
amounts of cash to be payable on or in respect of its debt).
2.22
Certain
Registration Matters.
Assuming the accuracy of the Subscribers’ representations and warranties, no
registration under the Securities Act is required for the offer and sale
of the
Shares by the Company to the Subscribers under the Agreement. The Company
is
eligible to register the resale of its common stock issuable upon conversion
of
the Preferred Stock for resale by the Subscribers under Form SB-2 promulgated
under the Securities Act.
10
2.23
Listing
and Maintenance Requirements.
Except
as specified in the SEC Reports, the Company has not, in the two years preceding
the date hereof, received notice from any trading market to the effect that
the
Company is not in compliance with the listing or maintenance requirements
thereof. The Company is, and has no reason to believe that it will not in
the
foreseeable future continue to be, in compliance with the listing and
maintenance requirements for continued listing of the common stock on the
trading market on which the common stock is currently listed or quoted. The
issuance and sale of the Shares under the Agreement does not contravene the
rules and regulations of the trading market on which the common stock is
currently listed or quoted, and no approval of the shareholders of the Company
thereunder is required for the Company to issue and deliver to the Subscribers
the Shares contemplated by this Agreement.
2.24
Application
of Takeover Protections.
The
Company has taken all necessary action, if any, in order to render inapplicable
any control share acquisition, business combination, poison pill (including
any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company's Certificate of Incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable
to
the Subscribers as a result of the Subscribers and the Company fulfilling
their
obligations or exercising their rights under this Agreement, including, without
limitation, the Company's issuance of the Shares and the Subscribers' ownership
of the Shares.
2.25
No
Additional Agreements.
The
Company does not have any agreement or understanding with any Subscribers
with
respect to the transactions contemplated by this Agreement other than as
specified in this Agreement.
III. TERMS
OF SUBSCRIPTION
3.1 All
funds
shall be submitted directly to the Company’s account identified in Section 1.1
hereof.
3.2 Certificates
representing the Series C Cumulative Convertible Preferred Stock purchased
by
the Subscriber pursuant to this Agreement will be prepared for delivery to
the
Subscriber within 10 business days following the closing at which such purchase
takes place. The Subscriber hereby authorizes and directs the Company to
deliver
the certificates representing the Series C Cumulative Convertible Preferred
Stock purchased by the Subscriber pursuant to this Agreement directly to
the
Subscriber’s residential or business address indicated on the signature page
hereto.
IV. CONDITIONS
TO OBLIGATIONS OF THE SUBSCRIBERS
4.1 The
Subscriber’s obligation to purchase the Shares at the closing at which such
purchase is to be consummated is subject to the fulfillment on or prior to
such
closing of the following conditions, which conditions may be waived at the
option of each Subscriber to the extent permitted by law:
11
(a) Covenants.
All
covenants, agreements and conditions contained in this Agreement to be performed
by the Company on or prior to the date of such closing shall have been performed
or complied with in all material respects.
(b) No
Legal Order Pending.
There
shall not then be in effect any legal or other order enjoining or restraining
the transactions contemplated by this Agreement.
(c) No
Law
Prohibiting or Restricting Such Sale.
There
shall not be in effect any law, rule or regulation prohibiting or restricting
such sale or requiring any consent or approval of any person, which shall
not
have been obtained, to issue the Shares (except as otherwise provided in
this
Agreement).
(d)
Adverse
Changes.
Since
the date of execution of this Agreement, no event or series of events shall
have
occurred that reasonably could have or result in a material adverse
effect.
(e)
No
Suspensions of Trading in Common Stock; Listing.
Trading
in the common stock shall not have been suspended by the SEC or any trading
market (except for any suspensions of trading of not more than one trading
day
solely to permit dissemination of material information regarding the Company)
at
any time since the date of execution of this Agreement, and the common stock
shall have been at all times since such date listed for trading on a trading
market.
(f)
Legal
Opinion.
Counsel
to the Company shall issue a legal opinion to the Subscribers in a form
acceptable to the Subscribers.
V. REGISTRATION
RIGHTS
5.1 Definitions.
As used
in this Agreement, the following terms shall have the following
meanings.
(a) The
term
“Holder” shall mean any person owning or having the right to acquire Registrable
Securities or any permitted transferee of a Holder.
(b) The
terms
“register,”“registered” and “registration” refer to a registration effected by
preparing and filing a registration statement or similar document in compliance
with the Securities Act, and the declaration or order of effectiveness of
such
registration statement or document.
(c) The
term
“Registrable Securities” shall mean the common shares of stock issuable upon
conversion of the Preferred Stock, the common shares issued or issuable in
connection with a Semi-Annual Dividend for a period of three years and any
securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event, or any conversion price
adjustment with respect to the Preferred Stock; provided, however, that
securities shall only be treated as Registrable Securities if and only for
so
long as they (A) have not been disposed of pursuant to a registration statement
declared effective by the SEC; (B) have not been sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities
Act
so that all transfer restrictions and restrictive legends with respect thereto
are removed upon the consummation of such sale; (C) are held by a Holder
or a
permitted transferee of a Holder pursuant to Section 5.11; and (D) may not
be
disposed of under Rule 144(k) under the Securities Act without restriction.
12
5.2
Mandatory
Registration.
The
Company shall prepare, and, within sixty (60) days following the final closing
of this offering (the “Filing
Date”),
will
file with the SEC a registration statement on Form S-3 (or, if Form S-3 is
not
then available, on such form of registration statement as is then available
to
effect a registration of the Registrable Securities) covering the resale
of the
Registrable Securities. The Company shall use its best efforts to obtain
effectiveness of the registration statement as soon as practicable. If the
registration statement covering the Registrable Securities required to be
filed
by the Company pursuant to this Section 5.2 hereof is not filed by the Filing
Date or declared effective by the SEC on or prior to one hundred twenty (120)
days from the Filing Date, then the Company will make payments to the
Subscribers in such amounts and at such times as shall be determined pursuant
to
this Section 5.2 as partial relief for the damages to the Subscribers by
reason
of any such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity). The Company shall pay to each holder of the Preferred
Stock or Registrable Securities an amount equal to the then outstanding Stated
Value of the Preferred Stock, as defined in the Certificate of Designation
(“Outstanding Stated Value”), multiplied by the Applicable Percentage (as
defined below) times the number of months (prorated for partial months) after
the Filing Date or the end of the aforementioned one hundred twenty (120)
day
period and prior to the date the registration statement is declared effective
by
the SEC, provided, however, that there shall be excluded from such period
any
delays which are solely attributable to changes required by the Subscribers
in
the registration statement with respect to information relating to the
Subscribers, including, without limitation, changes to the plan of distribution.
The term “Applicable Percentage” means one hundredth (.01). (For example, if the
registration statement becomes effective one (1) month after the end of such
one
hundred twenty (120) day period, the Company would pay $2,500 for each $250,000
of Outstanding Stated Value. If thereafter, sales could not be made pursuant
to
the registration statement for an additional period of one (1) month, the
Company would pay an additional $2,500 for each $250,000 of Outstanding Stated
Value.) Such amounts shall be paid in cash or, at the Company’s option, in
shares of Common Stock. In the event that the Company elects to issue shares
of
Common Stock, such shares shall be determined by dividing the penalty amount
by
98% of the volume-weighted average price of the common stock for the 20 trading
days immediately prior to the dividend date (the “Dividend
VWAP”);
provided, however, if we are unable to determine the Dividend VWAP, then
such
payment shall be determined by dividing the penalty amount by the average
of the
three highest closing bid prices during the 20 trading days immediately
preceding the penalty date.
13
5.3 Piggyback
Registration.
(a) The
Company agrees that if, at any time, and from time to time, after the closing,
the Board of Directors of the Company (the “Board”) shall authorize the filing
of a registration statement under the Securities Act (other than a registration
statement on Form X-0, Xxxx X-0 or any other form that does not include
substantially the same information as would be required in a form for the
general registration of securities) in connection with the proposed offer
of any
of its securities by it or any of its stockholders, the Company shall: (A)
promptly notify each Holder that such registration statement will be filed
and
that the Registrable Securities then held by such Holder will be included
in
such registration statement at such Holder’s request; (B) cause such
registration statement to cover all of such Registrable Securities issued
to
such Holder for which such Holder requests inclusion; (C) use best efforts
to
cause such registration statement to become effective as soon as practicable;
and (D) take all other reasonable action necessary under any federal or state
law or regulation of any governmental authority to permit all such Registrable
Securities that have been issued to such Holder to be sold or otherwise disposed
of, and will maintain such compliance with each such federal and state law
and
regulation of any governmental authority for the period necessary for such
Holder to promptly effect the proposed sale or other disposition.
(b) Notwithstanding
any other provision of this Section 5.3, the Company may at any time, abandon
or
delay any registration commenced by the Company. In the event of such an
abandonment by the Company, the Company shall not be required to continue
registration of shares requested by the Holder for inclusion, the Holder
shall
retain the right to request inclusion of shares as set forth above and the
withdrawn registration shall not be deemed to be a registration request for
the
purposes of Section 5.3(c) below.
(c) Each
Holder shall have the right to request inclusion of any of its Registrable
Securities in a registration statement as described in this Section 5.3,
up to
three times.
5.4 Registration
Procedures.
Whenever required under this Article V to include Registrable Securities
in a
Company registration statement, the Company shall, as expeditiously as
reasonably possible:
(a) Use
best
efforts to (i) cause such registration statement to become effective, and
(ii)
cause such registration statement to remain effective until the earliest
to
occur of (A) such date as the sellers of Registrable Securities (the “Selling
Holders”) have completed the distribution described in the registration
statement and (B) such time that all of such Registrable Securities are no
longer, by reason of Rule 144(k) under the Securities Act, required to be
registered for the sale thereof by such Holders. The Company will also use
its
best efforts to, during the period that such registration statement is required
to be maintained hereunder, file such post-effective amendments and supplements
thereto as may be required by the Securities Act and the rules and regulations
thereunder or otherwise to ensure that the registration statement does not
contain any untrue statement of material fact or omit to state a fact required
to be stated therein or necessary to make the statements contained therein,
in
light of the circumstances under which they are made, not misleading; provided,
however, that if applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permits, in lieu of filing
a
post-effective amendment that (i) includes any prospectus required by Section
10(a)(3) of the Securities Act or (ii) reflects facts or events representing
a
material or fundamental change in the information set forth in the registration
statement, the Company may incorporate by reference information required
to be
included in (i) and (ii) above to the extent such information is contained
in
periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act
in
the registration statement.
14
(b) Prepare
and file with the SEC such amendments and supplements to such registration
statement, and the prospectus used in connection with such registration
statement, as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Make
available for inspection upon reasonable notice during the Company’s regular
business hours by each Selling Holder, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such Selling Holder or underwriter,
all
financial and other records, pertinent corporate documents and properties
of the
Company, and cause the Company’s officers, directors and employees to supply all
information reasonably requested by any such Selling Holder, underwriter,
attorney, accountant or agent in connection with such registration
statement.
(d) Furnish
to the Selling Holders such numbers of copies of a final prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(e) Use
best
efforts to register and qualify the securities covered by such registration
statement under such other federal or state securities laws of such
jurisdictions as shall be reasonably requested by the Selling Holders; provided,
however, that the Company shall not be required in connection therewith or
as a
condition thereto to qualify to do business or to file a general consent
to
service of process in any such states or jurisdictions, unless the Company
is
already subject to service in such jurisdiction and except as may be required
by
the Securities Act.
(f) In
the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
with
the managing underwriter of such offering. Each Selling Holder participating
in
such underwriting shall also enter into and perform its obligations under
such
an agreement.
(g) Notify
each Holder of Registrable Securities covered by such registration statement,
at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act within one (1) business day of receipt, (i) when the
registration statement or any post-effective amendment and supplement thereto
has become effective; (ii) of the issuance by the SEC of any stop order or
the
initiation of proceedings for that purpose (in which event the Company shall
make every effort to obtain the withdrawal of any order suspending effectiveness
of the registration statement at the earliest possible time or prevent the
entry
thereof); (iii) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Registrable Securities for
sale in
any jurisdiction or the initiation of any proceeding for such purpose; and
(iv)
of the happening of any event as a result of which the prospectus included
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 the light of
the
circumstances then existing.
15
(h) Cause
all
such Registrable Securities registered hereunder to be listed on each securities
exchange or quotation service on which similar securities issued by the Company
are then listed or quoted or, if no such similar securities are listed or
quoted
on a securities exchange or quotation service, apply for qualification and
use
best efforts to qualify such Registrable Securities for inclusion on the
New
York Stock Exchange, American Stock Exchange or listing on a quotation system
of
the National Association of Securities Dealers, Inc.
(i) Cooperate
with the Selling Holders and the managing underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing the Registrable
Securities to be sold, which certificates will not bear any restrictive legends;
and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters, if any, shall request
at
least five business days prior to any sale of the Registrable Securities
to the
underwriters.
(j) In
connection with an underwritten offering, cause the officers of the Company
to
provide reasonable assistance in the preparation of, any “road show”
presentation to potential investors as the managing underwriter may determine.
(k) Comply
with all applicable rules and regulations of the SEC and make generally
available to its security holders earning statements satisfying the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar
rule promulgated under the Securities Act) no later than 50 calendar days
after
the end of any 3-month period (or 105 calendar days after the end of any
12-month period if such period is a fiscal year) (i) commencing at the end
of
any fiscal quarter in which Registrable Securities are sold to underwriters
in a
firm commitment or best efforts underwritten offering, and (ii) if not sold
to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company, after the effective date of a registration
statement, which statements shall cover said period.
(l) If
the
offering is underwritten and at the request of any Selling Holder, use its
best
efforts to furnish on the date that Registrable Securities are delivered
to the
underwriters for sale pursuant to such registration: (i) opinions dated such
date of counsel representing the Company for the purposes of such registration,
addressed to the underwriters and the transfer agent for the Registrable
Securities so delivered, respectively, to the effect that such registration
statement has become effective under the Securities Act and such Registrable
Securities are freely tradable, and covering such other matters as are
customarily covered in opinions of issuer’s counsel delivered to underwriters
and transfer agents in underwritten public offerings and (ii) a letter dated
such date from the independent public accountants who have certified the
financial statements of the Company included in the registration statement
or
the prospectus, covering such matters as are customarily covered in accountants’
letters delivered to underwriters in underwritten public offerings.
16
5.5 Furnish
Information.
It
shall be a condition precedent to the obligation of the Company to take any
action pursuant to this Article V with respect to the Registrable Securities
of
any Selling Holder that such Holder shall furnish to the Company such
information regarding the Holder, the Registrable Securities held by the
Holder,
and the intended method of disposition of such securities as shall be reasonably
required by the Company to effect the registration of such Holder’s Registrable
Securities.
5.6 Registration
Expenses.
The
Company shall bear and pay all Registration Expenses incurred in connection
with
any registration, filing or qualification of Registrable Securities with
respect
to registrations pursuant to Section V for each Holder, but excluding
underwriting discounts and commissions relating to Registrable Securities
and
excluding any professional fees or costs of accounting, financial or legal
advisors to any of the Holders.
5.7 Underwriting
Requirements.
In
connection with any offering involving an underwriting of shares of the
Company’s capital stock, the Company shall not be required under Section 5.3 to
include any of the Holders’ Registrable Securities in such underwriting unless
they accept the terms of the underwriting as agreed upon between the Company
and
the underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine
in
their sole discretion will not jeopardize the success of the offering by
the
Company. If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering exceeds the amount
of
securities sold other than by the Company that the underwriters determine
in
their sole discretion is compatible with the success of the offering, then
the
Company shall be required to include in the offering only that number of
such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering
(the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders). For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder who is
a
holder of Registrable Securities and is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the estates
and
family members of any such partners and retired partners and any trusts for
the
benefit of any of the foregoing persons shall be deemed to be a single “selling
stockholder,” and any pro-rata reduction with respect to such “selling
stockholder” shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
“selling stockholder,” as defined in this sentence.
5.8 Delay
of Registration.
No
Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy
that
might arise with respect to the interpretation or implementation of this
Article.
5.9 Indemnification.
In the
event that any Registrable Securities are included in a registration statement
under this Article V:
(a) To
the
extent permitted by law, the Company will indemnify and hold harmless each
Holder, any underwriter (as defined in the Securities Act) for such Holder
and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages,
or liabilities (joint or several) to which they may become subject under
the
Securities Act, or the Exchange Act, insofar as such losses, claims, damages,
or
liabilities (or actions in respect thereof) arise out of or are based upon
any
of the following statements, omissions or violations (collectively a
“Violation”): (i) any untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission
to
state therein a material fact required to be stated therein, or necessary
to
make the statements therein not misleading, or (iii) any violation by the
Company of the Securities Act, the Exchange Act, or any rule or regulation
promulgated under the Securities Act, or the Exchange Act, and the Company
will
pay to each such Holder, underwriter or controlling person, as incurred,
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 indemnity agreement contained in this Section
5.9(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of
the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation
which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
17
(b) To
the
extent permitted by law, each Selling Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers, each person, if
any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against
any
losses, claims, damages, or liabilities (joint or several) to which any of
the
foregoing persons may become subject, under the Securities Act, or the Exchange
Act, insofar as such losses, claims, damages, or liabilities (or actions
in
respect thereto) arise out of or are based upon any Violation, in each case
to
the extent (and only to the extent) that such Violation occurs in reliance
upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay,
as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this Section 5.9(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided,
however,
that
the indemnity agreement contained in this Section 5.9(b) shall not apply
to
amounts paid in settlement of any such loss, claim, damage, liability or
action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
(c) Promptly
after receipt by an indemnified party under this Section 5.9 of notice of
the
commencement of any action (including any governmental action), such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 5.9, deliver to the indemnifying party
a
written notice of the commencement thereof and the indemnifying party shall
have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly notified, to
assume
the defense thereof with counsel selected by the indemnifying party and approved
by the indemnified party (whose approval shall not be unreasonably withheld);
provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time
of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 5.9, but the omission so to deliver
written
notice to the indemnifying party will not relieve it of any liability that
it
may have to any indemnified party otherwise than under this Section
5.9.
18
(d) If
the
indemnification provided for in this Section 5.9 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any
loss,
liability, claim, damage, or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such loss, liability, claim, damage, or expense in such proportion as
is
appropriate to reflect the relative fault of the indemnifying party on the
one
hand and of the indemnified party on the other in connection with the statements
or omissions that resulted in such loss, liability, claim, damage, or expense
as
well as any other relevant equitable considerations. The relative fault of
the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of
a
material fact or the alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party
and
the parties’ relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding
the foregoing, to the extent that the provisions on indemnification and
contribution contained in an underwriting agreement entered into in connection
with an underwritten public offering are in conflict with the foregoing
provisions, the provisions in such underwriting agreement shall
control.
(f) The
obligations of the Company and Holders under this Section 5.9 shall survive
the
completion of the Offering.
5.10 Reports
Under Securities Exchange Act of 1934.
With a
view to making available to the Holders the benefits of Rule 144 and any
other
rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant
to a
registration on Form S-3 (or other applicable form), the Company agrees
to:
(a) file
with
the SEC all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(b) furnish
to any Holder, so long as the Holder owns any Registrable Securities, forthwith
upon request (i) a copy of the most recent annual or quarterly report of
the
Company and such other reports and documents so filed by the Company, and
(ii)
such other information as may be reasonably requested in availing any Holder
of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
19
5.11 Permitted
Transferees.
The
rights to cause the Company to register Registrable Securities granted to
the
Holders by the Company under this Article V may be assigned in full by a
Holder
in connection with a transfer by such Holder of its Registrable Securities
if:
(a) such Holder gives prior written notice to the Company; (b) such
transferee agrees to comply with the terms and provisions of this Agreement;
(c) such transfer is otherwise in compliance with this Agreement;
and
(d) such transfer is otherwise effected in accordance with applicable
securities laws.
5.12 Termination
of Registration Rights
The
right of any Holder to request inclusion in any registration pursuant to
Section
V shall terminate if all shares of Registrable Securities held by such Holder
may immediately be sold under Rule 144(k).
| VI. |
MISCELLANEOUS
|
6.1 Any
notice or other communication given hereunder shall be deemed sufficient
if in
writing and sent by registered or certified mail, return receipt requested,
or
delivered
by hand against written receipt therefor, addressed as follows:
if
to the
Company, to it at:
000
Xxxxx
Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn:
Xxxxxxx X. Xxxxxxx, CFO
With
a
copy to (which shall not constitute notice):
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx,
XX 00000
Attn:
Xxxxxxx Xxxxxxxxx, Esq.
if
to the
Subscriber, to the Subscriber’s address indicated on the signature page of this
Agreement.
Notices
shall be deemed to have been given or delivered on the date of
receipt.
6.2 Except
as
otherwise provided herein, this Agreement shall not be changed, modified
or
amended except by a writing signed by the parties to be charged, and this
Agreement
may not
be discharged except by performance in accordance with its terms or by a
writing
signed by the party to be charged.
6.3 Subject
to the provisions of Section 5.11, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and to their respective heirs,
legal
representatives, successors and assigns. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter
hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
20
6.4 Upon
the
execution and delivery of this Agreement by the Subscriber, this Agreement
shall
become a binding obligation of the Subscriber with respect to the purchase
of
Shares as herein provided, subject, however, to the right hereby reserved
by the
Company to enter into the same agreements with other subscribers and to add
and/or delete other persons as subscribers.
6.5 NOTWITHSTANDING
THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES HERETO,
THE
PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND PROVISIONS HEREOF SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK
WITHOUT REGARD TO SUCH STATE’S PRINCIPLES OF CONFLICTS OF LAW. IN THE EVENT THAT
A JUDICIAL PROCEEDING IS NECESSARY, THE SOLE FORUM FOR RESOLVING DISPUTES
ARISING OUT OF OR RELATING TO THIS AGREEMENT IS THE COURTS STATE OF NEW YORK
IN
AND FOR THE COUNTY OF NEW YORK OR THE FEDERAL COURTS FOR SUCH STATE AND COUNTY,
AND ALL RELATED APPELLATE COURTS, THE PARTIES HEREBY IRREVOCABLY CONSENT
TO THE
JURISDICTION OF SUCH COURTS AND AGREE TO SAID VENUE.
6.6 In
order
to discourage frivolous claims the parties agree that unless a claimant in
any
proceeding arising out of this Agreement succeeds in establishing his claim
and
recovering a judgment against another party (regardless of whether such claimant
succeeds against one of the other parties to the action), then the other
party
shall be entitled to recover from such claimant all of its/their reasonable
legal costs and expenses relating to such proceeding and/or incurred in
preparation therefor.
6.7 The
holding of any provision of this Agreement to be invalid or unenforceable
by a
court of competent jurisdiction shall not affect any other provision of this
Agreement, which shall remain in full force and effect. If any provision
of this
Agreement shall be declared by a court of competent jurisdiction to be invalid,
illegal or incapable of being enforced in whole or in part, such provision
shall
be interpreted so as to remain enforceable to the maximum extent permissible
consistent with applicable law and the remaining conditions and provisions
or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provisions shall be deemed dependent upon any other covenant or provision
unless
so expressed herein.
6.8 It
is
agreed that a waiver by either party of a breach of any provision of this
Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
6.9 The
Company agrees to execute and deliver all such further documents, agreements
and
instruments and take such other and further action as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.
6.10 This
Agreement may be executed in two or more counterparts each of which shall
be
deemed an original, but all of which shall together constitute one and the
same
instrument.
21
6.11 Nothing
in this Agreement shall create or be deemed to create any rights in any person
or entity not a party to this Agreement, except for the holders of Registrable
Securities.
6.12
Integration.
The
Company shall not, and shall use its best efforts to ensure that no affiliate
of
the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Shares in a manner
that would require the registration under the Securities Act of the sale
of the
Shares to the Subscribers, or that would be integrated with the offer or
sale of
the Shares for purposes of the rules and regulations of any trading market
in a
manner that would require stockholder approval of the sale of the securities
to
the Subscribers.
6.13
Listing
of Securities.
The
Company agrees, (i) if the Company applies to have the common stock traded
on
any other trading market, it will include in such application the Shares,
and
will take such other action as is necessary or desirable to cause the Shares
to
be listed on such other trading market as promptly as possible, and (ii)
it will
take all action reasonably necessary to continue the listing and trading
of its
common stock on a trading market and will comply in all material respects
with
the Company’s reporting, filing and other obligations under the bylaws or rules
of the trading market.
6.14
Reservation
of Shares.
The
Company shall maintain a reserve from its duly authorized shares of common
stock
to comply with its conversion obligations under the Shares. If on any date
the
Company would be, if notice of conversion were to be delivered on such date,
precluded from issuing the number of shares of common stock, as the case
may be,
issuable upon conversion in full of the Shares (in each case, without regard
to
any conversion or exercise caps or other limitation thereunder), due to the
unavailability of a sufficient number of authorized but unissued or reserved
shares of common stock, then the Board of Directors of the Company shall
promptly prepare and mail to the stockholders of the Company proxy materials
or
other applicable materials requesting authorization to amend the Company’s
certificate of incorporation or other organizational document to increase
the
number of shares of common stock which the Company is authorized to issue
so as
to provide enough shares for issuance of the shares of common stock issuable
upon conversion of the Shares. In connection therewith, the Board of Directors
shall (a) adopt proper resolutions authorizing such increase, (b) recommend
to
and otherwise use its best efforts to promptly and duly obtain stockholder
approval (including the hiring of a nationally recognized proxy solicitor
firm)
to carry out such resolutions (and hold a special meeting of the stockholders
as
soon as practicable, but in any event not later than the 60th
day
after delivery of the proxy or other applicable materials relating to such
meeting) and (c) within five business days of obtaining such stockholder
authorization, file an appropriate amendment to the Company’s certificate of
incorporation or other organizational document to evidence such
increase.
6.15
Conversion
Procedures.
The
form of Notice of Conversion included in the Certificate of Designation of
Preferences, Rights and Limitations of the Shares (the “Certificate of
Designation”) sets forth the totality of the procedures required by the
Subscribers in order to convert the Shares. The Company shall honor conversions
of Shares and shall deliver common stock in accordance with the terms,
conditions and time periods set forth in this Agreement and the Certificate
of
Designation.
22
6.16
Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) this Agreement, whenever any Subscriber exercises
a
right, election, demand or option under this Agreement and the Company does
not
timely perform its related obligations within the periods therein provided,
then
such Subscriber may rescind or withdraw, in its sole discretion from time
to
time upon written notice to the Company, any relevant notice, demand or election
in whole or in part without prejudice to its future actions and
rights.
6.17
Replacement
of Securities.
If any
certificate or instrument evidencing any Shares is mutilated, lost, stolen
or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction
and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Shares.
If a
replacement certificate or instrument evidencing any Shares is requested
due to
a mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
6.18
Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Subscribers and the Company
will
be entitled to specific performance under this Agreement. The parties agree
that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
6.19
Independent
Nature of Subscribers' Obligations and Rights.
The
obligations of each Subscriber under this Agreement are several and not joint
with the obligations of any other Subscriber, and no Subscriber shall be
responsible in any way for the performance of the obligations of any other
Subscriber under this Agreement. The decision of each Subscriber to purchase
Shares pursuant to this Agreement has been made by such Subscriber independently
of any other Subscriber. Nothing contained herein, and no action taken by
any
Subscriber pursuant thereto, shall be deemed to constitute the Subscribers
as a
partnership, an association, a joint venture or any other kind of entity,
or
create a presumption that the Subscribers are in any way acting in concert
or as
a group with respect to such obligations or the transactions contemplated
herein. Each Subscriber acknowledges that no other Subscriber has acted as
agent
for such Subscriber in connection with making its investment hereunder and
that
no Subscriber will be acting as agent of such Subscriber in connection with
monitoring its investment in the Shares or enforcing its rights under this
Agreement. Each Subscriber shall be entitled to independently protect and
enforce its rights, including without limitation the rights arising out of
this
Agreement, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that each of the Subscribers has been provided with this same
Agreement for the purpose of closing a transaction with multiple Subscribers
and
not because it was required or requested to do so by any
Subscriber.
23
6.20
Subsequent
Registrations.
Other
than pursuant to the registration statement filed in connection with the
transactions contemplated by this Agreement, prior to the date that such
registration statement is declared effective by the SEC, the Company may
not
file any registration statement (other than on Form S-8) with the SEC with
respect to any securities of the Company.
6.21
Right
of First Refusal.
Until
twelve (12) months after the Closing Date, the Subscribers shall be given
not
less than five (5) business days prior written notice of any proposed private
sale by the Company of its Common Stock or other securities or debt obligations,
except in connection with (i)
employee stock options or compensation plans, (ii) as full or partial
consideration in connection with any merger, consolidation or purchase of
substantially all of the securities or assets of any corporation or other
entity, (iii) any sale of its securities through a registered broker dealer
or
placement agent or (iv) as has been described in the 34 Act Reports or other
written information filed or delivered prior to the closing date (collectively
“Excepted Issuances”).
The
Subscribers who exercise their rights pursuant to this Section 6.21 shall
have
the right during the five (5) business days following receipt of the notice
to
purchase up to an amount that will allow such Subscribers to maintain their
ownership percentage in the Company of such offered Common Stock, debt or
other
securities in accordance with the terms and conditions set forth in the notice
of sale in the same proportion as their portion of the Purchase Price bears
to
the total Purchase Price. In the event such terms and conditions are modified
during the notice period, the Purchasers shall be given prompt notice of
such
modification and shall have the right during the five (5) business days
following the notice of modification, whichever is longer, to exercise such
right.
VII. CONFIDENTIAL
INVESTOR QUESTIONNAIRE
7.1 The
Subscriber represents and warrants that he, she or it comes within one category
marked below, and that for any category marked, he, she or it has truthfully
set
forth, where applicable, the factual basis or reason the Subscriber comes
within
that category. ALL INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY
CONFIDENTIAL. The undersigned agrees to furnish any additional information
which
the Company deems necessary in order to verify the answers set forth
below.
Category
A -
The
undersigned is an individual (not a partnership, corporation, etc.) whose
individual net worth, or joint net worth with his or her spouse, presently
exceeds $1,000,000.
Explanation.
In calculating net worth you may include equity in personal property and
real
estate, including your principal residence, cash, short-term investments,
stock
and securities. Equity in personal property and real estate should be based
on
the fair market value of such property less debt secured by such
property.
24
Category
B -
The
undersigned is an individual (not a partnership, corporation, etc.) who had
an
income in excess of $200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of $300,000 in each of those years
(in
each case including foreign income, tax exempt income and full amount of
capital
gains and losses but excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable expectation of reaching
the same income level in the current year.
Category
C -
The
undersigned is a director or executive officer of the Company which is issuing
and selling the Shares.
Category
D -
The
undersigned is a bank; a savings and loan association; insurance company;
registered investment company; registered business development company; licensed
small business investment company (“SBIC”); or employee benefit plan within the
meaning of Title 1 of ERISA and (a) the investment decision is made by a
plan
fiduciary which is either a bank, savings and loan association, insurance
company or registered investment advisor, or (b) the plan has total assets
in
excess of $5,000,000 or (c) is a self directed plan with investment decisions
made solely by persons that are accredited investors. (describe
entity)
Category
E -
The
undersigned is a private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940. (describe entity)
Category
F -
The
undersigned is either a corporation, partnership, Massachusetts business
trust,
or non-profit organization within the meaning of Section 501(c)(3) of the
Internal Revenue Code, in each case not formed for the specific purpose of
acquiring the Shares and with total assets in excess of $5,000,000. (describe
entity)
Category
G -
The
undersigned is a trust with total assets in excess of $5,000,000, not formed
for
the specific purpose of acquiring the Shares, where the purchase is directed
by
a “sophisticated investor” as defined in Regulation 506(b)(2)(ii) under the
Act.
Category
H -
The
undersigned is an entity (other than a trust) in which all of the equity
owners
are “accredited investors” within one or more of the above categories. If
relying upon this Category alone, each equity owner must complete a separate
copy of this Agreement. (describe entity)
25
Category
I -
The
undersigned is not within any of the categories above and is therefore not
an
accredited investor.
The
undersigned agrees that the undersigned will notify the Company at any time
on
or prior to the closing in the event that the representations and warranties
in
this Agreement shall cease to be true, accurate and complete.
7.2 SUITABILITY
(please
answer each question)
(a) For
an
individual Subscriber, please describe your current employment, including
the
company by which you are employed and its principal business:
(b) For
an
individual Subscriber, please describe any college or graduate degrees held
by
you:
(c) For
all
Subscribers, please list types of prior investments:
(d) For
all
Subscribers, please state whether you have participated in other private
placements
before:
YES_______ NO_______
(e) If
your
answer to question (d) above was “YES”, please indicate frequency of such prior
participation in private
placements
of:
|
Public
Companies
|
Private
Companies
|
Public
or Private Companies
with
no, or insignificant,
assets
and operations
|
||||||||
|
Frequently
|
||||||||||
|
Occasionally
|
||||||||||
|
Never
|
||||||||||
(f) For
individual Subscribers, do you expect your current level of income to
significantly decrease in the foreseeable future:
YES_______ NO_______
26
(g) For
trust, corporate, partnership and other institutional Subscribers, do you
expect
your total assets to significantly decrease in the foreseeable future:
YES_______ NO_______
(h) For
all
Subscribers, do you have any other investments or contingent liabilities
which
you reasonably anticipate could cause you to need sudden cash requirements
in
excess of cash readily available to you:
YES_______ NO_______
(i) For
all
Subscribers, are you familiar with the risk aspects and the non-liquidity
of
investments such as the securities for which you seek to subscribe?
YES_______ NO_______
(j) For
all
Subscribers, do you understand that there is no guarantee of financial return
on
this investment and that you run the risk of losing your entire
investment?
YES_______ NO_______
7.3 MANNER
IN WHICH TITLE IS TO BE HELD.
(circle
one)
(a) Individual
Ownership
(b) CommSharey
Property
(c) Joint
Tenant with Right of
Survivorship
(both parties
must
sign)
(d) Partnership*
(e) Tenants
in Common
(f) Company*
(g) Trust*
(h) Other*
*If
Securities are being subscribed for by an entity, the attached Certificate
of
Signatory must also be completed.
7.4 NASD
AFFILIATION.
Are
you
affiliated or associated with an NASD member firm (please check
one):
Yes
_________ No
__________
If
Yes,
please describe:
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
27
*If
Subscriber is a Registered Representative with an NASD member firm, have
the
following acknowledgment signed by the appropriate party:
The
undersigned NASD member firm acknowledges receipt of the notice required
by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
_________________________________
Name
of
NASD Member Firm
By:
______________________________
Authorized Officer
Date:
____________________________
7.5 The
undersigned is informed of the significance to the Company of the foregoing
representations and answers contained in the Confidential Investor Questionnaire
contained in this Article VII and such answers have been provided under the
assumption that the Company will rely on them.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
28
NUMBER
OF
SHARES _________ X $6.00 = $_________ (the “Purchase
Price”)
| Signature | Signature (if purchasing jointly) | |
| Name Typed or Printed | Name Typed or Printed | |
| Title (if Subscriber is an Entity) | Title (if Subscriber is an Entity) | |
| Entity Name (if applicable) | Entity Name (if applicable) | |
| Xxxxxxx | Xxxxxxx | |
| Xxxx, Xxxxx xxx Xxx Xxxx | Xxxx, Xxxxx and Zip Code | |
| Telephone-Business | Telephone-Business | |
| Telephone-Residence | Telephone-Residence | |
| Facsimile-Business | Facsimile-Business | |
| Facsimile-Residence | Facsimile-Residence | |
| Tax ID # or Social Security # | Tax ID # or Social Security # | |
| Name in which securities should be issued: | ||
Dated:
,
2005
This
Subscription Agreement is agreed to and accepted as of
________________ ,
2005.
| NATIONAL INVESTMENT MANAGERS INC. | ||
| |
|
|
| By: | /s/ | |
|
Xxxxxxx X. Xxxxxxxxx
Chief Executive
Officer
|
||
29
CERTIFICATE
OF SIGNATORY
(To
be
completed if Securities are
being
subscribed for by an entity)
I,
____________________________, am the ____________________________ of
__________________________________________ (the “Entity”).
I
certify
that I am empowered and duly authorized by the Entity to execute and carry
out
the terms of the Subscription Agreement and to purchase and hold the shares
of
Series C Cumulative Preferred Stock, and certify further that the Subscription
Agreement has been duly and validly executed on behalf of the Entity and
constitutes a legal and binding obligation of the Entity.
IN
WITNESS WHEREOF, I have set my hand this ________ day of _________________,
200_
| |
|
|
| By: | /s/ | |
|
|
||
30
