SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Kaleidoscope Media
Group Inc., a Delaware corporation (the "Company") hereby agrees to issue and to
sell to the Subscriber, 8% Convertible Notes (the "Notes") convertible in
accordance with the terms thereof into shares of the Company's $.001 par value
common stock (the "Company Shares") as set forth on the signature page hereof
for the aggregate consideration as set forth on the signature page hereof
["Purchase Price"]. The form of Convertible Note is annexed hereto as Exhibit A.
(The Company Shares are sometimes referred to herein as the "Shares" or "Common
Stock"). (The Notes, the Company Shares, and Common Stock Purchase Warrants
issuable to the Placement Agents ("Placement Warrants"), identified on Schedule
B hereto, and the Common Stock issuable upon exercise of the Placement Warrants
are collectively referred to herein as, the "Securities"). Upon acceptance of
this Agreement by the Subscriber, the Company shall issue and deliver to the
Subscriber the Note against payment, by federal funds (U.S.) wire transfer of
the Purchase Price.
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with and has read the Company's Form S-3 filed on or about February
17, 1999 with the U.S. Securities and Exchange Commission (the "Commission")
(hereinafter referred to as the "Reports"). In addition, the Subscriber has
received from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested, and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities (such information in writing is
collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended, 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
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Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof.
(c) Purchase of Company Shares. On the Closing Date,
the Subscriber will purchase the Note for its own account and not with a view to
any distribution thereof.
(d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under the
Securities Act of 1933, as amended (the "1933 Act") by reason of their issuance
in a transaction that does not require registration under the 1933 Act, and that
such Securities must be held unless a subsequent disposition is registered under
the 1933 Act or is exempt from such registration.
(e) Company Shares Legend. The Company Shares and the
shares of Common Stock issuable upon the exercise of the Placement Warrants
shall bear the following 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 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
KALEIDOSCOPE MEDIA GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(f) Warrants Legend. The Placement Warrants shall
bear the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO KALEIDOSCOPE MEDIA GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(g) 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, OR APPLICABLE STATE SECURITIES LAWS. 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 AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO KALEIDOSCOPE MEDIA GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
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(h) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(i) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing Date (as hereinafter defined), shall be true and
correct as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictionss of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or prospects or condition (financial
or otherwise) of the Company.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has
been duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and the Company has full
corporate power and authority necessary to enter into this Agreement and to
perform its obligations hereunder and all other agreements entered into by the
Company relating hereto.
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(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other Written
Information.
(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the NASD, NASDAQ or the
Company's Shareholders is required for execution of this Agreement, and all
other agreements entered into by the Company relating thereto, including,
without limitation issuance and sale of the Securities, and the performance of
the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this Agreement,
neither the issuance and sale of the Securities nor the performance of its
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a
breach of, or constitute a default (or an event which with the giving of notice
or the lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company, or
any of its affiliates, (B) to the Company's knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company,
or any of its affiliates of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its affiliates or
over the properties or assets of the Company, or any of its affiliates, (C) the
terms of any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other instrument to which the Company, or any of its affiliates is a
party, by which the Company, or any of its affiliates is bound, or to which any
of the properties of the Company, or any of its affiliates is subject, or (D)
the terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of
any lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and State laws;
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(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Note is converted, and the Placement Warrants are
exercised, the Securities will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant
to an effective registration statement will be free trading and unrestricted);
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company;
(iv) will not subject the holders thereof to
personal liability by reason of being such holders; and
(h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its affiliates that would affect the execution by
the Company or the performance by the Company of its obligations under this
Agreement, and all other agreements entered into by the Company relating hereto.
(i) Reporting Company. The Company is a publicly-
held company whose common stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company's
Common Stock is trading on the NASD OTC Bulletin Board. Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Securities and Exchange
Commission during the preceding twelve months.
(j) No Market Manipulation. The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued.
(k) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective dates
which information is required to be disclosed therein. Since the date of the
financial statements included in the Reports, and except as modified in the
Other Written Information, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed in the Reports.
The Reports and Other Written Information do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
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(l) Dilution. The number of Shares issuable upon
conversion (as hereinafter defined) may increase substantially in certain
circumstances, including, but not necessarily limited to, the circumstance
wherein the trading price of the Common Stock declines prior to conversion of
the Note. The Company's executive officers and directors have studied and fully
understand the nature of the Securities being sold hereby and recognize that
they have a potential dilutive effect. The board of directors of the Company has
concluded, in its good faith business judgment, that such issuance is in the
best interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Note and exercise of the
Placement Warrants is binding upon the Company and enforceable, except as
otherwise described in this Subscription Agreement, regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.
(m) Stop Transfer. The Securities are restricted
securities as of the date of this Agreement. The Company will not issue any stop
transfer order or other order impeding the sale and delivery of the Securities
at such time as the Securities are registered for public sale or an exemption
from registration is available.
(n) Defaults. Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation or ByLaws. Neither
the Company nor any of its subsidiaries is (i) in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a material adverse effect on the Company, (ii) in default with
respect to any order of any court, arbitrator or governmental body or subject to
or party to any order of any court or governmental authority arising out of any
action, suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or (iii) to
its knowledge in violation of any statute, rule or regulation of any
governmental authority material to its business.
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(o) No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the 1933 Act which would prevent the Company from
selling the Securities under Section 4(2) of the 1933 Act, or any applicable
stockholder approval provisions. Nor will the Company or any of its affiliates
or subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
(p) Use of Proceeds. The proceeds of the Subscriber
funds to be released to the Company will be used for working capital and for
expenses of this offering.
(q) No General Solicitation. Neither the Company, nor
any of its affiliates, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) in connection with the offer
or sale of the Securities.
(r) Listing. The Company's common stock is listed for
trading on NASD OTC Bulletin Board. The Company has not received any notice that
its common stock will be delisted from the OTC Bulletin Board or that the common
stock does not meet all requirements for the continuation of such listing.
(s) S-3 Eligibility. The Company currently meets, and
will take all necessary action to continue to meet, the "registrant eligibility"
requirements set forth in the general instructions to Form S-3.
(t) 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 Subscriber prior to the Closing Date, shall be true and
correct in all material respects as of the Closing Date. The foregoing
representations and warranties shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant
to the exemption from the registration provisions of the Securities Act of 1933,
as amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit C. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Placement Warrants.
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4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to dispose of such Securities pursuant to Rule 144(k) under the Act, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the Act. The Company agrees to cooperate with the Subscriber in
connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested certifications from the Subscriber and
selling broker, if any.
5. Redemption. The Company may not redeem the Securities
without the consent of the holder of the Securities.
6. Legal Fees/Commissions. The Company shall pay to counsel to
the Subscriber its fee of $20,000 for services rendered to the Subscriber in
reviewing this Agreement and other subscription agreements for the aggregate
subscription amounts of up to $750,000 and acting as escrow agent. The Company
will pay a cash commission and unaccountable expense allowance, in the
aggregate, of twelve percent (12%) of the Purchase Price designated on the
signature page hereto to certain Placement Agents identified on Schedule B
hereto. The cash commissions and legal fees will be payable out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company,
Subscriber and an Escrow Agent. The Company will also issue and deliver to the
Placement Agents as additional compensation Placement Warrants designated on
Schedule B hereto. The cash commissions and Placement Warrants will be issued to
the Placement Agents only when, as, and if the corresponding subscription amount
is released from escrow to the Company. All the representations, covenants,
warranties, undertakings, and indemnification including but not limited to
registration rights made or granted to or for the benefit of the Subscriber are
hereby also made and granted to the Placement Agents in respect of the Placement
Warrants and Company Shares issuable upon exercise of the Placement Warrants.
7.1. Covenants of the Company. The Company covenants and
agrees with the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange Commission,
any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending any offering of any securities of
the Company, or of the suspension of the qualification of the common stock of
the Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of
the Company Shares, and Common Stock issuable upon the exercise of the Placement
Warrants upon each national securities exchange, or automated quotation system,
if any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and shall maintain such listing so long as any other shares
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of Common Stock shall be so listed. The Company will use its best efforts to
maintain the listing and trading of its Common Stock on the NASD OTC Bulletin
Board, and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The Company will
provide the Subscriber copies of all notices it receives notifying the Company
of the threatened and actual delisting of the Common Stock on any exchange or
quotation system on which the Common Stock is listed.
(c) The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Subscriber and Placement Agents and promptly provide copies thereof to
Subscriber.
(d) Until at least two (2) years after the
effectiveness of the Registration Statement on Form S-3 or such other
Registration Statement described in Section 10.1(iv) hereof, the Company will
(i) cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, and (iii) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Act or the Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Acts until the later of (i) two (2) years
after the effective date of the Registration Statement on Form S-3 or such other
Registration Statement described in Section 10.1(iv) hereof, or (ii) the sale by
the Subscribers and Placement Agents of all the Company Shares issuable by the
Company pursuant to this Agreement. Until at least two (2) years after the
Placement Warrants have been exercised, the Company will use its commercial best
efforts to continue the listing or trading of its Common Stock on NASD OTC
Bulletin Board and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and NASDAQ,
as appropriate.
(e) The Company undertakes to use the proceeds of the
Subscriber's funds for working capital and expenses of this offering.
8. Covenants of the Company and Subscriber Regarding
Idemnifications.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber, Subscriber's officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
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cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon Subscriber which results,
arises out of or is based upon (i) any misrepresentation by Company or breach of
any warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or Reports or other Written Information; or (ii) any breach or
default in performance by Company of any covenant or undertaking to be performed
by Company hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company at all times against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company which results, arises out of or
is based upon (a) any misrepresentation by Subscriber in this Agreement or in
any Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
9.1. Conversion of Note.
a. Upon the conversion of the Note or part thereof,
the Company shall, at its expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates in the name of Subscriber (or its nominee) or
such other persons as designated by Subscriber and in such denominations to be
specified at conversion representing the number of shares of common stock
issuable upon such conversion, as applicable. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that the Shares will be
unlegended, free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Company Shares provided the
Shares are included in an effective registration statement or are otherwise
exempt from registration.
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 to the Company. The Subscriber will
not be required to surrender the Note until the Note has been fully converted or
satisfied. Each date on which a Notice of Conversion is telecopied to the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Company will or cause the transfer agent to transmit the Company's
common stock certificates representing the Shares issuable upon conversion of
the Note (and a Note representing the balance of the Note not so converted, if
requested by Subscriber) to the Subscriber via express courier for receipt by
such Subscriber within five business days after receipt by the Company of the
Notice of Conversion (the "Delivery Date"). To the extent that a Subscriber
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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 9 hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the Delivery
Date or Mandatory Redemption Payment Date (as hereinafter defined) could result
in economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
Conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment charges described
above shall be payable through the date notice of revocation or rescission is
given to the Company.
d. Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.
9.2. Mandatory Redemption. In the event the Company may not
issue Shares on a Delivery Date or at any time when the Note is convertible, for
any reason then at the Subscriber's election, the Company must pay to the
Subscriber five (5) business days after request or on the Delivery Date a sum of
money determined by multiplying the principal of the Note not convertible by
130%, together with accrued but unpaid interest thereon ("Mandatory Redemption
Payment"). The Mandatory Redemption Payment must be received by the Subscriber
on the same date as the Company Shares otherwise deliverable or within five (5)
business days after request, whichever is sooner ("Mandatory Redemption Payment
Date"). Upon receipt of the Mandatory Redemption Payment, the corresponding
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Note principal and interest will be deemed paid and no longer outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this proviso is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 9.99% of
the outstanding shares of Common Stock of the Company on such Conversion Date.
For the purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 9.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of said Note shall have been sought and obtained and
the Company posts a surety bond for the benefit of such Subscriber in the amount
of 130% of the amount of the Note, which is subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such Subscriber to the
extent it obtains judgment.
9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after the
Delivery Date the Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the Common Stock which the Subscriber anticipated receiving upon
such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with
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respect to an attempted conversion of $10,000 of note principal and/or interest,
the Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
10.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 31 days
after the Closing Date, but not later than three years after the Closing Date,
the Company, upon a written request therefor from any record holder or holders
of more than 50% of the aggregate of the Company's Shares issued and issuable
upon Conversion of the Note (the Securities and securities issued or issuable by
virtue of ownership of the Securities, and the Put Notes defined in Section
11.1(a) hereof, being, the "Registrable Securities"), shall prepare and file
with the SEC a registration statement under the Act covering the Registrable
Securities which are the subject of such request, unless such Registrable
Securities are the subject of an effective registration statement. In addition,
upon the receipt of such request, the Company shall promptly give written notice
to all other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within 10 days
after the Company gives such written notice. Such other requesting record
holders shall be deemed to have exercised their demand registration right under
this Section 10.1(i). As a condition precedent to the inclusion of Registrable
Securities, the holder thereof shall provide the Company with such information
as the Company reasonably requests. The obligation of the Company under this
Section 10.1(i) shall be limited to one registration statement.
(ii) If the Company at any time proposes to register
any of its securities under the Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscriber or Holder pursuant to an effective registration statement, each
such time it will give at least 30 days' prior written notice to the record
holder of the Registrable Securities of its intention so to do. Upon the written
request of the holder, received by the Company within 30 days after the giving
of any such notice by the Company, to register any of the Registrable
Securities, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "Seller"). In the event that any registration pursuant to this
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Section 10.1(ii) shall be, in whole or in part, an underwritten public offering
of common stock of the Company, the number of shares of Registrable Securities
to be included in such an underwriting may be reduced by the managing
underwriter if and to the extent that the Company and the underwriter shall
reasonably be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the forgoing provisions, the Company may withdraw any
registration statement referred to in this Section 10.1(ii) without thereby
incurring any liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account, such
written request shall be deemed to have been given pursuant to Section 10.1(ii)
rather than Section 10.1(i), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section 10.1(ii)
except that the Company or underwriter, if any, may not withdraw such
registration or limit the amount of Registrable Securities included in such
registration.
(iv) The Company shall file with the Commission
within 30 days of the Closing Date (the "Filing Date"), and use its reasonable
commercial efforts to cause to be declared effective an amendment to the Form
S-3 registration statement filed with the Commission on or about February 17,
1999, (or such other form that it is eligible to use) within 120 days of the
Closing Date in order to register the Registrable Securities for resale and
distribution under the Act. The registration statement described in this
paragraph must be declared effective by the Commission within 120 days of the
Closing Date (as defined herein) ("Effective Date"). The Company will register
not less than 350,000 shares of Common Stock in the aforedescribed registration
statement for each $25,000 of Note principal subscribed for and one share of
Common Stock for each common share issuable upon exercise of the Placement
Warrants. The Registrable Securities shall be reserved and set aside exclusively
for the benefit of the Subscriber and Placement Agents, as the case may be, and
not issued, employed or reserved for anyone other than the Subscriber and
Placement Agents. Such registration statement will be promptly amended or
additional registration statements will be promptly filed by the Company as
necessary to register additional Company Shares to allow the public resale of
all Common Stock included in and issuable by virtue of the Registrable
Securities.
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10.2. Registration Procedures. If and whenever the
Company is required by the provisions hereof to effect the registration of any
shares of Registrable Securities under the Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of Registrable Securities copies of all
filings and Commission letters of comment;
(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 for the period specified in paragraph (a) above and comply
with the provisions of the Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each
underwriter under such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
15
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand
for registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10. In the event of a firm commitment underwritten public offering in
which the Registrable Securities are so included, the lockup, if any, requested
by the managing underwriter may not exceed ninety (90) days after the effective
date thereof.
(b) In connection with each registration hereunder,
the Seller will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws. In connection with each registration
pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public
offering, the Company and the Seller agree to enter into a written agreement
with the managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber
agree that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 60 days after
request by the Holder and not declared effective by the Commission within 120
days after such request [or the Filing Date and Effective Date, respectively, in
reference to the Registration Statement on Form S-3 or such other form described
in Section 10.1(iv)], and maintained in the manner and within the time periods
contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement described in Sections 10.1(i) or 10.1(ii) is not filed within 60 days
of such request, or is not declared effective by the Commission on or prior to
the date that is 120 days after such request, or (ii) the registration statement
on Form S-3 or such other form described in Section 10.1(iv) is not filed on or
before the Filing Date or not declared effective on or before the sooner of the
Effective Date, or within five days of receipt by the Company of a communication
from the Commission that the registration statement described in Section
10.1(iv) will not be reviewed, or (iii) any registration statement described in
Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and declared effective but shall
16
thereafter cease to be effective (without being succeeded immediately by an
additional registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the aggregate per year but not more than 20
consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) (each such event referred
to in clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as
a "Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to three (3%) percent for
each thirty (30) days or part thereof, of the Purchase Price of the Note,
whether or not converted, and the aggregate amount of the exercise prices of the
Placement Warrants, whether or not exercised, then owned of record by such
holder as of the occurrence of such Non-Registration Event. Payments to be made
pursuant to this Section 10.4 shall be due and payable immediately upon demand
in immediately available funds. In the event a Mandatory Redemption payment is
demanded from the Company by the Holder of a Note, pursuant to Section 9.2 of
this Subscription Agreement, then the Liquidated Damages described in this
Section 10.4 shall no longer accrue from and after the date the Holder receives
the Mandatory Redemption Payment. It shall be deemed a Non- Registration Event
to the extent the Shares into which a Note is convertible assuming complete
conversion of all sums due under the Note are not included in an effective
registration statement as of and after the Effective Date at the Conversion
Price in effect from and after the Effective Date.
10.5. Expenses. All expenses incurred by the Company in
complying with Section 10, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, fee of
one counsel, if any, to represent all the Sellers, and costs of insurance are
called "Registration Expenses". All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, including any fees
and disbursements of any special counsel to the Seller, are called "Selling
Expenses". The Seller shall pay the fees of its own additional counsel, if any.
17
The Company will pay all Registration Expenses in
connection with the registration statement under Section 10. All Selling
Expenses in connection with each registration statement under Section 10 shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares sold by the Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter or any
such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
18
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 10.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.6(c) if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 10.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
19
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 10.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10.6 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
11.1. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the
Company convertible notes in up to the principal amounts ("First Put Note" and
"Second Put Note", collectively "Put Notes") described on the signature page
hereof for up to the aggregate consideration designated on the signature page
hereof (the "First Put" and the "Second Put"). Collectively the Put Notes and
Put Commissions (as hereinafter defined) are referred to as the "Put
Securities".) The Put Notes will be identical to the Notes except that the
Maturity Date will be one year from the First Put Closing Date or Second Put
Closing Date (as hereinafter defined). The Holders of the Put Securities are
granted all the rights, remedies and indemnification granted to the Subscriber
in connection with the Note, including but not limited to, the registration
rights described in Section 10 hereof.
20
(b) The agreement to purchase the Put Notes is
contingent on the following (unless waived by the Subscriber):
(i) The timely filing and timely
effectiveness of the registration statement described in Section 10.1(iv) hereof
relating to all the Registrable Securities.
(ii) As of the Put Date, First Put Closing
Date and Second Put Closing Date, the Company will be a full reporting company
with the class of Shares registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934.
(iii) The closing bid price of the Company's
common stock on the OTC Bulletin Board ("Closing Bid Price") for each of the ten
trading days prior to the giving of a Put Notice and prior to the First Put
Closing Date will not be less than $0.40, nor will the aggregate trading volume
in the Company's Common Stock be fewer than 100,000 shares per day for each of
the ten trading days prior to the giving of a Put Notice and prior to the First
Put Closing Date.
(iv) The closing bid price of the Company's
common stock on the OTC Bulletin Board ("Closing Bid Price") for each of the ten
trading days prior to the giving of a Put Notice and prior to the Second Put
Closing Date will not be less than $0.75, nor will the aggregate trading volume
in the Company's Common Stock be fewer than 100,000 shares per day for each of
the ten trading days prior to the giving of a Put Notice and prior to the Second
Put Closing Date.
(v) No material adverse change in the
Company's business or business prospects shall have occurred after the date of
the most recent financial statements included in the Reports. Material adverse
change is defined as any effect on the business, operations, properties,
prospects, or financial condition of the Company that is material and adverse to
the Company and its subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement, or any other agreement entered into or to be entered into
in connection herewith, in any material respect.
(vi) There not being an adverse variation of
10% or more from the quarterly and annual revenue, gross income and Net Profit
projections set forth on Schedule D hereto for the periods set forth on Schedule
D hereto. Schedule D will be retained by the Escrow Agent referred to in Section
6 hereof and not delivered to the Subscriber unless the Escrow Agent determines
in its own discretion that the actual revenue and/or income differ from the
projections by 20% or more. In any event, the Escrow Agent may deliver the
projections to the Subscriber at the Escrow Agent's discretion. The Company
undertakes to deliver to the Escrow Agent copies of all periodic reports and
other filings by the Company with the Securities and Exchange Commission within
two (2) business days of filing with the Securities and Exchange Commission.
21
(vii) The non-occurrence (whether or not
continuing) of an Event of Default as described in Article 3 of the Note.
(viii) The execution and delivery to the
Subscriber of a certificate signed by its chief executive officer representing
the truth and accuracy of all the Company's representations and warranties
contained in this Subscription Agreement as of the Put Date, the First Put
Closing Date and Second Put Closing Date and confirming the undertakings
contained herein, and representing the satisfaction of all contingencies and
conditions required for the exercise of the Put.
(ix) The Company's continued compliance
after the date hereof with the listing requirements of the NASD OTC Bulletin
Board, and the Company's not having received notice from the NASD OTC Bulletin
Board (and any principal market on which the Company's Common Stock is listed
for trading) that the Company is not in compliance with the requirements for
continued listing.
(x) The execution by the Company and
delivery to the Subscriber of all documents reasonably necessary to memorialize
the rights and obligations of each of the parties in relation to the Put.
(xi) For each and every calendar month prior
to the giving of a Put Notice and prior to the Put Closing Date, the Company
shall not have incurred expenses greater than $160,000.
(xii) There shall not have occurred a change
in the current members of the board of directors of the Company nor of the
President, Vice-President, Chief Financial Officer, Chief Executive Officer, or
Chief Operating Officer of the Company prior to the giving of a Put Notice or
Put Closing Date.
(c) The exercise of the First Put and Second Put are
expressly contingent on the declaration of effectiveness by the Securities and
Exchange Commission and the continued effectiveness of the Registration
Statement on Form S-3 or such other form as described in Section 10.1(iv) hereof
relating to the Registrable Securities and the Company's ability to issue Common
Stock upon conversion and/or exercise of the Put Securities, pursuant to an
effective registration statement, with such Common Stock, upon resale, being
unlegended freely transferable Common Stock.
11.2. Exercise of Put.
(a) The Company's right to exercise the First Put and
Second Put expires two weeks after the declaration of effectiveness of the
registration statement described in Section 10.1(iv) of this Subscription
Agreement relating to all the Registrable Securities ("Put Exercise Period").
22
(b) The First Put and Second Put may be exercised by
the Company by the giving to the Subscriber of a written notice of exercise
("Put Notice") during the Put Exercise Period in relation to all the subject Put
Securities. The date a Put Notice is given is a Put Date. Each Put Notice must
be accompanied by the (i) officer's certificate described in Section
11.1(b)(viii) above; (ii) a copy of the filed registration statement; (iii)
notice of declaration of effectiveness; (iv) five copies of the final
prospectus; and (v) a legal opinion relating to the Put Securities in form
reasonably acceptable to Subscriber.
(c) Unless otherwise agreed to by the Subscribers,
Put Notices must be given to all Subscribers in proportion to the amounts agreed
to be purchased by all Subscribers undertaking to purchase Put Shares in the
$750,000 offering to which this Subscription Agreement relates. The aggregate
amount of all such Put Notices may not exceed $1,250,000. In the event the
Company does not exercise the Put during the Put Exercise Period, then the
Subscriber may exercise the Put on behalf of the Company, by giving notice to
the Company of such exercise during the seven (7) business days following the
Put Exercise Period.
(d) Payment by the Subscriber in relation to a Put
Notice relating to the First Put must be made within sixty (60) days of receipt
of a Put Notice relating to the First Put and within 135 days after receipt by
the Subscriber of a Put Notice relating to the Second Put. Payment will be made
against delivery to the Subscriber or an escrow agent to be agreed upon by the
Company and Subscriber, of the Put Securities and items set forth in Section
11.2(b) above, and delivery to the Placement Agents of the Put Commissions
relating to the Put being exercised.
(e) On the Closing Date the Company will deliver to
the Subscriber the First Put Note and Second Put Note. The Company will prepare
and retain for issuance on the First Put Closing Date and Second Put Closing
Date the First Put Commission Warrants and Second Put Commission Warrants.
Interest will commence to accrue on the First Put Note and Second Put Note on
the respective Put Closing Dates. In the event the Puts are exercised for an
amount other than the principal amount of the First Put Note and Second Put
Note, then the Subscriber will surrender the appropriate Put Note on a Put
Closing Date in exchange for a reissued Put Note in the correct amount. In the
event the Puts are not exercised, the Subscriber will return the Put Notes to
the Company.
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11.3. Put Placement Warrants.
(a) The First Put Commission Warrants (as defined
herein) payable in connection with the First Put will be identical to the
Placement Warrants except that such First Put Commission Warrants will be
exercisable commencing on the First Put Closing Date and for three years
thereafter at the lower of the exercise price of the Placement Warrants or the
closing bid price of the Company's Common Stock on the OTC Bulletin Board (or
such other principal exchange where traded or listed) on the day prior to the
First Put Closing Date.
(b) The Second Put Commission Warrants (as defined
herein) payable in connection with the Second Put will be identical to the
Placement Warrants except that such Second Put Commission Warrants will be
exercisable commencing on the Second Put Closing Date and for three years
thereafter at the lower of the exercise price of the Placement Warrants or the
closing bid price of the Company's Common Stock on the OTC Bulletin Board (or
such other principal exchange where traded or listed) on the day prior to the
Second Put Closing Date.
11.4. Put Commissions. The Placement Agents identified on
Schedule B hereto shall receive aggregate commissions in connection with the
closing of the First Put and Second Put as follows: (i) cash equal to twelve
(12%) percent of the purchase price of the Put Notes, as set forth on the
signature page hereto; and (ii) one First Put Warrant or one Second Put Warrant
for each $1 of First Put purchase price or Second Put purchase price,
respectively, paid by a Subscriber in connection with the First Put or Second
Put. Collectively, the foregoing are referred to as Put Commissions. The Put
Commissions are set forth on Schedule B hereto. Put Commissions shall be payable
only in connection with the First Put Purchase Price and Second Put Purchase
Price actually paid by a Subscriber. The attorney for the Subscriber shall
receive a payment at the Closing of each Put equal to one (1%) percent of the
Put purchase price for each Put.
12. (a) Right of First Refusal. Until 120 days after the
effective date of the Registration Statement described in Section 10.1(iv)
hereof, the Subscriber shall be given not less than ten (10) business days prior
written notice of any proposed sale by the Company of its common stock or other
securities or debt obligations except as disclosed in the Reports or Other
Written Information. The Subscriber shall have the right during the ten (10)
business days following the notice to agree to purchase an amount of Company
Shares in the same proportion as being purchased in the aggregate offering to
which this Subscription Agreement relates (i.e. $750,000 in the aggregate), of
those securities proposed to be issued and sold, in accordance with the terms
and conditions set forth in the notice of sale. In the event such terms and
conditions are modified during the notice period, the Subscriber shall be given
prompt notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice of
modification, whichever is longer, to exercise such right. In the event the
right of first refusal described in this Section is exercised by the Subscriber
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and the Company thereby receives net proceeds from such exercise, then
commissions and fees will be paid by the Company to the Placement Agents in the
same amounts as specified in the notice of sale.
(b) Offering Restrictions. The Company agrees not to
issue any equity, convertible debt or other securities which are or could be (by
conversion, registration, or exemption) free-trading securities prior to the
complete conversion and payment of all sums due or payable under the Note and
Put Securities.
13. Miscellaneous.
(a) Notices. All notices or other communications
given or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied (provided that a
copy is delivered by first class mail) to the party to receive the same at its
address set forth below or to such other address as either party shall hereafter
give to the other by notice duly made under this Section: (i) if to the Company,
to Kaleidoscope Media Group, Inc., 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000, telecopier number: (000) 000-0000, with a copy by telecopier only to
Xxxxxx Xxxxxx Xxxxxx & Xxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000,
Attn: Xxxxxxx XxXxxxxxxx, Esq., telecopier number: (000) 000-0000, and (ii) if
to the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto, with a copy by telecopier only to Grushko & Xxxxxxx, 000
Xxxxxxxx, Xxxxx 000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (212)
227-5865. Any notice that may be given pursuant to this Agreement, or any
document delivered in connection with the foregoing may be given by the
Subscriber on the first business day after the observance dates in the United
States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur, the first two
days of the Feast of Tabernacles, Shemini Atzeret Simchat Torah, the first two
and final two days of Passover and Pentecost, with such notice to be deemed
given and effective, at the election of the Subscriber on a holiday date that
precedes such notice. Any notice received by the Subscriber on any of the
aforedescribed holidays may be deemed by the Subscriber to be received and
effective as if such notice had been received on the first business day after
the holiday.
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(b) Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Xxxxxxx, 000
Xxxxxxxx, Xxxxx 000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of all
conditions to Closing set forth in this Agreement. The closing date shall be the
date that subscriber funds representing the net amount due the Company from the
Purchase Price are transmitted by wire transfer to the Company (the "Closing
Date"). The closing date for the First Put and Second Put shall be the
respective dates on which Subscriber funds representing the net amount due the
Company from the First Put Purchase Price and Second Put Purchase Price,
respectively due, transmitted to or on behalf of the Company ("First Put Closing
Date", "Second Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement
represents the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by both
parties. No right or obligation of either party shall be assigned by that party
without prior notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.
(e) Law Governing this Agreement. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing 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.
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(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 injuction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Automatic Termination. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the tenth (10th) business day following the
date this Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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