SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of May 16,
2005, by and among Adsouth Partners, Inc., a Nevada corporation (the "Company"),
and Subscriber identified on the signature page hereto (a "Subscriber" and
together with other purchasers of the Notes described herein, the
"Subscribers").
WHEREAS, the Company and Subscriber are executing and delivering this
Agreement in reliance upon an exemption from registration under the Securities
Act of 1933, as amended (the "Securities Act") pursuant to Section 4(2) and/or
Section 4(6) of the Securities Act and/or Rule 506 and Regulation D ("Regulation
D") of the Securities and Exchange Commission (the "Commission") under the
Securities Act; and
WHEREAS, the Company is willing to sell its securities, as hereinafter
defined, during the period ending on June 7, 2005, which period may be extended
by the Company, in its sole discretion, on one or more occasions for up to a
total of thirty (30) days, which period, as so extended is referred to as the
"Subscription Period";
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and Subscribers hereby agree
as follows:
1. The Offering.
(a) The offering consists of the Company's 12% Convertible
Promissory Notes (the "Notes") due March 15, 2007; provided, however, that if
any notes are issued subsequent to May 15, 2005, the maturity date of the Notes
will be 22 months from the last day of the calendar month in which the Notes are
issued. The Note, together with the Initial Shares and Warrants issued pursuant
to this Agreement are collectively referred to as the "Securities." The Notes
shall be in substantially the form of Exhibit A to this Agreement. For each
dollar principal amount of Note purchased, whether pursuant to Section 1(b),
1(c) or 1(d) of this Agreement, the Company will issue to Subscriber
contemporaneously with the issuance of the Note:
(i) One (1) share of the Company's common stock, par value
$.0001 per share ("Common Stock"), for each two and 40/100 dollars ($2.40), with
any fractional shares being rounded up to the next higher integral number of
shares, the shares of Common Stock issuable pursuant to this Section 1(a)(i)
being referred to as the "Initial Shares."
(ii) A series B common stock purchase warrant (the
"Warrant" and, collectively, the "Warrants") to purchase one and one-quarter
(1.25) shares of common stock for each dollar principal amount of Note purchased
at an exercise price of $1.275 per share. The Warrants, which shall expire on
May 15, 2010, shall be in substantially the form of Exhibit B to this Agreement.
(b) Subject to Sections 1(c) and 1(d) of this Agreement, the
Company will issue Notes in the aggregate principal amount of not less than
three hundred thousand dollars ($300,000) and not more than two million five
hundred thousand dollars ($2,500,000) at one or more closings during the
Subscription Period, and payment for the Notes shall be made by wire transfer to
the account of the Company.
(c) In addition to the maximum principal amount of Notes
issuable pursuant to Section 1(b) of this Agreement, the Company may issue Notes
in the maximum principal amount of nine hundred seventy two thousand one hundred
twenty dollars ($972,120) pursuant to Section 12(a) of the subscription
agreements relating to the Company's February 2005 private placement (the
"February 2005 Subscription Agreements"), which give the holders of the notes
issued pursuant thereto (the "February 2005 Notes") the right to purchase Notes
in this offering by tendering their February 2005 Notes, with each dollar
principal amount of February 2005 Notes tendered being valued at $1.20 for the
purpose of determining the purchase price of the Notes.
(d) In the event that any Subscriber makes a bridge loan to the
Company in anticipation of the closing of this offering, Subscriber may tender
payment for the Notes by tendering the bridge note in the principal amount of
the Notes being purchased. At the Closing, the Company shall pay the interest
due on the bridge note.
2. The Closing. Upon the satisfaction of all conditions to
Closing set forth in Section 4 of this Agreement. Subscriber shall wire the
funds directly to the Company upon receipt from the Company of a certificate
from the Company's chief financial offer to the effect that the all conditions
to closing set forth in Section 4 of this Agreement shall have been met and
attaching a copy of the opinion delivered pursuant to Section 4(c) of this
Agreement.
3. Security Agreement. Payment of the Notes will be subject to a
security interest pursuant to a security agreement (the "Security Agreement") in
substantially the form of Exhibit C to this Agreement, among the Company,
Subscriber and the other Subscribers and ________________, as agent (the
"Agent"). The security interest shall be junior and subordinate to the security
interests held by holders of Senior Debt, as defined in the Security Agreement,
and the rights of the Agent to foreclose on the Collateral, as defined in the
Security Agreement, shall be subject to the rights of the holders of the Senior
Debt and the other limitations set forth in the Security Agreement. Subscriber,
by executing the Security Agreement, agrees to the appointment of the Agent as
agent pursuant to the Security Agreement and understands that only the Agent
shall be entitled to take any action on behalf of Subscriber pursuant to the
Security Agreement, including the right to waive any rights the secured party
may have under the Security Agreement.
4. Conditions to Closing. The date on which Subscriber purchases
and pays for the Securities is referred to as the "Closing Date." It shall be a
condition to Subscriber's obligation to purchase the Notes that the following
conditions shall have been met at the first closing:
(a) The Company shall have executed the Security Agreement.
(b) The Company shall have received the proceeds of not less
than three hundred thousand dollars ($300,000) from the sale of Notes pursuant
to Section 1(b) of this Agreement.
(c) Counsel for Subscriber shall have received the opinion the
Company's legal counsel opining as to the valid issuance of the Initial Shares,
the shares of Common Stock issuable upon conversion of the Notes (the
"Conversion Shares") and the shares of Common Stock issuable upon exercise of
the Warrants (the "Warrant Shares," and, together with the Initial Shares and
the
-2-
Conversion Shares, the "Shares") and the availability of an exemption from
registration under the Securities Act as it relates to the offer and issuance of
the Securities.
5. Subscriber's Representations and Warranties. Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) Organization and Standing of Subscriber. If Subscriber is an
entity, Subscriber is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Subscriber has the requisite power
and authority to enter into and perform this Agreement and to purchase the
Securities being sold to it hereunder. The execution, delivery and performance
of this Agreement by Subscriber and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate, partnership action, limited liability company or other required
action, and no further consent or authorization of Subscriber or its board of
directors, stockholders, partners, members, beneficiaries or any other person,
is required. This Agreement has been duly authorized, executed and delivered by
Subscriber and constitutes a valid and binding obligation of Subscriber
enforceable against Subscriber in accordance with the terms thereof.
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the consummation by Subscriber of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of Subscriber's charter documents or bylaws or other organizational
documents or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of any
agreement, indenture or instrument or obligation to which Subscriber is a party
or by which its properties or assets are bound, or result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to Subscriber or its properties (except for such
conflicts, defaults and violations as would not, individually or in the
aggregate, have a material adverse effect on Subscriber). Subscriber is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or to purchase
the Securities in accordance with the terms hereof, provided that for purposes
of the representation made in this sentence, Subscriber is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Information on Company. Subscriber has been furnished with
or has had access at the XXXXX Website of the Commission to the Company's Form
10-KSB for the year ended December 31, 2004 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, S-8 and filings made
with the Commission available at the XXXXX website (hereinafter referred to
collectively as the "Reports"). In addition, Subscriber has received in writing
from the Company such other information concerning its operations, financial
condition and other matters as Subscriber has requested in writing (such other
information is collectively, the "Other Written Information"), and considered
all factors Subscriber deems material in deciding on the advisability of
investing in the Securities. Subscriber acknowledges that Subscriber is not
relying upon any projections or any other information other than as expressly
set forth in this Section 5(d).
-3-
(e) Information on Subscriber. Subscriber is, and will be at the
time of the conversion of the Notes and exercise of the Warrants, an "accredited
investor," as such term is defined in Regulation D promulgated by the Commission
under the Securities Act, is experienced in investments and business matters,
has made investments of a speculative nature and has purchased securities of
United States publicly-owned companies in private placements in the past and,
with its representatives, has such knowledge and experience in financial, tax
and other business matters as to enable 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. Subscriber has the authority and is duly
and legally qualified to purchase and own the Securities. Subscriber is able to
bear the risk of such investment for an indefinite period and to afford a
complete loss thereof. The information set forth on the signature page hereto
regarding Subscriber is accurate. Subscriber is not required to be registered as
a broker-dealer under Section 15 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Subscriber is not a broker-dealer.
(f) Purchase of Securities. On the Closing Date, Subscriber will
purchase the Securities as principal for its own account for investment only and
not with a view toward, or for resale in connection with, the public sale or any
distribution thereof.
(g) Compliance with Securities Act. Subscriber understands and
agrees that the Securities have not been registered under the Securities Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the Securities Act (based
in part on the accuracy of the representations and warranties of Subscriber
contained herein), and that such Securities must be held indefinitely unless a
subsequent disposition is registered under the Securities Act or any applicable
state securities laws or is exempt from such registration. In any event, and
subject to compliance with applicable securities laws, Subscriber may enter into
lawful hedging transactions with third parties, which may in turn engage in
short sales of the Securities in the course of hedging the position they assume
and Subscriber may also enter into short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their short
or other positions or otherwise settle short sales or other transactions, or
loan or pledge the Securities, or interests in the Securities, to third parties
that in turn may dispose of these Securities.
(h) Shares Legend. The certificates for the Shares shall bear
the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADSOUTH
PARTNERS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(i) Warrants Legend. The Warrants shall bear the following or
similar legend:
"THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON
-4-
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 OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO ADSOUTH PARTNERS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(j) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE
AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ADSOUTH PARTNERS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(k) Communication of Offer. The offer to sell the Securities was
directly communicated to Subscriber by the Company. At no time was 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.
(l) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith have
been duly authorized, executed and delivered by Subscriber and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and Subscriber has full corporate
power and authority necessary to enter into this Agreement and such other
agreements and to perform its obligations hereunder and under all other
agreements entered into by Subscriber relating hereto.
(m) Restricted Securities. Subscriber understands that the
Securities have not been registered under the Securities Act and Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the Securities Act or unless an exemption from registration under the Securities
Act is available. Notwithstanding anything to the contrary contained in this
Agreement, Subscriber may transfer (without restriction and without the need for
an opinion of counsel) the Securities to its Affiliates (as defined below)
provided that each such Affiliate is an "accredited investor" under Regulation D
and such Affiliate agrees to be bound by the terms and conditions of this
Agreement. For the purposes of this Agreement, an "Affiliate" of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person or
entity. Affiliate includes each subsidiary of the Company. For purposes of this
definition, "control" means the power to direct the management and policies of
such person or firm, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(n) No Governmental Review. Subscriber understands that no
United States federal or state agency or any other governmental or state agency
has passed on or made recommendations or
-5-
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Securities.
(o) No Market Manipulation. Subscriber has not taken, and will
not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or resold. Further,
Subscriber shall not engage in any transactions with respect to the Common Stock
if Subscriber possesses material non-public information concerning the Company
and shall not disclose any material non-public information concerning the
Company to any person.
(p) Correctness of Representations. Subscriber represents that
the foregoing representations and warranties are true and correct as of the date
hereof and, unless Subscriber otherwise notifies the Company in writing shall be
true and correct as of the date on which a registration statement which includes
Subscriber's Shares is filed and is declared effective.
(q) Florida Residents. If Subscriber is a Florida resident or if
the offer or sale occurs in Florida or if the documents are delivered in
Florida, and if there are least five investors who meet one of these tests, the
following shall apply: Pursuant to Section 517.061(11)(a)(5) of the Florida
Statutes, Florida investors have a three day right to rescission. If a Florida
resident has executed a subscription agreement, he or she may elect, within
three business days after signing the subscription agreement, to withdraw from
the subscription agreement and receive a full refund and return (without
interest) of any money paid by him or her. A Florida resident's withdrawal will
be without any further liability to any person. To accomplish such withdrawal, a
Florida resident need only send a letter or telegram to the Company at 0000
Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000, Xxxx Xxxxx, Xxxxxxx 00000, Attention of Xx.
Xxxxx Xxx Xxxxxxxx, Chief Financial Officer, indicating his or her intention to
withdraw. Such letter or telegram must be sent and postmarked prior to the end
of the aforementioned third business day. If a Florida resident sends a letter,
it is prudent to sent it by certified mail, return receipt requested, to insure
that it is received and also to evidence the time and date when it is mailed.
Should a Florida resident make this request orally, he or she should ask for
written confirmation that his or her request has been received.
(r) Pennsylvania Residents. If Subscriber is a Pennsylvania
resident, the following shall apply: Each person who accepts an offer to
purchase securities exempted from registration by Section 203(d) of the
Pennsylvania Securities Act of 1972, as amended, directly from the issuer or
affiliate of the issuer, shall have the right to withdraw his or her acceptance
without incurring any liability to the seller, underwriter (if any) or any other
person within two business days from the date of receipt by the issuer of his or
her written binding contract of purchase or, in the case of a transaction in
which there is no binding contract of purchase, within two business days after
he or she makes the initial payment for the securities being offered. Each
Pennsylvania investor is prohibited from selling his or her securities for a
period of twelve months from the date of his or her purchase.
(s) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of three years.
6. Company Representations and Warranties. The Company represents
and warrants to and agrees with each Subscriber that:
-6-
(a) Due Incorporation. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has the requisite corporate power to own its properties and to carry
on its business as disclosed in the Reports. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a Material Adverse Effect. For purpose of this
Agreement, a "Material Adverse Effect" shall mean a material adverse effect on
the financial condition, results of operations, properties or business of the
Company and its subsidiaries, which are listed in Schedule 6(a) to this
Agreement (the "Subsidiaries") taken as a whole.
(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the Note, the
Warrants, the Security Agreement and any other agreements delivered in
connection with the issuance of the Securities (collectively "Transaction
Documents") have been duly authorized, executed and delivered by the Company and
are valid and binding agreements enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization, usury,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity. The Company has
full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock, preferred stock
or other equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described in the Reports or on Schedule
6(d).
(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, nor the Company's stockholders is required
for the execution by the Company of the Transaction Documents and compliance and
performance by the Company of its obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the Securities.
(f) No Violation or Conflict. Assuming the representations and
warranties of Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or over the
properties or assets of the Company or any of its Affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or
-7-
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect; or
(ii) except as provided in the Transaction Documents,
result in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates; or
(iii) result in the activation of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The Securities.
(i) The Securities upon issuance are, or will be, free and
clear of any security interests, liens, claims or other encumbrances, subject to
restrictions upon transfer under the Securities Act and any applicable state
securities laws.
(ii) The Initial Shares, the Warrant Shares and the
Conversion Share will be upon issuance at the Closing or upon conversion of the
Notes or exercise of the Warrants, as the case may be, duly and validly
authorized and issued, fully paid and non-assessable; provided, however, that no
representation is made with respect to the ability of Subscriber to convert the
Note or exercise any Warrant if and to the extent that the Conversion Price of
the Note or the exercise price of the Warrant would result in the issuance of a
number of shares of Common Stock which is greater than the amount by which the
authorized Common Stock exceeds the sum of the outstanding Common Stock and the
shares of Common Stock reserved for issuance pursuant to outstanding agreements
and outstanding options, warrants, rights, convertible securities and other
securities upon the exercise or conversion of which or pursuant to the terms of
which additional shares of Common Stock may be issuable (the foregoing proviso
being referred to as the "Authorized Stock Proviso");
(iii) The Securities 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) The Securities will not subject the holders thereof to
personal liability by reason of being such holders except as provided in this
Agreement with respect to indemnification.
(v) Subject to the truth and accuracy of Subscriber's
representations and warranties herein, the issuance of the Securities will not
result in a violation of Section 5 under the Securities Act.
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company or any of its Subsidiaries that would affect the execution by the
Company or the performance by the Company of its obligations under the
Transaction Documents. Except as disclosed in the Reports, there is no pending
or, to the best knowledge of the Company, basis for or threatened action, suit,
proceeding or investigation before any court,
-8-
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have a
Material Adverse Effect.
(i) Reporting Company. The Company is subject to reporting
obligations pursuant to Section 13 of the Exchange Act and has a class of common
shares registered pursuant to Section 12(g) of the Exchange Act. Pursuant to the
provisions of the Exchange Act, the Company has timely filed all reports and
other materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) No Market Manipulation. The Company and its Affiliates have
not taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Securities or affect the price at which the Securities may be issued or
resold.
(k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates 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 Schedules hereto, there has been no
Material Adverse Event relating to the Company's business, financial condition
or affairs not disclosed in the Reports. The Reports do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances when made.
(l) Stop Transfer. The Company will not issue any stop transfer
order or other order impeding the sale, resale or delivery of any of the
Securities, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is given
to Subscriber.
(m) Defaults. The Company is not in violation of its articles of
incorporation or bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to the
Company's knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect.
(n) 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 Securities Act) in connection with the offer
or sale of the Securities.
(o) No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since December 31,
2004 and which, individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect.
-9-
(p) No Undisclosed Events or Circumstances. Since December 31,
2004, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(q) Capitalization. The authorized and outstanding capital stock
(common stock and preferred stock) of the Company as of the date of this
Agreement (not including the Securities) are set forth on Schedule 5(d). Except
as set forth in the Reports and on Schedule 5(d), there are no options,
warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company or any of its Subsidiaries. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable.
(r) Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company's equity or rights to receive equity of
the Company. The board of directors of the Company has concluded, in its good
faith business judgment that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Conversion Shares upon conversion of the Notes and the
Warrant Shares upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other stockholders of the Company or parties entitled to receive
equity of the Company.
(s) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers.
(t) Investment Company. Neither the Company nor any Affiliate is
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(u) 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
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date.
(v) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of three years.
7. Regulation D Offering. The offer and, subject to the truth and
accuracy of Subscriber's representations and warranties herein, issuance of the
Securities to Subscriber is being made pursuant to the exemption from the
registration provisions of the Securities Act afforded by Section 4(2) or
Section 4(6) of the Securities Act and/or Rule 506 of the Commission thereunder.
-10-
8. Conversion of Note.
(a) (i) Upon the conversion of a Note or part thereof, the
Company shall, at its own cost and expense, promptly take all necessary action,
including obtaining and delivering, an opinion of counsel to Company's transfer
agent, and issue stock certificates in the name of Subscriber (or its nominee)
or such other persons as designated by Subscriber and in such denominations to
be specified at conversion representing the number of shares of Common Stock
issuable upon such conversion. The Company warrants that no instructions other
than these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that, unless waived by Subscriber, provided the
issuance of the Conversion Shares is then subject to a current and effective
registration statement, the certificates for the Conversion Shares will not
contain a legend restricting their resale or transferability provided the
Conversion Shares are being sold pursuant to an effective registration statement
covering the Conversion Shares or are otherwise exempt from registration.
(ii) Subscriber will give notice of its decision to
exercise its right to convert the Note, interest, any sum due to Subscriber
under the Transaction Documents including Liquidated Damages, or part thereof by
delivering an executed and completed Notice of Conversion (a form of which is
annexed as Exhibit A to the Note) to the Company to Section 14(a) of this
Agreement. 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 given to the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company will itself or cause the Company's transfer agent
to transmit the certificates for the Common Stock issuable upon conversion of
the Note to Subscriber via express mail or overnight courier service for receipt
by Subscriber within three (3) business days after receipt by the Company of the
Notice of Conversion (such third day being the "Delivery Date"). In the event
the Conversion Shares are electronically transferable, then delivery of the
Conversion Shares shall be made by electronic transfer provided request for such
electronic transfer has been made by Subscriber and Subscriber has complied with
all applicable securities laws in connection with the sale of the Common Stock,
including, without limitation, the prospectus delivery requirements. A Note
representing the balance of the Note not so converted will be provided by the
Company to Subscriber if requested by Subscriber, provided Subscriber delivers
the original Note to the Company. In the event that a Subscriber elects not to
surrender a Note for reissuance upon partial payment or conversion, Subscriber
hereby indemnifies the Company against any and all loss, damage, liability or
expense, including reasonable fees and expenses of counsel, resulting from a
third-party claim in an amount in excess of the actual amount then due under the
Note or otherwise resulting from the failure of Subscriber to surrender the
Note.
(iii) 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 Subscriber and thus refunded to the
Company.
(b) Maximum Conversion. Subscriber shall not be entitled to
convert the Note to the extent that the number of shares of Common Stock which
would be issuable upon such conversion is in excess of the sum of (i) the number
of shares of common stock beneficially owned by Subscriber and its Affiliates on
such date, and (ii) the number of shares of Common Stock issuable upon the
conversion of
-11-
the Note with respect to which the determination of this provision is being
made, which would result in beneficial ownership by Subscriber and its
Affiliates of more than 9.99% of the outstanding shares of the Company's Common
Stock on such date. For the purposes of the provision to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. Subject to
the foregoing and the following sentence, Subscriber shall not be limited to
aggregate conversions of only 9.99% and aggregate conversions by Subscriber may
exceed 9.99%. Subscriber may void the conversion limitation described in this
Section 8(b) upon and effective after 61 days prior written notice to the
Company. Subscriber may allocate which of the equity of the Company deemed
beneficially owned by Subscriber shall be included in the 9.99% amount described
above and which shall be allocated to the excess above 9.99%.
(c) Adjustments. The Conversion Price, Warrant exercise price
and number of shares of Common Stock issuable upon conversion of the Notes and
exercise of the Warrants shall be adjusted as described in Section 13 of this
Agreement.
(d) Redemption. The Warrants shall not be redeemable or
callable. The Company shall have the rights of prepayment and redemption as set
forth in the Note.
9. Broker/Legal Fees.
(a) Broker's Fee. The Company and Subscriber each represents to
the other that there are no other parties entitled to receive fees, commissions,
or similar payments in connection with the Offering except the broker(s) named
in Schedule 9 to this Agreement. The Company and Subscriber agree to indemnify
the other against and hold the other harmless from any and all loss, liability,
damage or expense (including reasonable fees and expenses of counsel) which the
other person may incur as a result of or on account of services purported to
have been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party's actions. The Company agrees that on the Closing Date, the Company will
pay to the brokers referred to in said Schedule 9 a cash fee not exceeding 10%
of the principal amount of Notes purchased by Subscriber and will issue to such
broker or brokers warrants to purchase 10% of the number of shares issuable upon
conversion of the Notes purchased by Subscriber.
(b) Legal Fees. The Company shall reimburse ___________________
for legal and other expenses incurred on behalf of the Subscribers in connection
with the Agreement and the other Transaction Documents in the amount of $10,000.
10. Covenants of the Company. The Company covenants and agrees
with Subscribers as follows:
(a) Stop Orders. The Company will advise Subscriber, promptly
after it receives notice of issuance by the 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) Filing Requirements. From the date of this Agreement and
until the Termination Date, the Company will (A) cause its Common Stock to
continue to be registered under Section 12(b) or 12(g) of the Exchange Act, (B)
comply in all respects with its reporting and filing obligations under the
-12-
Exchange Act, and (C) comply with all reporting requirements that are applicable
to an issuer with a class of shares registered pursuant to Section 12(b) or
12(g) of the Exchange Act, as applicable. The "Termination Date" shall mean the
first to occur of (i) three (3) years after the Closing Date, or (ii) the date
on which all the Shares have been sold or transferred by Subscriber pursuant to
a registration statement or pursuant to Rule 144 or are eligible for sale
pursuant to said Rule 144 without regard to volume limitations. The Company will
use its best efforts not to take any action or file any document (whether or not
permitted by the Securities Act or the Exchange Act or the rules thereunder) to
terminate or suspend registration under the Exchange Act or to terminate or
suspend its reporting and filing obligations under said act until the
Termination Date. Until the Termination Date, the Company will use its
commercially reasonable best efforts to continue the listing or quotation of the
Common Stock on a the market on which it is presently quoted or another
acceptable market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the market. The Nasdaq
SmallCap Market, the Nasdaq National Market, and the American and New York Stock
Exchanges are acceptable markets. The Company agrees to timely file a Form D
with respect to the Securities if required under Regulation D and, if requested,
to provide a copy thereof to counsel to Subscriber.
(c) Use of Proceeds. The proceeds of the Offering will be used
by the Company for working capital or other corporate purposes.
(d) Reservation. Prior to the Closing Date, the Company
undertakes to reserve and maintain in reserve, from its authorized but unissued
Common Stock, a number of shares of Common Stock necessary to allow Subscriber
to be able to convert all such outstanding Notes and interest and reserve the
amount of Warrant Shares issuable upon exercise of the Warrants. Failure to have
sufficient shares reserved pursuant to this Section 10(d) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company's obligations under this Agreement and an Event of
Default under the Note; provided, however, that if, as a result of the
Authorized Stock Proviso, there are not sufficient shares reserved as required
in this Section 10(d), the Company shall, within thirty (30) days after the
Company becomes aware of such deficiency, prepare and file with the Commission a
proxy statement pursuant to which the Company will seek stockholder approval to
an increase in the authorized Common Stock sufficient to enable the Company to
be in compliance with this Section 10(d). Subscriber agrees to vote in favor of
such proposal.
(e) Taxes. From the date of this Agreement and until the
Termination Date, the Company will pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or business of the
Company where the failure to make such payment would have a Material Adverse
Effect; provided, however, that any such tax, assessment, charge or levy need
not be paid if the validity thereof shall currently be contested in good faith
by appropriate proceedings and if the Company shall have set aside on its books
adequate reserves with respect thereto.
(f) Books and Records. From the date of this Agreement and until
the Termination Date, the Company will keep true records and books of account in
which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
-13-
(g) Governmental Authorities. From the date of this Agreement
and until the Termination Date, the Company shall duly observe and conform in
all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets where the
failure to so comply will have a Material Adverse Effect.
(h) Confidentiality/Public Announcement. From the date of this
Agreement and until the Termination Date, the Company agrees that except in
connection with a Form 8-K or a registration statement, it will not disclose
publicly or privately the identity of Subscriber unless expressly agreed to in
writing by a Subscriber or only to the extent required by law.
(i) Further Registration Statements. Except for a registration
statement filed on behalf of Subscribers pursuant to Section 11 of this
Agreement which may include the Shares described on Schedule 10(i) hereto, the
Company will not file any registration statements or amend any already filed
registration statement, including but not limited to Form S-8, with the
Commission or with state regulatory authorities without the consent of
Subscriber until the sooner of (i) the date that the Registration Statement
described in Section 11(d) of this Agreement shall have been declared effective
by the Commission and available for use in connection with the public resale of
the Shares for 180 days or (ii) until all the Shares have been sold or
transferred by Subscribers pursuant to the Registration Statement or Rule 144
("Exclusion Period"). The Exclusion Period will be tolled during the pendency of
an Event of Default as defined in the Note.
(j) Non-Public Information. The Company covenants and agrees
that neither it nor any other person acting on its behalf will provide any
Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
(k) Insurance Covenant. Within thirty (30) days from the last
sale of Securities in this offering, the Company will name ___________________,
as agent for the holders of the Notes (the "Agent"), as beneficiary on a term
life insurance policy on the life of Xxxx X. Xxxxxx, Xx., with respect to the
lesser of one million dollars ($1,000,000) or the total principal amount of
Notes outstanding, as collateral security for payment by the Company of its
obligations under the Notes. Such designation shall be kept in full force and
effect until the Notes shall all be converted or paid as provided in the Notes.
The Company shall provide the Agent with evidence of such designation.
(l) Right to Participate in New Offering. In the event that,
prior to the effective date of the Registration Statement, as defined in Section
11(d) of this Agreement, the Company effects a private placement of its
securities on terms other than the terms set forth in this Agreement and the
Transaction Documents (a "New Offering"), the Company shall give Subscriber five
(5) days' notice setting forth the terms of the New Offering, and Subscriber
shall have the right to participate in the New Offering on the same terms and in
the same manner as if Subscriber paid an amount equal to purchase price of the
Securities to purchase securities in the New Offering. Subscriber may exercise
the right granted in this Section 10(l) by, prior to the expiration of such five
(5) day period, (i) giving written notice to the Company stating that Subscriber
is exercising such right, (ii) delivering to the Company for cancellation, all
of the Securities issued to Subscriber pursuant to this Agreement and the
Transaction Documents, (iii) executing such subscription and other documents as
are necessary to participate in the
-14-
New Offering, and (iv) representing that no brokerage commission is payable by
the Company in the event Subscriber exercises such right and agreeing to
indemnify the Company in the event that any such fee is claimed, since
Subscriber understands that the Company is paying a brokerage fee pursuant to
Section 9 of this Agreement. If Subscriber exercises any rights pursuant to this
Section 10(l), the Company's obligations to Subscriber and Subscriber's
obligations to the Company under this Agreement and the other Transaction
Documents shall automatically terminate and neither this Agreement nor any of
the other Transaction Document shall have any force and effect.
(m) Covenant Concerning Preferred Stock. The Company agrees
that, as long as the Notes are outstanding, it will not, without the consent of
Subscriber, issue any shares of its series A convertible preferred stock.
11. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(a) On one occasion, in addition to the registration rights set
forth in Sections 11(b) and 11(d) of this Agreement, for a period commencing one
hundred fifty-one (151) days after the Filing Date (as defined in Section 11(d)
of this Agreement), but not later than two (2) years after the Closing Date
("Request Date"), upon a written request therefor from any record holder or
holders of more than 50% of the Covered Shares, as hereinafter defined, the
Company shall prepare and file with the Commission a registration statement
under the Securities Act registering the Shares (collectively "Registrable
Shares") which are the subject of such request for unrestricted public resale by
the holder thereof. For purposes of this Sections 11, Registrable Shares shall
not include any Shares (A) which are registered for sale pursuant to an
effective registration statement, (B) included for registration in a pending
registration statement, or (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to a registration statement or
Rule 144 under the Securities Act or (D) which may be sold pursuant to Rule 144
without limitation on volume. The term "Covered Shares" shall mean Shares held
by Subscriber and the other Subscribers or issuable upon conversion of Notes or
exercise of Warrants held by Subscriber and the other Subscribers and any broker
who received Warrants pursuant to Section 9 of this Agreement. Upon the receipt
of such request, the Company shall promptly give written notice to all other
record holders of the Covered Shares that such registration statement is to be
filed and shall include in such registration statement Registrable Shares for
which it has received written requests within ten (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 11.
(b) If the Company at any time proposes to register any of its
securities under the Securities 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 Shares for sale to the public,
provided the Registrable Shares are not otherwise registered for resale by
Subscriber pursuant to an effective registration statement, each such time it
will give at least fifteen (15) days' prior written notice to the record holder
of the Registrable Shares of its intention so to do. Upon the written request of
the holder, received by the Company within ten (10) days after the giving of any
such notice by the Company, to register any of the Registrable Shares not
previously registered, the Company will cause such Registrable Shares 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
-15-
or other disposition of the Registrable Shares so registered by the holder of
such Registrable Shares (the "Seller" or "Sellers"). In the event that any
registration pursuant to this Section 11(b) shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of Registrable Shares
to be included in such an underwriting may be reduced by the managing
underwriter if and to the extent that the Company and the underwriter shall
reasonably be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the foregoing provisions or Section 11(d) of this
Agreement, the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 11(b) without thereby
incurring any liability to the Seller.
(c) If, at the time any written request for registration is
received by the Company pursuant to Section 11(a), the Company has determined to
proceed with the preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any of
its securities for the Company's own account and the Company actually does file
such other registration statement, such written request shall be deemed to have
been given pursuant to Section 11(b) rather than Section 11(a), and the rights
of the holders of Registrable Shares covered by such written request shall be
governed by Section 11(b).
(d) The Company shall file with the Commission a Form SB-2
registration statement (the "Registration Statement") (or such other form that
it is eligible to use) in order to register the Registrable Shares for resale
and distribution under the Securities Act) not later than sixty (60) days after
the Closing Date (the "Filing Date"), and cause it to be declared effective not
later than sixty (60) days after the Filing Date (the "Effective Date"). The
Company will register a number of shares of Common Stock in the Registration
Statement that is equal to number of Shares issuable upon conversion of the
Notes and all of the Initial Shares and Warrant Shares issuable upon exercise of
the Warrants and Broker's Warrants and 150% of an estimate of the number of
shares of Common Stock issuable as interest on the Notes. The Registration
Statement will be amended or additional registration statements will be filed by
the Company as necessary to register additional shares of Common Stock to allow
the public sale of all Common Stock included in and issuable by virtue of the
Registrable Shares. Such amendments or additional registration statements must
be filed within fifteen business days of the first date upon which insufficient
Shares are registered. Without the written consent of Subscriber, no securities
of the Company other than the Registrable Shares will be included in the
Registration Statement except as described on Schedule 10(i) hereto. In addition
to the foregoing, on the maturity date of the Notes, the Conversion Shares shall
be subject to an effective registration statement. As used in this Section
11(d), the Closing Date shall mean the first to occur of (i) the last day on
which the Company issued Securities to any Subscriber or (ii) June 7, 2005. If
Subscriber is purchasing Notes pursuant to Section 1(c) of this Agreement, for
purpose of the Subscriber's February 2005 Subscription Agreement, the Company
may file the registration statement referred to in such February 2005
Subscription Agreement by the Filing Date as set forth in this Section 11(d).
(e) If and whenever the Company is required by the provisions of
Section 11(a), 11(b) or 11(d) of this Agreement to effect the registration of
any Registrable Shares under the Securities Act, the Company will, prepare the
appropriate filing documents and provide a copy for review by Subscriber's
counsel, Xxxxx Xxxxxxx, Esq. at Blank Rome LLP at least five (5) days prior to
filing. Upon expiration of such five (5) day period, the Company shall as
expeditiously as possible:
-16-
(i) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 11, with respect to such securities and use its commercially reasonable
best efforts to cause such registration statement to become and remain effective
for the period of the distribution contemplated thereby (determined as herein
provided), promptly provide to counsel for Subscriber copies of all filings and
Commission letters of comment and notify Subscribers (by telecopier and by
e-mail addresses provided by Subscribers) and their counsel, Xxxxx Xxxxxxx, Esq.
at Blank Rome LLP (by telecopier and by email to Xxxxxxx@XxxxxXxxx.xxx on or
before 6:00 PM Eastern Time on the business day after the date that the Company
receives notice that (i) the Commission has no comments or no further comments
on the Registration Statement, and (ii) the registration statement has been
declared effective;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective until such registration statement has been effective for a period of
three (3) years, and comply with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Shares covered by such
registration statement in accordance with the Sellers' intended method of
disposition set forth in such registration statement for such period;
(iii) furnish to the Sellers, at the Company's expense,
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(iv) use its commercially reasonable best efforts to
register or qualify the Registrable Shares covered by such registration
statement under the securities or "blue sky" laws of New York and such
jurisdictions as the Sellers shall reasonably request in writing, 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;
(v) if applicable, list the Registrable Shares covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(vi) immediately notify the Sellers during the period when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing; and
(vii) provided same would not be in violation of the
provision of Regulation FD under the Exchange Act, make available for inspection
by the Sellers, and any attorney, accountant or other agent retained by the
Seller or underwriter, all publicly available, non-confidential financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
-17-
(f) In connection with each registration described in this
Section 11, each Seller will, as a condition to the inclusion of the Seller's
Registrable Shares in the registration statement 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, including:
(i) furnish the information as to any shares of Common
Stock or other Securities of the Company owned by Seller, Seller's proposed
method of sale, any relationship between the Seller and the Company and any
other information which the Company reasonably requests in connection with the
preparation of the registration statement and update such information
immediately upon the occurrence of any events or condition which make the
information concerning the Seller inaccurate in any material respect;
(ii) not sell any Registrable Shares pursuant to the
registration statement except in the manner set forth in the Registration
Statement;
(iii) comply with the prospectus delivery requirements and
the provisions of Regulation M of the Commission pursuant to the Securities Act;
(iv) not sell or otherwise transfer or distribute any
Registrable Shares if the Holder possesses any material nonpublic information
concerning the Company; and
(v) not sell or otherwise transfer any Registrable Shares
pursuant to a registration statement upon receipt of advice from the Company
that the registration statement is no longer current until the Seller is advised
that the Registrable Shares may be sold pursuant to the registration statement.
(g) The Company and Subscribers agree that the Sellers will
suffer damages if the Registration Statement is not filed by the Filing Date and
not declared effective by the Commission by the Effective Date, and any
registration statement required under Section 11(a) is not filed within 60 days
after written request and declared effective by the Commission within 120 days
after such request, and maintained in the manner and within the time periods
contemplated by Section 11 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (A) the Registration
Statement is not filed on or before the Filing Date, (B) is not declared
effective on or before the Effective Date, (C) the Registration Statement is not
declared effective within three (3) business days after receipt by the Company
or its attorneys of a written or oral communication from the Commission that the
Registration Statement will not be reviewed or that the Commission has no
further comments, (D) if the registration statement described in Section 11(a)
is not filed within sixty (60) days after such written request, or is not
declared effective within one hundred twenty (120) days after such written
request, or (E) any registration statement described in Sections 11(a) or 11(d)
is filed and declared effective but shall thereafter cease to be effective
(without being succeeded within fifteen (15) business days by an effective
replacement or amended registration statement) for a period of time which shall
exceed twenty (20) days in the aggregate per year (defined as a period of 365
days commencing on the date the Registration Statement is declared effective)
(each such event referred to in clauses A through E of this Section 11(f) is
referred to herein as a "Non-Registration Event"), then the Company shall pay to
the holder of Registrable Shares, as Liquidated Damages, an amount equal to two
percent (2%) for each whole month, thereafter of the amount of the principal
amount of such holder's Note as to which
-18-
such holder shall have prior thereto advised the Company in writing that such
holder intends to convert. The Company must pay the Liquidated Damages in cash;
provided, however, that if, on the date that the Company becomes obligated to
pay Liquidated Damages, a registration statement covering the Shares has not
been declared effective by the Commission, the Company shall issue a Note, in
substantially the form of the Note, in the principal amount of the Liquidated
Damages. Subject to the foregoing, the Liquidated Damages shall be paid within
ten (10) days after the end of each monthly period for which Liquidated Damages
are payable. In the event a Registration Statement is filed by the Filing Date
but is withdrawn prior to being declared effective by the Commission, then such
Registration Statement will be deemed to have not been filed. Liquidated Damages
that accrue pursuant to clause (A) of this Section 11(g) will be waived if the
Registration Statement is declared effective by the Effective Date. All oral or
written comments received from the Commission relating to the Registration
Statement shall be responded to within ten (10) business days after receipt of
comments from the Commission, unless a longer period of time is required in
order to enable the Company to include updated financial information.
Notwithstanding the foregoing, the Company shall not be liable to Subscriber
under this Section 11(g), and a Non-Registration Event shall not be deemed to
have occurred, for any events or delays occurring as a consequence of the acts
or omissions of any of the Subscribers contrary to the obligations undertaken by
any of the Subscribers, including the failure of any Seller to provide
information required by Section 11(e) of this Agreement. Liquidated Damages will
not accrue nor be payable pursuant to this Section 11(f) nor will a
Non-Registration Event be deemed to have occurred for times during which
Registrable Shares are transferable by the holder of Registrable Shares pursuant
to an effective Registration Statement or Rule 144(k) under the Securities Act
or any similar rule.
(h) All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, costs of insurance and reasonable
fee of one counsel for all Sellers including Sellers who purchased notes
pursuant to the February 2005 Subscription Agreements (not to exceed $5,000) are
called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Registrable Shares, including any other
fees and disbursements of counsel to the Seller, are called "Selling Expenses."
The Company will pay all Registration Expenses in connection with the
registration statement under Section 11. Selling Expenses in connection with
each registration statement under Section 11 shall be borne by the Sellers 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.
(i) In the event of a registration of any Registrable Shares
under the Securities Act pursuant to Section 11, the Company will, to the extent
permitted by law, indemnify and hold harmless the Seller, each officer of the
Seller, each director of the Seller, each underwriter of such Registrable Shares
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the Securities 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 Securities 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 Shares was registered under the Securities Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any
-19-
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances when made, and will subject to the provisions of Section 11(j)
of this Agreement, reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any Seller, or any
such controlling person in writing specifically for use in such registration
statement or prospectus.
(j) In the event of a registration of any of the Registrable
Shares under the Securities Act pursuant to this Section 11, each Seller
severally but not jointly will, to the extent permitted by law, indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Securities 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 Securities
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 Securities 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 Shares were registered under the Securities Act pursuant to Section
11, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the net proceeds actually received by
the Seller from the sale of Registrable Shares covered by such registration
statement.
(k) 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 11(j) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11(j) except and only if and to the extent the indemnifying party
is prejudiced by such omission. In case any such action shall be brought against
-20-
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 11(j) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. Such counsel shall be selected
by the holders of a majority of the shares having an indemnity claim against the
Company, whether pursuant to this Agreement or any other agreements which
provide such or similar indemnity.
(l) In order to provide for just and equitable contribution in
the event of joint liability under the Securities Act in any case in which
either (i) a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to Section 11(h) of this Agreement 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 said Section 11(h) provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Seller or controlling person of the Seller in circumstances for
which indemnification is not provided under this Section 11; then, and in each
such case, the Company and the Sellers 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 any 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, (x) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities sold by it pursuant to such registration statement; and (y) no person
or entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
12. Delivery of Unlegended Stock Certificates.
(a) Within three (3) business days (such third business day
being the "Unlegended Shares Delivery Date") after the business day on which the
Company has received (i) a notice that Shares have been sold pursuant to the
Registration Statement or Rule 144 under the Securities Act, (ii) a
representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable and if required, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of Subscriber and/or Subscriber's broker regarding
compliance with the requirements of Rule 144, the Company at its expense shall
deliver, and shall cause legal counsel selected by the Company to deliver to its
transfer agent or to Seller's broker an appropriate instruction
-21-
and, if required by the Company's transfer agent, opinion of such counsel,
opining on the permissibility of the delivery of shares of Common Stock without
any legends.
(b) In lieu of delivering physical certificates representing the
unlegended shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of Subscriber, so long as the certificates therefor do not bear a
legend and Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(c) In addition to any other rights available to a Subscriber,
if the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Section 12, within seven (7) business days after the Unlegended
Shares Delivery Date and Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by
Subscriber of the shares of Common Stock which Subscriber was entitled to
receive from the Company (a "Buy-In"), then the Company shall pay in cash to
Subscriber (in addition to any remedies available to or elected by Subscriber)
the amount by which (A) Subscriber's total purchase price (including brokerage
commissions, if any) for the shares of common stock so purchased exceeds (B) the
aggregate purchase price of the shares of Common Stock delivered to the Company
for reissuance as Unlegended Shares together with interest thereon at a rate of
15% per annum, accruing until such amount and any accrued interest thereon is
paid in full (which amount shall be paid as liquidated damages and not as a
penalty). For example, if a Subscriber purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of
purchase price of shares of Common Stock delivered to the Company for reissuance
as Unlegended Shares, the Company shall be required to pay Subscriber $1,000,
plus interest. Subscriber shall provide the Company written notice indicating
the amounts payable to Subscriber in respect of the Buy-In.
13. Certain Rights of Subscriber.
(a) As used in this Section 13, the term "Excepted Issuance"
shall mean the issuance or sale by the Company of its common stock or other
securities or debt obligations, except in connection with (i) as a result of the
exercise of options or warrants or conversion of convertible notes or amounts
which are granted, issued or accrue pursuant to this Agreement or are otherwise
outstanding on the date of this Agreement, (ii) as has been described in the
Reports filed with the Commission or Other Written Information delivered to
Subscriber on or prior to the Closing Date, (iii) full or partial consideration
in connection with a strategic merger, consolidation or purchase of
substantially all of the securities or assets of corporation or other entity,
(iv) the Company's issuance of securities in connection with license or
distribution agreements, other partnering arrangements, asset purchase
agreement, or other business agreements or arrangements so long as such
issuances are not for the purpose of raising capital, or (v) the Company's
issuance of Common Stock or the issuance or grants of options to purchase Common
Stock pursuant to the Company's stock option plans, stock incentive plans and
employee stock purchase plans..
(b) Except for the Excepted Issuances, if at any time that the
Notes held by Subscriber are outstanding, the Company shall issue any Common
Stock or securities convertible into or exercisable for shares of Common Stock
(or modify any of the foregoing which may be outstanding) to any person or
entity at a price per share or conversion or exercise price per share which
shall be less than the
-22-
Conversion Price in respect of the Conversion Shares, or if less than the
Warrant exercise price in respect of the Warrant Shares, without the consent of
Subscriber, then Conversion Price of the Notes then outstanding or the exercise
price of the Warrants then outstanding shall be reduced to the effective price
paid in such subsequent offering. If the securities are issued as a unit
(regardless of whether the issuance is designated as a unit) the price paid per
share shall be determined by dividing (i) the number of shares of Common Stock
issued by the Company in the transaction, including any shares of Common Stock
issued or issuable upon conversion of any convertible securities and upon
exercise or any options, warrants and rights by (ii) the total price paid for
the securities plus any additional consideration payable upon conversion of any
convertible securities and on exercise of any warrants, options or rights, and
such comparison shall be made with respect to both this offering and the new
offering, and, in making such computation, any warrants issued to any broker or
finder shall not be taken into consideration. If Subscriber is purchasing Notes
pursuant to Section 1(c) of this Agreement, the provisions of this Section 13
shall replace, in its entirety, the provisions of Section 12 of the February
2005 Subscription Agreement.
14. Miscellaneous.
(a) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service which provides
evidence of delivery with charges prepaid, or (iv) transmitted by hand delivery,
or facsimile, addressed as set forth below or to such other address as such
party shall have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine (with any facsimile
transmission being confirmed by e-mail and telephone), at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be: (i) if to the Company, to:
AdSouth Partners, Inc., 0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000, Xxxx Xxxxx, XX
00000, Attn: Xxx Xxxxxxxx, CFO, telecopier number: (000) 000-0000, e-mail
xxx@xxxxxxxxxx.xxx, with a copy by telecopier only to: Xxxxx X. Xxxxxxxx PC,
Esanu Katsky Xxxxxx & Siger, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000,
telecopier number: (000) 000-0000, e-mail xxxxxxxxx@xxxx.xxx, (ii) if to
Subscriber, to the address and telecopier numbers indicated on the signature
pages hereto, with an additional copy by telecopier only to Xxxxx Xxxxxxx, Esq.,
Blank Rome, LLC, 0000 X. Xxxxxxx Xxxxxxx, Xxxxx 000, Xxxx Xxxxx, XX 00000, and
(iii) if to the broker, to the address set forth on Exhibit 9 to this Agreement.
(b) Entire Agreement; Assignment. This Agreement, together with
the Transaction Documents, represent the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing executed by both parties. Neither the Company nor Subscriber has relied
on any representations not contained or referred to in this Agreement and the
documents delivered herewith. No right or obligation of the Company shall be
assigned without prior notice to and the written consent of Subscribers.
-23-
(c) Counterparts/Execution. This Agreement may be executed in
any number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(d) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida
without regard to conflicts of laws principles that would result in the
application of the substantive laws of another jurisdiction. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the federal or state courts sitting in
Palm Beach County, Florida. The parties and the individuals executing this
Agreement and other agreements referred to herein or delivered in connection
herewith on behalf of the Company agree to submit to the jurisdiction of such
courts and waive trial by jury. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs.
(e) Partial Invalidity. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
(f) Force Majeure. Performance of any obligation under this
Agreement (other than payment of money) may be suspended by the Company without
liability to the extent that acts of God, war, riot, fire, explosion, accident,
flood, sabotage, inability to obtain raw materials or fuel or power,
governmental laws, regulations or orders, or labor unrest, strike, lockout, or
injunction (whether or not such labor event is within the reasonable control of
the Company), delays, prevents, restricts, or limits the performance of such
obligation. The Company shall promptly give oral notification, promptly
confirmed in writing, to Subscriber of the nature and extent of the matter
causing the delay and estimated duration of the suspension period. The Company
shall use all reasonable efforts to terminate the condition as soon as possible.
Notwithstanding the foregoing, the Company shall not be entitled to delay any
obligation pursuant to this Section 13(f) for more than forty five (45) days.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-24-
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
----------------------------------------
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
ADSOUTH PARTNERS, INC.
By:_________________________________
Name:
Title:
Dated: May 16, 2005
--------------------------------------------------------- ------------------- --------------------- ---------------------
Subscriber's Name, Address and Fax No. Note Principal Warrants Initial Shares
--------------------------------------------------------- ------------------- --------------------- ---------------------
By:_________________________________
Name:
Title:
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit A Form of Series B Warrant
Exhibit B Form of Note
Exhibit C Form of Security Agreement
Exhibit D Form of Legal Opinion
Schedule 6(a) Subsidiaries
Schedule 6(d) Additional Issuances / Capitalization
Schedule 9 Brokers
Schedule 10(i) Other Securities to be Registered
Schedule 6(a) - Subsidiaries
Subsidiary State of Incorporation
---------- ----------------------
Adsouth, Inc. Florida
Dermafresh, Inc. Florida
Miko Distributors, Inc. Florida
Schedule 6(d) - Additional Issuances/Capitalization
The authorized capital stock of the Company consists of 5,000,000 shares of
preferred stock, par value $.0001 per share, of which 3,500,000 are designated
as Series A Convertible Preferred Stock, and 33,333,333 shares of Common Stock.
No shares of preferred stock have been issued and the Company has no commitments
with respect to the issuance of preferred stock, except as expressly provided
Section 10(m) of this Agreement.
As of May 12, 2005, there were approximately* 7,960,931 shares of Common Stock
outstanding.
The following lists the approximate* number of potentially issuable shares of
Common Stock:
------- -------------------------------------------------------------------------------- --------------------
1. Outstanding options to purchase shares of common stock pursuant to stock
option grants which were registered on Form S-8, exercisable at $1.35 per share 733,333
------- -------------------------------------------------------------------------------- --------------------
2. Outstanding options to purchase shares of common stock pursuant to stock
option grants which were registered on Form S-8, exercisable at $.90 per share 13,334
------- -------------------------------------------------------------------------------- --------------------
3. Outstanding options to purchase shares of common stock pursuant to stock
option grants which were registered on Form S-8, exercisable at $2.445 per share 53,334
------- -------------------------------------------------------------------------------- --------------------
4. Outstanding options to purchase shares of common stock pursuant to stock
option grants which were registered on Form S-8, exercisable at $1.38 per share 200,000
------- -------------------------------------------------------------------------------- --------------------
5. Outstanding options to purchase shares of common stock pursuant to stock
option grants which were registered on Form S-8, exercisable at $.305 per share 26,667
------- -------------------------------------------------------------------------------- --------------------
6. Warrants to purchase shares of common stock at $3.00 52,445
------- -------------------------------------------------------------------------------- --------------------
7. Warrants to purchase shares of common stock at $30.00 9,076
------- -------------------------------------------------------------------------------- --------------------
8. The Company has adopted the 2005 Stock Option Plan, pursuant to which an 1,000,000
option to purchase 200,000 shares has been granted. The employment agreements
with the Company's Chief Executive Officer, President and Chief Financial
Officer provide for the grant of options depending on the Company's
performance. It is expected that these options will be granted under the 2005
plan.
------- -------------------------------------------------------------------------------- --------------------
9. Shares issuable upon exercise of warrants and conversion of notes issued in
the February 2005 private placement, plus an indeterminate number of shares
issuable for interest on the notes. 2,160,261
------- -------------------------------------------------------------------------------- --------------------
* The number of shares of Common Stock is approximate since, in
connection with the reverse split, fractional shares were rounded up.
Schedule 9 -- Brokers
---------------------
The broker with respect to Subscriber is:
60% to Atlas Capital Services, LLC, 000 Xxxx 00xx Xx., Xxx Xxxx, XX 00000, Attn:
Xx. Xxxxxx Xxxxxx.
40% to Xxxxxx Xxxxx Securities, Inc., 000 X. Xxxxxxx Xxxxxxx, 0xx Xxxxx,
Xxxx Xxxxx, XX 00000, Attn: Xxxxxx X. Xxxxxx
Schedule 10(i) - Others with Registration Rights
------------------------------------------------
The purchasers of the notes in the February 2005 financing have
registration rights with respect to the shares issued pursuant to the private
placement as well as shares issuable upon conversion of the principal and
interest on the notes, exercise of the warrants and liquidated damages.
In June 2004, the Company issued 133,334 shares of Common Stock in a
private placement and granted demand registration right with respect to those
shares commencing June 2005. This number of shares is less than 2% of the
outstanding common stock.
In July 2004, the Company issued 46,667 shares of Common Stock in a
private placement and granted demand registration right with respect to those
shares commencing July 2005. Since the number of shares is less than 1% of the
outstanding common stock, the shares can be sold without registration pursuant
to Rule 144.
