SUBSCRIPTION AGREEMENT
This
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
is
dated as of December 19, 2007, by and among Advance Nanotech, Inc., a Delaware
corporation
(the
“Company”),
and
the subscribers identified on the signature page hereto (each, a “Subscriber”
and
collectively, the “Subscribers”).
WHEREAS,
the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “1933
Act”);
and
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided herein,
a minimum of $4,000,000 and a maximum of $8,800,000 (subject to an additional
overallotment option to sell up to an additional 10% of the amount of securities
offered hereby) (altogether, the “Purchase
Price”)
of the
Company’s 8% Senior Secured Convertible Notes (each a “Note”
and
collectively, the “Notes”),
in
the form attached hereto as Exhibit
A. Such
Notes shall be convertible into shares of the Company's Common Stock, $0.001
par
value (the “Common
Stock”)
at a
per share conversion price set forth in the Note (“Conversion
Price”).
In
addition, each Subscriber shall be issued Common Stock purchase warrants (the
“Warrants”),
in
the form attached hereto as Exhibit
B,
(the
“Warrant
Shares”).
The
Notes, shares of Common Stock issuable upon conversion of the Notes (the
“Shares”),
the
Warrants and the Warrant Shares are collectively referred to herein as the
“Securities”;
and
WHEREAS,
the
aggregate proceeds of the sale of the Notes and the Warrants contemplated hereby
shall be held in escrow pursuant to the terms of an Escrow Agreement (the
“Escrow
Agreement”)
between the Company, Axiom Capital Management, Inc. (the “Placement
Agent”)
and
HSBC Bank USA, Inc., as Escrow Agent (the “Escrow
Agent”).
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:
1. Closing
and Purchase Price.
(a) Closing
Date.
A
“Closing
Date”
shall
be each date upon which the Purchase Price is transmitted by wire transfer
or
otherwise credited to or for the benefit of the Company. The consummation of
the
transactions contemplated herein shall take place at the offices of the Company
or such other location as shall be mutually agreed by the parties hereto, upon
the satisfaction or waiver of all conditions to closing set forth in this
Agreement. Subject to the satisfaction or waiver of the terms and conditions
of
this Agreement, on a Closing Date, each Subscriber shall purchase and the
Company shall sell to each Subscriber a Note in the principal amount designated
on the signature page hereto for the aggregate Purchase Price indicated thereon,
and Warrants as described in Section 2 of this Agreement. The “First
Closing Date”
shall
be the first Trading Day after which all of the conditions to closing set forth
in this Agreement shall have been satisfied or have been waived by the party
in
whose favor such conditions run and the Company shall have accepted
subscriptions to purchase at least $4,000,000 principal amount of the Notes.
The
Company, at its discretion, may proceed with one or more additional Closing
Dates after the First Closing Date with respect to any other subscriptions
for
Notes which the Company should thereafter accept. The “Final
Closing Date”
shall
be the last Closing Date.
(b) Payment
of Purchase Price.
The
aggregate Purchase Price with respect to the Securities being acquired on a
Closing Date shall be paid by wire transfer of immediately available funds
to
the Escrow Agent pursuant to the Escrow Agreement for distribution upon the
Closing Date pursuant to the terms of the Escrow Agreement.
2. Issuance
of Notes and Warrants.
(a) Notes.
On the
Closing Date, the Company will issue Notes to the Subscribers. The parties
acknowledge that the Company does not currently have a sufficient number of
authorized but unissued shares to permit the issuance of Notes to Subscribers
with a face amount of $8,800,000. The Company shall sell to Subscribers Notes
with an aggregate principal amount that can be issued in light of the Company’s
current capital structure (the percentage of Notes that can be issued being
referred to herein as the “Applicable
Percentage”);
the
calculation of such amount shall be subject to the consent of the Placement
Agent. Any Purchase Price received by the Company in excess of the issued face
amount of Notes shall be held in escrow pursuant to the terms of the Escrow
Agreement, and the Company shall issue additional Notes to Subscribers when
additional authorized but unissued shares of common stock become available.
If
such additional Notes have not been issued by February 15, 2008, then any part
of the Subscribers’ Purchase Price remaining in escrow, together with interest
thereon, shall be returned to the Subscribers within three (3) business days
thereof.
(b) Warrants.
On the
Closing Date, the Company will issue and deliver Warrants to the Subscribers.
Each Subscriber shall be entitled to receive a Warrant to purchase one-half
share of Common Stock for every share of Common Stock into which the Notes
acquired by such Subscriber may be converted as of the Closing Date;
provided,
however,
that
the Company shall be required to issue a Warrant on the Closing Date for only
the Applicable Percentage of such shares of Common Stock, and when the Company
has a sufficient number of shares of Common Stock authorized for issuance (as
provided in the Escrow Agreement), the Company shall be required to issue to
each Subscriber, pro rata, an additional Warrant for the portion of such shares
of Common Stock then authorized and available for issuance within three (3)
Trading Days after the applicable Escrow Termination Date (as defined in the
Escrow Agreement). On the Closing Date, the exercise price to purchase a single
Warrant Share upon exercise of a Warrant shall be the greater of $0.30 or the
closing bid price on the Trading Day before the Closing Date. The Warrants
shall
be exercisable until five years after the First Closing Date. If such additional
Warrants have not been issued by February 15, 2008, then the Company shall
have
no further obligation to issue, and the Subscribers shall not be entitled to
receive, such Warrants.
3. Security
Interest.
The
Subscribers will be granted a security interest, which shall be a first priority
security interest except as set forth on Schedule 3 hereto, in the Collateral
(as defined in Section 3.2 of the Pledge and Security Agreement), which security
interest will be memorialized in a “Security Agreement,”
in
the
form annexed hereto as Exhibit
C.
The
Company will also execute all such documents reasonably necessary in the opinion
of Subscribers to memorialize and further protect the security interest
described herein. The Subscribers will appoint a Collateral Agent to represent
them collectively in connection with the security interest to be granted to
the
Subscribers. The appointment will be pursuant to a “Collateral
Agent Agreement,”
a
form
of which is annexed hereto as Exhibit
D.
4. Subscriber's
Representations and Warranties.
Each
Subscriber hereby represents and warrants to the Company only as to such
Subscriber that:
(a) Organization
and Standing of the Subscribers.
If the
Subscriber is an entity, such 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 and
the
office of such Subscriber in which its investment decision was made is located
at the address of such Subscriber set forth on its signature page
hereto.
(b) Authorization
and Power.
Each
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and to purchase the Notes and Warrants being sold to it hereunder.
The
execution, delivery and performance of this Agreement by such Subscriber and
the
consummation by it of the transactions contemplated hereby and thereby have
been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or its Board of Directors,
stockholders, partners, members, as the case may be, is required. This Agreement
has been duly authorized, executed and delivered by Subscriber and constitutes,
or shall constitute when executed and delivered, a valid and binding obligation
of the Subscriber enforceable against the Subscriber in accordance with the
terms thereof.
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(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
such Subscriber of the transactions contemplated hereby or relating hereto
do
not and will not (i) result in a violation of such 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 such 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 such 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 such Subscriber). Such 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, such Subscriber is assuming and
relying upon the accuracy of the relevant representations and agreements of
the
Company herein.
(d) Information
on Company.
The
Subscriber has been furnished with or has had access at the XXXXX Website of
the
Commission to the Company's Form 10-KSB for the fiscal year ended December
31,
2006, and the financial statements included therein for the year ended December
31, 2006, together with all subsequent filings made with the Commission
available at the XXXXX website (hereinafter referred to collectively as the
"Reports").
In
addition, the Subscriber has had the opportunity to request and receive in
writing from the Company (and, if so requested, has received in writing from
the
Company) such other information concerning its operations, financial condition
and other matters as the Subscriber has requested in writing, identified thereon
as “OTHER WRITTEN INFORMATION” (such other information is collectively, the
"Other
Written Information"),
if
any, and considered all factors the Subscriber deems material in deciding on
the
advisability of investing in the Securities.
(e) Information
on Subscriber.
The
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
1933 Act, is experienced in investments and business matters, has purchased
securities of United States publicly-owned companies in private placements
in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof. The information set forth on
the
signature page hereto regarding the Subscriber is accurate.
(f) Purchase
of Notes and Warrants.
On the
Closing Date, the Subscriber will purchase the Notes and Warrants 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.
3
(g) Compliance
with Securities Act.
The
Subscriber understands and agrees that the Securities have not been registered
under the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933
Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration.
The
Subscribers will comply with all applicable rules and regulations in connection
with the sales of the securities including laws relating to short
sales.
(h) Shares
Legend.
The
Shares, and the Warrant 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 THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED."
(i) Warrants
Legend.
The
Warrants shall bear the following
or
similar legend:
"THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE
STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY
THAT
SUCH REGISTRATION IS NOT REQUIRED."
(j) Note
Legend.
The
Note shall bear the following legend:
"THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE
COMPANY
THAT
SUCH REGISTRATION IS NOT REQUIRED."
(k) Communication
of Offer.
The
offer to sell the Securities was directly communicated to the Subscriber by
the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
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(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 the
Subscriber and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights generally and to general principles of equity;
and Subscriber has full power and authority necessary to enter into this
Agreement and such other agreements and to perform its obligations hereunder
and
under all other agreements entered into by the Subscriber relating
hereto.
(m) Restricted
Securities.
Subscriber understands that the Securities have not been registered under the
1933 Act and such 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 1933 Act, or unless an exemption
from
registration is available. Notwithstanding anything to the contrary contained
in
this Agreement, such 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.
Each
Subscriber understands that no United States federal or state agency or any
other governmental or state agency has passed on or made recommendations or
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) Correctness
of Representations.
Each
Subscriber represents as to such Subscriber that the foregoing representations
and warranties are true and correct as of the date hereof and, unless a
Subscriber otherwise notifies the Company prior to the Closing Date shall be
true and correct as of the Closing Date.
(p) Anti-Money
Laundering.
The Subscriber hereby acknowledges that the Company seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of such efforts, the Subscriber hereby represents, warrants and
agrees that to the best of the Subscriber’s knowledge based upon reasonable
diligence and investigation:
(i)
no
consideration that the Subscriber has contributed or will contribute to the
Company has been or shall be derived from, or related to, any activity that
is
deemed criminal under United States law; and
(ii)
no
consideration that the Subscriber has contributed or will contribute to the
Company shall cause the Company or any officer or director of the Company to
be
in violation of the United States Bank Secrecy Act, the United States Money
Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-terrorism Financing Act of 2001.
The
Subscriber agrees to provide the Company with any additional information
regarding the Subscriber that the Company deems necessary or appropriate to
ensure compliance with all applicable laws concerning money laundering and
similar activities. The Subscriber understands and agrees that if at any time
it
is discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, the Company may, in its sole discretion, undertake
appropriate actions to ensure compliance with applicable law or regulation,
including but not limited to freezing, segregating or requiring the sale of
the
Subscriber’s Securities. The Subscriber further understands that the Company may
release confidential information about the Subscriber, and, if applicable,
any
underlying beneficial ownership, to proper authorities if the Company, in its
sole discretion, determines that such release is in the best interests of the
Company in light of relevant laws, rules and regulations concerning money
laundering and similar activities.
5
(q) ERISA.
If this
Agreement is being entered into on behalf of an employee benefit plan (a “Plan”)
subject to Title I of the Employment Retirement Income Security Act of 1974,
as
amended (“ERISA”), in accordance with the provisions of the instrument or
instruments governing such Plan and its related trust, the Subscriber represents
that: it is a “fiduciary” of such Plan and trust (within the meaning of Section
3(21)(A) of ERISA); the execution and delivery of this Agreement with respect
to
the Plan and trust have been duly authorized; and in making this investment,
the
Subscriber is aware of, and has taken into consideration, among other things,
risk return factors and the anticipated effect of an investment in the Company
on the diversification, liquidity and cash flow needs of the Plan and the
projected effect of the investments in meeting the Plan’s funding objectives and
has concluded that this investment is a prudent one. Moreover, the Subscriber
represents that: (i) neither the Company, its advisors, nor any of their
affiliates: (A) has investment discretion with respect to the investment of
such
Plan assets; (B) has authority or responsibility to give or regularly gives
investment advice with respect to such Plan assets, for a fee, pursuant to
an
agreement or understanding that such advice will be based on the particular
investment needs of the Plan; or (C) is an employer maintaining or contributing
to such a Plan; and (ii) an investment in the Company conforms in all respects
to applicable law and to the appropriate employee benefit plan documents. The
Subscriber represents and warrants that either (a) it is not an employee benefit
plan that permits its beneficiaries to self-direct investments, or (b) if the
Subscriber’s beneficiaries are permitted to self-direct investments, then each
beneficiary who does so is an accredited investor. Please
note that if the Subscriber permits self-directed investments by its
beneficiaries, then each beneficiary must separately execute a copy of this
Agreement.
5. Company
Representations and Warranties.
The
Company represents and warrants to each Subscriber that:
(a) Due
Incorporation.
The
Company is a corporation or other entity duly incorporated or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate power to own
its
properties and to carry on its business as presently
conducted. 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 purposes 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 taken
as
a whole. For purposes of this Agreement, “Subsidiary”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity of which more than 50% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by such
entity. The Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
5(a).
(b) Outstanding
Stock.
As of
each Closing Date, all issued and outstanding shares of capital stock of the
Company and each Subsidiary have been duly authorized and validly issued and
are
fully paid and non-assessable.
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(c) Authority;
Enforceability.
This
Agreement, the Note, the Warrants, the Security Agreements, the Escrow
Agreement, the Exchange Agreement and any other agreements delivered together
with this Agreement or in connection herewith (collectively, the “Transaction
Documents”)
have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements of the Company enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity. The Company
has
full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations thereunder.
(d) Additional
Issuances.
There
are
no outstanding agreements or preemptive or similar rights affecting the
Company's Common Stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of Common
Stock or equity of the Company or Subsidiaries or other equity interest in
the
Company except as set forth in the Transaction Documents and as described in
the
Reports or on Schedule
5(d).
The
Common Stock of the Company on a fully diluted basis outstanding as of the
last
Business Day preceding the First Closing Date is set forth on Schedule
5(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, the OTC Bulletin Board (the “NASD
Electronic Bulletin Board”)
nor
the Company's shareholders is required for the execution by the Company of
the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation,
the
issuance and sale of the Securities. The Transaction Documents and the Company’s
performance of its obligations thereunder has been unanimously approved by
the
Company’s Board of Directors.
(f) No
Violation or Conflict.
Assuming the representations and warranties of the 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
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to
which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
or
(ii) result
in
the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except
as described herein; or
(iii) except
as
described in Schedule
5(d),
result
in the activation of any anti-dilution rights or a reset or repricing of any
debt or security instrument of any other creditor or equity holder of the
Company, nor result in the acceleration of the due date of any obligation of
the
Company; or
7
(iv) except
as
described in Schedule
5(d),
result
in the triggering 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.
The
Securities upon issuance:
(i) are,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances from or through the Company, subject to restrictions upon transfer
under the 1933 Act and any applicable state securities laws and as provided
in
the Transaction Documents;
(ii) have
been, or will be, duly and validly authorized and on the date of issuance of
the
Shares upon conversion of the Notes and the Warrant Shares upon exercise of
the
Warrants, the Shares and Warrant Shares will be duly and validly issued, fully
paid and non-assessable and if registered pursuant to the 1933 Act and resold
pursuant to an effective registration statement will be free trading and
unrestricted;
(iii) will
not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders; and
(v) assuming
the representations and warranties of the Subscribers as set forth in Section
4
hereof are true and correct, will not result in a violation of Section 5 under
the 1933 Act.
(h) Litigation.
There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or the performance by the Company
of
its obligations under the Transaction Documents. Except as disclosed in the
Reports, there is no pending or, to the best knowledge of the Company, basis
for
or threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation is reasonably expected by the Company
to have a Material Adverse Effect.
(i) 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.
(j) 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. Except as described in
Schedule
5(j),
since
the date of the financial statements included in the Reports, and except as
modified in the Transaction Documents or in the Schedules thereto, if at all,
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,
taken
as a whole, not misleading in light of the circumstances when made.
(k) Stop
Transfer.
The
Company has not issued and will not issue any stop transfer order or other
order
impeding the sale, resale or delivery of any of the Securities, except as
provided in the Transaction Documents, if at all, or as may be required by
any
applicable federal or state securities laws and unless contemporaneous notice
of
such instruction is given to the Subscriber.
8
(l) Defaults.
The
Company is not in violation of its certificate 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.
(m) No
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the Bulletin Board or the “pink sheets” which would impair
the exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder. Nor will the Company nor any of its
Affiliates take any action or steps that would cause the offer or issuance
of
the Securities to be integrated with other offerings which would impair the
exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder. The Company will not conduct any offering
other than the transactions contemplated hereby that will be integrated with
the
offer or issuance of the Securities, which would impair the exemptions relied
upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder.
(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 0000 Xxx)
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 or in the Transaction
Documents or in the Schedules thereto or on Schedule
5(o)
other
than those incurred in the ordinary course of the Company businesses since
December 31, 2006 and which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(p) No
Undisclosed Events or Circumstances.
Since
December 31, 2006, 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 of the Company and Subsidiaries as
of
the date of this Agreement and as of the First Closing Date (not including
the
Securities) are set forth in the Reports or on Schedule
5(d).
Except
as set forth 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.
9
(r) “Intellectual
Property”
shall
mean all of the following as they are necessary in connection with the business
of the Company or its subsidiaries as presently conducted and as they exist
in
all jurisdictions throughout the world, in each case, to the extent owned by
or
licensed to the Company or its subsidiaries: (i) patents, patent applications
and inventions, designs and improvements described and claimed therein,
patentable inventions and other
patent
rights (including any divisions, continuations, continuations-in-part, reissues,
reexaminations, or interferences thereof, whether or not patents are issued
on
any such applications and whether or not any such applications are modified,
withdrawn, or resubmitted) (“Patents”);
(ii)
trademarks, service marks, trade dress, trade names, brand names, designs,
logos, or corporate names, whether registered or unregistered, and all
registrations and applications for registration thereof (“Trademarks”);
(iii)
copyrights and mask works, including all renewals and extensions thereof,
copyright registrations and applications for registration thereof, and
non-registered copyrights (“Copyrights”);
(iv)
trade secrets, inventions, know-how, process technology, databases, confidential
business information, customer lists, technical data and other proprietary
information and rights (“Trade
Secrets”);
(v)
computer software programs, including, without limitation, all source code,
object code, and documentation related thereto (“Software”);
(vi)
Internet addresses, domain names, web sites, web pages and similar rights and
items (“Internet
Assets”);
and
(vii) all licenses, sublicenses and other agreements or permissions including
the right to receive royalties, or any other consideration related to the
property described in (i)-(vi). The Intellectual Property contains all of the
intellectual property necessary to operate the business of the Company as
currently conducted. The
Company or its subsidiaries exclusively owns (or otherwise has the right to
use
the Intellectual Property pursuant to a valid license, sublicense or other
agreement), free and clear of all Liens, and has the unrestricted right (subject
to any such license terms, if applicable) to use, sell, license, or sublicense
all Intellectual Property. To
the
Company’s knowledge, upon
reasonable inquiry in accordance with sound business practice and business
judgment,
all the
Company’s Intellectual Property rights are valid and enforceable. The Company
has taken all reasonably necessary actions to maintain and protect each item
of
Intellectual Property owned by the Company or its subsidiaries. The
Company and each subsidiary of the Company has taken all reasonable precautions
to protect the secrecy, confidentiality, and value of its Trade Secrets and
the
proprietary nature and value of its Intellectual Property. To
the
knowledge of the Company, upon
reasonable inquiry in accordance with sound business practice and business
judgment,
none of
the Intellectual Property, products or services owned, used, developed,
provided, sold or licensed by the Company, or made for, used or sold by or
licensed to the Company by any person infringes upon or otherwise violates
any
Intellectual Property rights of others. To
the
knowledge of the Company, upon
reasonable inquiry in accordance with sound business practice and business
judgment,
no
Person is infringing upon or otherwise violating the Intellectual Property
rights of the Company.
(s) Solvency.
Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the Notes
hereunder, (i) the Company’s fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities)
due as of the Closing; (ii) the Company’s assets do not constitute unreasonably
small capital to carry on its business for the current fiscal year as now
conducted and as proposed to be conducted including its capital needs taking
into account the particular capital requirements of the business conducted
by
the Company, and projected capital requirements and capital availability
thereof; and (iii) the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its assets,
after taking into account all anticipated uses of the cash, would be sufficient
to pay all amounts on or in respect of its debt which are required to be paid
at
Closing. The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts of cash
to
be payable on or in respect of its debt).
(t) Dilution.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment
that
the issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Notes, 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 shareholders of the
Company or parties entitled to receive equity of the Company.
10
(u)
No
Disagreements with Accountants and Lawyers.
There
are no material disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise between the Company and the accountants
and
lawyers presently employed by the Company, including but not limited to disputes
or conflicts over payment owed to such accountants and lawyers, nor have there
been any such disagreements during the two years prior to the First Closing
Date.
(v) Investment
Company.
Neither
the Company nor any Affiliate of the Company is an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.
(w) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(x) Reporting
Company.
The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13 of the Securities Exchange Act of 1934, as amended (the "1934
Act")
and
has a class of Common Stock registered pursuant to Section 12(g) of the 1934
Act. Pursuant to the provisions of the 1934 Act, the Company has timely filed
all reports and other materials required to be filed thereunder with the
Commission during the preceding twelve months.
(y) Listing.
The
Company's Common Stock is quoted on the NASD Electronic Bulletin Board under
the
symbol AVNA.OB. The Company has not received any oral or written notice that
its
Common Stock is not eligible nor will become ineligible for quotation on the
NASD Electronic Bulletin Board nor that its Common Stock does not meet all
requirements for the continuation of such quotation. The Company satisfies
all
the requirements for the continued quotation of its Common Stock on the NASD
Electronic Bulletin Board.
(z) DTC
Status.
The
Company’s transfer agent is a participant in and the Common Stock is eligible
for transfer pursuant to the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax number, contact
person and email address of the Company transfer agent is set forth on
Schedule
5(x)
hereto.
(aa) Legal
Matters.
None of
the following has occurred since October 1, 2004 with respect to the Company
or
control person of the Company (each a “Person”):
i. a
petition under the federal bankruptcy laws or any state insolvency law was
filed
by or against, or a receiver, fiscal agent or similar officer was appointed
by a
court for the business or property of such Person, or any partnership in which
such Person was a general partner at or within two years before the time of
such
filing, or any corporation or business association of which such Person was
an
executive officer at or within two years before the time of such filing;
ii. such
Person was convicted in a criminal proceeding or is a named subject of a pending
criminal proceeding (excluding traffic violations and other minor offenses);
11
iii. such
Person was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining such Person from, or otherwise limiting,
the following activities:
A. acting
as
an investment advisor, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, as a futures commission merchant,
introducing broker, commodity trading advisor, commodity pool operator, floor
broker or any other person regulated by the Commodity Futures Trading Commission
(“CFTC”),
or
engaging in or continuing any conduct or practice in connection with such
activity;
B. engaging
in any type of business practice; or
C. engaging
in any activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of federal or state securities
laws or federal commodities laws;
iv. such
Person was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any federal or state authority barring,
suspending or otherwise limiting for more than 60 days the right of such Person
to engage in any activity described in the foregoing clause iii, or to be
associated with persons engaged in any such activity; or
v. such
Person was found by a court of competent jurisdiction in a civil action or
by
the CFTC or Securities and Exchange Commission to have violated any federal
or
state securities law, and the judgment in such civil action or finding by the
CFTC or Securities and Exchange Commission has not been subsequently reversed,
suspended, or vacated.
(bb) Correctness
of Representations.
The
Company represents that the foregoing representations and warranties are true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to the applicable Closing
Date,
shall be true and correct in all material respects as of each Closing
Date.
(cc) Trading
in Securities.
The
Company acknowledges that, except to the extent specifically provided herein
or
in any of the other Transaction Documents (but limited in each instance to
the
extent so specified), and subject to compliance with all applicable laws and
regulations, each Subscriber retains the right (but is not otherwise obligated)
to purchase, sell, engage in hedging transactions or otherwise trade in the
Securities at any time.
(dd) Survival.
The
foregoing representations and warranties shall survive the Final Closing Date
for a period of two years.
6. Regulation
D Offering/Legal Opinion.
The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder. The Company will provide an opinion of legal counsel
reasonably acceptable to each Subscriber and the Company from the Company's
regular legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of
the
Securities and other matters reasonably requested by Subscribers substantially
in the form annexed hereto as Exhibit
E.
Such an
opinion will be provided (i) on the Closing Date with respect to the Securities
issued to the Purchasers on such date and (ii) after the Escrow Termination
Date
and with respect to the Securities issued at such time (as contemplated by
Section 2), on the date such Securities are issued to the Purchasers. The
Company will provide, at the Company's expense, such other legal opinions in
the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants
pursuant to an effective registration statement, Rule 144 under the 1933 Act
or
an exemption from registration.
12
7.1. Conversion
of Note.
(a) Upon
the
conversion of a Note or part thereof in accordance with the terms and conditions
thereof and applicable law, the Company shall, at its own cost and expense,
take
all necessary action, including obtaining and delivering, an opinion of counsel
to assure that the Company's transfer agent shall issue stock certificates
in
the name of Subscriber (or its permitted 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 other than as expressly set forth in the Transaction
Documents, if at all, no instructions other than these instructions have been
or
will be given to the transfer agent of the Company's Common Stock and that
the
certificates representing such shares shall contain no legend other than the
usual 1933 Act restriction from transfer legend. If and when the Subscriber
sells the Shares, assuming (i) the Registration Statement (as defined below)
is
effective and the prospectus, as supplemented or amended, contained therein
is
current and (ii) the Subscriber or its agent confirms in writing to the transfer
agent that the Subscriber has complied with the prospectus delivery
requirements, the Company will reissue the Shares without restrictive legend
and
the Shares will be free-trading, and freely transferable. In the event that
the
Shares are sold in a manner that complies with an exemption from registration,
the Company will promptly instruct its counsel to issue to the transfer agent
an
opinion permitting removal of the legend (indefinitely, if pursuant to Rule
144(k) of the 1933 Act).
(b) Each
Subscriber will give notice of such Subscriber’s decision to exercise the
Subscriber’s right to convert the Note, interest, or part thereof by
telecopying, or otherwise delivering a completed Notice of Conversion (a form
of
which is annexed as Exhibit
A
to the
Note) together with the Note to the Company via confirmed telecopier
transmission or otherwise pursuant to Section 14(a) of this Agreement. The
Subscriber will not be
required to surrender the Note
until
the Note has been fully converted or satisfied. Each date on which a Notice
of
Conversion is telecopied to the Company in accordance with the provisions hereof
by 5 PM E.S.T. (or if received by the Company after 5 PM E.S.T. then the next
business day) shall be deemed a “Conversion
Date.”
The
Company will itself or cause the Company’s transfer agent to transmit the
Company's Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt by
such
Subscriber within three (3) business days after the applicable Conversion Date
(such third day being the "Delivery
Date").
In
the event the Shares are electronically transferable, then delivery of the
Shares must
be made
by electronic transfer provided request for such electronic transfer has been
made by the Subscriber.
A Note representing the balance of the Note not so converted will be provided
by
the Company to the Subscriber if requested by Subscriber, provided the
Subscriber delivers 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 of a Note,
the Subscriber hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note.
(c) The
Company agrees and acknowledges that despite the pendency of any not yet
effective Registration Statement which includes for registration the Registrable
Securities (as defined in Section 11.1(iv)), the Subscriber is permitted to
and
the Company will issue to the Subscriber Shares upon conversion of the Note
and
Warrant Shares upon exercise of the Warrants. Such Shares will, if required
by
law, bear the legends described in Section 4 above and if the requirements
of
Rule 144 under the 1933 Act are satisfied, be resalable thereunder.
13
7.2. Redemption.
The
Notes shall not be redeemable or callable by the Company.
7.3 Adjustments.
The
Conversion Price, Warrant exercise price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be equitably adjusted
and as otherwise described in this Agreement, the Notes and the
Warrants.
8. Broker.
The
Company on the one hand, and each Subscriber (for himself only) on the other
hand, agree to indemnify the other against and hold the other harmless from
any
and all liabilities to any persons claiming brokerage commissions or finder’s
fees 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 or in connection with any investment in the Company at
any
time, whether or not such investment was consummated and arising out of such
party’s actions. The Company represents that there are no parties entitled to
receive fees, commissions, or similar payments from the Company in connection
with the Offering except as identified on Schedule
8
who will
receive the amount of compensation described in Schedule
8.
The
Company is solely responsible for payment to the broker(s) identified on
Schedule
8.
9. Covenants
of the Company.
The
Company covenants and agrees with the Subscribers as follows:
(a) Stop
Orders.
The
Company will advise the Subscribers, within twenty-four hours 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) Listing/Quotation.
If the
Common Stock becomes listed or quoted on a national securities exchange or
automated quotation system or other trading exchange or market, the Company
shall promptly secure the quotation or listing of the Shares and Warrant Shares
upon each such national securities exchange, or automated quotation system
or
other trading exchange or market. The Company will maintain the quotation or
listing of its Common Stock on such a trading exchange or market or on the
NASD
Electronic Bulletin Board (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock, the “Principal
Market”),
and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common
Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the NASD Electronic Bulletin Board is and will be the Principal
Market.
(c) Market
Regulations.
The
Company shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to Subscriber.
(d) Filing
Requirements.
From
the
date of this Agreement and until the last to occur of (i) two (2) years after
the Closing Date, (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations or (iii) the Notes
are no longer outstanding (the date of occurrence of the last such event being
the “End
Date”),
the
Company will (A) cause or maintain its Common Stock to be registered under
Section 12(b) or 12(g) of the 1934 Act, (B) comply in all respects with its
reporting and filing obligations under the 1934 Act, (C) voluntarily comply
with
all reporting requirements that are applicable to an issuer with a class of
shares registered pursuant to Section 12(g) of the 1934 Act, if Company is
not
subject to such reporting requirements, and (D) comply with all requirements
related to any registration statement filed pursuant to this Agreement. The
Company will use its best efforts not to take any action or file any document
(whether or not permitted by the 1933 Act or the 1934 Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said acts until the End Date. Until
the End Date, the Company will maintain the listing or quotation of the Common
Stock on a Principal Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market. The Company agrees to timely file a Form D with respect to
the
Securities if required under Regulation D and to provide a copy thereof to
each
Subscriber promptly after such filing.
14
(e) Use
of
Proceeds.
The net
proceeds of the Offering will be employed by the Company for working capital
and
general corporate purposes.
(f) Reservation.
Prior
to the Closing Date, and at all times thereafter, the Company shall have
reserved, pro rata,
on
behalf of each holder of an outstanding Note or Warrant, from its authorized
but
unissued Common Stock, a number of common shares equal to the
number of shares of Common Stock necessary to allow each holder of an
outstanding Note to be able to convert all such outstanding Notes and interest
thereon and the number of Warrant Shares issuable upon exercise of the
outstanding Warrants.
(g)
Notices.
For so
long as the Subscribers hold any Securities, the Company will maintain as United
States address and United States fax number for notices purposes under the
Transaction Documents.
(h) Taxes.
From
the date of this Agreement and until the End Date, the Company will promptly
pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided, however, that
any such tax, assessment, charge or levy need not be paid if the validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefore.
(i) Insurance.
From
the date of this Agreement and until the End Date, the Company will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and not
in
any event less than one hundred percent (100%) of the insurable value of the
property insured less reasonable deductible amounts; and the Company will
maintain, with financially sound and reputable insurers, insurance against
other
hazards and risks and liability to persons and property to the extent and in
the
manner customary for companies in similar businesses similarly situated and
to
the extent available on commercially reasonable terms.
(j) Books
and Records.
From the
date of this Agreement and until the End 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.
(k) Governmental
Authorities.
From the
date of this Agreement and until the End 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.
15
(l) Intellectual
Property.
From
the date of this Agreement and until the End Date, the Company shall maintain
in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights to use intellectual property owned or possessed by
it
and reasonably deemed by the Company to be necessary to the conduct of its
business, unless the same are sold for value, disposed of in the ordinary course
of the Company’s business, or otherwise disposed of as permitted under the
Security Agreements.
(m) Properties.
From the
date of this Agreement and until the End Date, the Company will keep its
properties in good repair, working order and condition, reasonable wear and
tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably
be
expected to have a Material Adverse Effect.
(n) Confidentiality/Public
Announcement.
The
Company undertakes to file a Form 8-K or make a public announcement describing
the Offering not later than the fourth business day after the Closing
Date.
(o) Seniority.
Except
for Permitted Liens and as described on Schedule 9(p), until the Notes are
fully
satisfied or converted, the Company shall not grant nor allow any security
interest to be taken in the assets of the Company or any Subsidiary; nor issue
any debt, equity or other instrument which would give the holder thereof
directly or indirectly, a right in any assets of the Company or any Subsidiary,
equal or superior to any right of the holder of a Note in or to such
assets.
(p) Negative
Covenants.
Except
as described on Schedule
9(p)
or in
this Section 9(p), for so long as a Note is outstanding, without the consent
of
the Subscribers, the Company will not directly or indirectly:
(i) create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”)
upon
any of its property, whether now owned or hereafter acquired except for: (A)
the
Excepted Issuances (as defined in Section 12 hereof) and (B) (a) Liens imposed
by law for taxes that are not yet due or are being contested in good faith
and
for which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
material men’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 60 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business
in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing
of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed
by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a “Permitted
Lien”);
16
(ii) except
for an increase in the Company’s authorized Common Stock or the filing of a
certificate of designations with respect to the Company’s preferred stock, amend
its certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscriber;
(iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents;
(iv) engage
in
any transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $100,000
other than (i) for payment of salary or consulting fees for services rendered
or
applicable placement agency fees, (ii) reimbursement for expenses incurred
on
behalf of the Company, and (iii) for other employee benefits, including stock
option agreements under any stock option plan of the Company; or
(v) so
long
as any Warrants remain outstanding and unexercised, enter into any variable
convertible debt financing transaction with any Person.
(q) Further
Registration Statements.
Except
for a registration statement filed on behalf of the Subscribers pursuant to
Section 11 of this Agreement, and as set forth on Schedule 11.1 hereto, the
Company will not, without the consent of the Subscribers, file with the
Commission or with state regulatory authorities any registration statements
or
amend any already filed registration statement to increase the amount of Common
Stock registered therein, or reduce the price of which such Common Stock is
registered therein, (including but not limited to Forms S-8), until the
expiration of the “Exclusion
Period,”
which
shall be defined as the sooner of (i) the Registration Statement having been
current and available for use in connection with the resale of all of the
Registrable Securities (as defined in Section 11.1(i)) for a period of ninety
(90) days, or (ii) until all the Shares and Warrant Shares have been resold
or
transferred by the Subscribers pursuant to the Registration Statement or Rule
144, without regard to volume limitations. The Exclusion Period will be tolled
or reinstated, as the case may be, during the pendency of an Event of Default
as
defined in the Note.
10. Covenants
of the Company and Subscriber Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation
by
Company in this Agreement or in any Exhibits or Schedules attached hereto,
or
other agreement delivered pursuant hereto, or breach of any warranty by Company
in
this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto;
or (ii)
after any applicable notice and/or cure periods, any breach or default in
performance by the Company of any covenant or undertaking to be performed by
the
Company hereunder, or any other agreement entered into by the Company and
Subscriber relating hereto.
(b) Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, Affiliates, control
persons and principal shareholders against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber
in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers, relating
hereto.
17
(c) In
no
event shall the liability of any Subscriber or permitted successor hereunder
or
under any Transaction Document or other agreement delivered in connection
herewith be greater in amount than the greater
of (x)
the price paid by such Subscriber (or the fair value of the consideration by
such permitted successor) to acquire the Registrable Securities or (y) the
dollar amount of the net proceeds actually received by such Subscriber (or
such
permitted successor) upon the sale of Registrable Securities (as defined
herein).
(d) The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Sections 10(a) and 10(b) above.
11.1. Registration
Rights.
The
Company hereby grants the following registration rights to holders of the
Securities.
(i) The
Company shall file with the Commission a Form S-3 registration statement (or
such other form that it is eligible to use) (the “Registration
Statement”),
in
order to register the Registrable Securities for resale and distribution under
the 1933 Act, within forty-five (45) calendar days after the First Closing
Date
(the
“Filing
Date”),
and
use its best efforts to cause the Registration Statement to be declared
effective not
later
than one hundred and twenty (120) calendar days after the Closing Date
(the
“Effective
Date”).
At
the Effective Date, the Company will register not less than a number of shares
of Common Stock in the Registration Statement that is equal to 100%
of
the Shares issued and issuable upon conversion of all of the Notes and 100%
of
the Warrant Shares issuable upon exercise of the Warrants (collectively, the
“Registrable
Securities”).
The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, pro rata,
and not
issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder. The Registration Statement will promptly be amended or
additional registration statements will be promptly filed by the Company as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Except with the written consent of the Subscribers, no securities
of
the Company other than the Registrable Securities will be included in the
Registration Statement. It shall be deemed a Non-Registration Event if at any
time after the date the Registration Statement registering the Initial
Registrable Securities (as defined in Section 11.1(ii)) is declared effective
by
the Commission (“Actual
Effective Date”)
the
Company has registered for unrestricted resale on behalf of the Subscribers
for
thirty or more consecutive days less than the
amount of Common Shares required to be registered as described in this Section
11. Except for Common Stock described on Schedule
11.1,
no
other securities of the Company will be included in the Registration Statement
other than the Registrable Securities.
(ii) The
amount of Registrable Securities required to be included in the initial
Registration Statement as described in Section 11.1(i) (“Initial
Registrable Securities”)
shall
be not less than 100% of the maximum amount of Common Stock which may be
included in a Registration Statement without exceeding registration limitations
imposed by the Commission pursuant to Rule 415 of the 1933 Act (“Rule
415 Amount”).
In
the event that less than all of the Registrable Securities are included in
the
Registration Statement as a result of the limitation described in this Section
11.1(ii), then the Company will file additional Registration Statements each
registering the Rule 415 Amount (each such Registration Statement a
“Subsequent
Registration Statement”),
seriatim,
until
all of the Initial Registrable Securities have been registered. The Filing
Date
and Effective Date of each such additional Registration Statement shall be,
respectively, thirty (30) and ninety (90) days after the first day such
Subsequent Registration Statement may be filed without objection by the
Commission based on Rule 415 of the 1933 Act.
18
(iii) Unless
otherwise instructed in writing by a holder of Registrable Securities and only
if the initial Registration Statement does not include all of the Registrable
Securities, the Registrable Securities will be registered on behalf of each
such
holder in the Registration Statements based on Common Stock issuable upon
conversion or exercise of Notes and Warrants, in the following order and
priority:
(A) Notes
(based on the multiple set forth above).
(B) Warrants
issued to the Subscribers at any time based on exercise prices, with the lower
exercise priced Warrant Shares being registered first and then the higher
exercise priced Warrant Shares. In the case of Warrants with the same exercise
prices but different Issue Dates, the later issued Warrants will be registered
first.
(C) Warrant
Shares issuable upon not yet issued Warrants.
(iv) On
one
occasion, for a period commencing one hundred and twenty-one (121) days after
the Closing Date, but not later than two years after the Closing Date, upon
a
written request therefor from any record holder or holders of more than 50%
of
the Shares issued and issuable upon conversion of the outstanding Notes and
outstanding Warrant Shares, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the
Registrable Securities which are the subject of such request for unrestricted
public resale by the holder thereof. For purposes of Sections 11.1(iv) and
11.1(v), Registrable Securities shall not include Securities which (A) are
registered for resale in an effective registration statement, (B) are included
for registration in a pending registration statement, (C) have been issued
without further transfer restrictions after a sale or transfer pursuant to
Rule
144 under the 1933 Act, or (D) are not yet required to be included in a
Registration Statement. Upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include
in
such registration statement Registrable Securities for which it has received
written requests within ten 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 11.1(i)v.
(v) If
the
Company at any time proposes to register any of its securities under the 1933
Act for sale to the public, whether for its own account or for the account
of
other security holders or both, except as described on Schedule
11.1
or with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale
by
the Subscribers or Holder pursuant to an effective registration statement,
each
such time it will give at least five (5) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon
the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested
to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the “Seller”
or
“Sellers”).
In
the event that any registration pursuant to this Section 11.1(v) shall be,
in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1(v)
without thereby incurring any liability to the Seller.
19
(vi) If,
at
the time any written request for registration is received by the Company
pursuant to Section 11.1(iv), the Company has determined to proceed with the
actual preparation and filing of a registration statement under the 1933 Act
in
connection with the proposed offer and sale for cash of any of its securities
for the Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 11.1(v) rather than Section 11.1(iv), and the rights of
the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(v).
(vii) Priority
shall be given to Common Stock issuable upon conversion of actual outstanding
Notes ahead of Warrant Shares. The foregoing notwithstanding, Registrable
Securities shall be allocated and registered pro rata among the Subscribers
based upon their initial investments in the Offering.
(viii) Notwithstanding
the foregoing provisions of this Agreement to the contrary, in no event shall
the Company be required to register in any Registration Statement more
Registrable Securities than the Company is authorized to issue under its
certificate of incorporation, and the failure to register such Registrable
Securities shall not be considered a default or an Event of Default under this
Agreement or any other Transaction Document.
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 11.1(i) or
11.1(ii) to effect the registration of any Registrable Securities under the
1933
Act, the Company will, as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect to
such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of
the
Registrable Securities copies of all filings and Commission letters of comment
and notify Subscribers (by telecopier and by e-mail addresses provided by
Subscribers) on or before the first business day thereafter 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 (failure to timely provide notice as required by this Section
11.2(a) shall be a material breach of the Company’s obligation and an Event of
Default as defined in the Notes
and
a Non-Registration Event as defined in Section 11.4 of this Agreement);
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with
the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
(c) 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 or make them electronically available;
(d) use
its
commercially
reasonable best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or “blue sky” laws
of New York and such jurisdictions as the Sellers shall 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;
20
(e) if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange or trading market on which the Common
Stock of the Company is then listed;
(f) notify
the Subscribers within twenty-four hours of the Company’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act,
of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the Registrable
Securities;
(g) provided
same would not be in violation of the provision of Regulation FD under the
1934
Act, make available for inspection by the Sellers, and any attorney, accountant
or other agent retained by the Seller or underwriter upon reasonable notice
at
reasonable times during normal business hours at the offices of the Company
without unreasonable disruption of the Company’s business or expense, all
publicly available, non-confidential financial and other records and pertinent
corporate documents and properties of the Company solely for the purpose of
preparation of such registration statement, and cause the Company's officers,
directors and employees to make available for inspection by the Sellers and
any
attorney, accountant or other agent retained by the Seller or underwriter upon
reasonable notice at reasonable times during normal business hours at the
offices of the Company without unreasonable disruption of the Company’s business
such publicly available, non-confidential information as may be reasonably
requested by such persons or entities in connection with the preparation of
such
registration statement; and
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto
five
business days prior to the filing thereof with the Commission. Subscriber’s
failure to comment on any Registration Statement or other document provided
to a
Subscriber or its counsel shall not be construed to constitute approval thereof
nor the accuracy thereof.
11.3. Provision
of Documents.
In
connection with each registration described in this Section 11, each Seller
will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
11.4. Non-Registration
Events.
The
Company and the Subscribers agree that the Sellers will suffer damages if the
Registration Statement is not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(iv)
or 11.1(v) is not filed within 90 days after written request and declared
effective by the Commission within 150 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) any Registration Statement is not declared effective on
or
before the required Effective Date (notwithstanding the use by the Company
of
its best efforts to procure such effectiveness), (B) due to the action or
inaction of the Company 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,
(C) if the registration statement described in Sections 11.1(iv) or 11.1(v)
is
not filed within 90 days after such written request, or is not declared
effective within 150 days after such written request, or (D) any registration
statement described in Section 11.1(i), 11.1(iv) or 11.1(v) is filed and
declared effective but shall thereafter cease to be effective for a period
of
time which shall exceed two periods per year (defined as every rolling period
of
365 consecutive days commencing on the Actual Effective Date) of twenty (20)
consecutive days (each such event referred to in clauses A through D of this
Section 11.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to one percent (1%) of the principal amount of the
outstanding Notes and purchase price of Shares and Warrant Shares issued upon
conversion of Notes and exercise of Warrants held by Subscriber which are
subject to such Non-Registration Event for each thirty (30) days (or such lesser
pro-rata amount for any period of less than thirty (30) days) up to but not
exceeding 18% of such sum in the aggregate. In no event whatsoever shall the
amount of such Liquidated Damages exceed such 18% cap in the aggregate, nor
shall liquidated damages accrue simultaneously under Clauses A, B, C and D
of
this Section 11.4 for the same Non-Registration Event (that is, there shall
be
no double-penalty for the same circumstances as to which a penalty has been
applied for breach of one of those clauses). The Company must pay the Liquidated
Damages in cash or, at the Company’s election, in Common Stock of the Company
valued, for such purposes, as hereinafter set forth. The Liquidated Damages
must
be paid within ten (10) business days after the end of each thirty (30) day
period or shorter part thereof 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 and Liquidated Damages will
be
calculated accordingly. All
oral
or written comments received from the Commission relating to the Registration
Statement must be satisfactorily responded to by
the
Company as promptly as is reasonably practicable after receipt of comments
from
the Commission. Notwithstanding anything to the contrary contained in this
Subscription Agreement or any other Transaction Document, the remedies set
forth
in this Section 11.4 shall be the exclusive remedies for breach of Sections
11.1
through 11.4 of this Subscription Agreement.
21
(a) For
purposes of the issuance of shares of the Company’s Common Stock in payment of
any Liquidated Damages pursuant to this Section 11.4, the issuance of such
shares of Common Stock shall be valued at the average of the per share Market
Price for the ten Trading Day period immediately preceding the date of such
issuance.
(b) As
used
herein, "Market
Price"
means,
with respect to any applicable security as of any applicable date, (i) the
last
closing bid price of such security on whichever national securities exchange
or
trading market (including, without limitation, the Nasdaq and the OTC Bulletin
Board) is the principal trading market where such security is listed by the
Company for trading (the "Principal
Market"),
as
reported by Bloomberg, or (ii) if the Principal Market should operate on an
extended hours basis and does not designate the closing bid price, then the
last
bid price of such security prior to the commencement of extended trading hours
on the applicable date, but in no event later than 4:30:00 p.m., New York local
time, as reported by Bloomberg, or (iii) if no last bid price is reported for
such security by Bloomberg, the average of the bid prices, on the one hand,
and
the ask prices, on the other hand, of all market makers for such security as
reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). The applicable trading market for such calculation,
whether it is the Principal Market or the "pink sheets", is hereafter referred
to as the "Trading
Market".
The
Company shall make all determinations pursuant to this paragraph in good faith.
In the absence of any available public quotations for the Common Stock, the
Board of Directors of the Company shall determine in good faith the fair value
of the Common Stock, which determination shall be set forth in a certificate
by
the Secretary of the Company. As used herein, "Trading
Day"
means a
day on which the principal Trading Market with respect to the Common Stock
is
open for the transaction of business.
(c) Notwithstanding
the foregoing, the Commission’s refusal to accept one or more Registration
Statements that, in the aggregate, register securities not exceeding the
applicable Rule 415 Amount shall not be considered a “Non-Registration
Event.”
11.5. Expenses.
All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses (if
required), 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 NASD, transfer taxes, and fees of transfer agents and registrars, are called
“Registration
Expenses.”
All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities 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 Seller and may
be
apportioned among the Sellers in proportion to the number of shares sold by
the
Seller relative to the number of shares sold under such registration statement
or as all Sellers thereunder may agree.
22
11.6. Indemnification
and Contribution.
(a) In
the
event of a registration of any Registrable Securities under the 1933 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 Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 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
in light of the circumstances when made, and will subject to the provisions
of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
to
the Seller to the extent that any such damages arise out of or are based upon
an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by
the
Company to the Seller with or prior to the delivery of written confirmation
of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement
or
alleged untrue statement or such omission or alleged omission, or (iii) to
the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller,
or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In
the
event of a registration of any of the Registrable Securities under the 1933
Act
pursuant to Section 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 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement by or
on
behalf of a Seller of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 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
greater
of (x)
the price paid by such Seller to acquire the Registrable Securities or (y)
the
dollar amount of the net proceeds actually received by such Seller upon the
sale
of Registrable Securities (as defined herein).
23
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 11.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
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 11.6(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
11.6 but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may
be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6;
then, and in each such case, the Company and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) 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 (z)
no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the 0000 Xxx) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery
of Unlegended Shares.
(a) Within
four (4) business days (such fourth business day being the “Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a notice that Shares
or
Warrant Shares or any other Common Stock held by a Subscriber have been sold
pursuant to the Registration Statement or Rule 144 under the 1933 Act, (ii)
a
representation that the prospectus delivery requirements, or the requirements
of
Rule 144, as applicable 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 the Subscriber and/or Subscriber’s broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Subscriber) an appropriate instruction
and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4(i)
above
(the “Unlegended
Shares”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted Shares certificate, if any, to the Subscriber at the address specified
in the notice of sale, via express courier, by electronic transfer or otherwise
on or before the Unlegended Shares Delivery Date.
24
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, upon
request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal At Custodian system. Such delivery must be made on or before the
Unlegended Shares Delivery Date.
12. Excepted
Issuances.
For
purposes of the Transaction Documents, the following shall be deemed to be
“Excepted
Issuances”:
(i)
full
or partial consideration in connection with a merger, acquisition, consolidation
or purchase of substantially all of the securities
or assets of any corporation or other entity, (ii)
the
Company’s issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital apart from capital necessary to enter into the
strategic license agreement or other partnering arrangement, (iii) the Company’s
issuance of Common Stock or the issuances or grants of options to purchase
Common Stock to employees, directors, and consultants, pursuant to plans
approved by the Company’s Board of Directors and described on Schedule
5(d),
(iv)
the Company’s issuance of Common Stock as a result of the exercise of Warrants
or conversion of Notes which are granted or issued pursuant to this Agreement
on
the terms described in the Transaction Documents, (v) the Company’s issuance of
Securities at a Closing Date subsequent to the First Closing Date, (vi) an
underwritten public offering in connection with which not less than $10,000,000
of gross proceeds is received from such public offering, (vii) capitalization
of
up to $1,000,000 of existing debt obligations, (viii) as described on
Schedule
12(a), (ix) the
Company’s issuance of Common Stock as payment of interest under
Section 1.2(b) of the Notes, and (x) the Company’s issuance of common
stock, warrants or options issued in transactions contemplated by the Exchange
Agreement.
13. Right
of First Refusal.
During
the period from the Effective Date through and including the first anniversary
thereof, the Subscribers shall be given not less than seven (7) Trading Days
prior written notice of any proposed sale by the Company to any person of New
Common Stock, except in connection with Excepted Issuances. Within the seven
(7)
Trading Days following receipt of such notice, each Subscriber shall have the
right to purchase such Subscriber’s Allocable Share of the New Common Stock in
accordance with the terms and conditions set forth in the notice of sale
provided by the Company. Each Subscriber may exercise such right independent
of
the exercise thereof by any other Subscriber. In the event the sale terms and
conditions are modified during the notice period, the Subscriber shall be given
prompt notice of such modification and shall have the right during the seven
(7)
Trading Days following the notice of modification to exercise such right. As
used herein, the term “Subscriber’s
Allocable Share”
means
the fraction, of which (i) the numerator is the Subscriber’s Purchase Price and
(ii) the denominator is the aggregate Purchase Price of all Subscribers; and
“New
Common Stock”
means
Common Stock, or securities convertible into and/or other rights exercisable
for
the issuance of Common Stock, issued after the First Closing to any
person.
25
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 with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: Advance Nanotech, Inc.,
000
Xxxxxxxxx Xxxxxx, 00xx
Xxxxx,
Xxx Xxxx, XX, 00000,
Attn:
Xxxxxx
Xxxx, telecopier: 000-000-0000, with a copy by telecopier only to: Xxxxxxx
Xxxxx
LLP, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX, 00000, Attn: Xxxxxxx Xxxxxxxx, Esq.,
telecopier: 000-000-0000, (ii)
if
to the Subscriber, to: one or more addresses and telecopier numbers indicated
on
the signature pages hereto, and (iii) if to the Broker, to: the name, address
and telecopier number indicated on Schedule
8(a)
hereto.
(b) Entire
Agreement; Assignment.
This
Agreement and other documents delivered in connection herewith represent the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No right
or obligation of the Company shall be assigned without prior notice to and
the
written consent of the Subscribers.
(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 New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of
New
York located in the County of New York or in the federal courts located in
the
State and County of New York. Subject to the foregoing, the parties to this
Agreement hereby irrevocably waive any objection to jurisdiction and venue
of
any action instituted hereunder and shall not assert any defense based on lack
of jurisdiction or venue or based upon forum
non conveniens.
The
parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith on behalf of the Company agree to submit to
the
in personam jurisdiction of such courts and hereby irrevocably waive trial
by
jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
(e) Consent
to Jurisdiction.
Subject
to Section 14(d) hereof, the Company hereby irrevocably waives, and agrees
not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in New York of such court, that the
suit,
action or proceeding is brought in an inconvenient forum or that the venue
of
the suit, action or proceeding is improper. Nothing in this Section shall affect
or limit any right to serve process in any other manner permitted by
law.
26
(f) Independent
Nature of Subscribers.
The
Company acknowledges that the obligations of each Subscriber under the
Transaction Documents are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The
Company acknowledges that each Subscriber has represented that the decision
of
each Subscriber to purchase Securities has been made by such Subscriber
independently of any other Subscriber and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company which may have been made or given by
any
other Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The
Company acknowledges that nothing contained in any Transaction Document, and
no
action taken by any Subscriber pursuant hereto or thereto (including, but not
limited to, the (i) inclusion of a Subscriber in the Registration Statement
and
(ii) review by, and consent to, such Registration Statement by a Subscriber)
shall be deemed to constitute the Subscribers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to
such
obligations or the transactions contemplated by the Transaction Documents.
The Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for
any other Subscriber to be joined as an additional party in any proceeding
for
such purpose. The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience
of
the Company and not because Company was required or requested to do so by the
Subscribers. The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
(g) Attorney-in-Fact.
To
effectuate the terms and provisions hereof, the Subscriber hereby appoints
the
Placement Agent as its attorney-in-fact (which appointment has been accepted
by
the Placement Agent) for the purpose of carrying out the provisions of the
Escrow Agreement including, without limitation, taking any action on behalf
of,
or at the instruction of, the Subscribers and executing any release notices
required under the Escrow Agreement and taking any action and executing any
instrument that the Placement Agent may deem necessary or advisable (and lawful)
to accomplish the purposes hereof. All acts done under the foregoing
authorization are hereby ratified and approved and neither the Placement Agent
nor any designee or agent thereof shall be liable for any acts of commission
or
omission, for any error of judgment, for any mistake of fact or law except
for
acts of gross negligence or willful misconduct. This power of attorney, being
coupled with an interest, is irrevocable while the Escrow Agreement remains
in
effect.
(h) Consent.
As used
in the Agreement, “consent of the Subscribers” or similar language means the
consent of holders of not less than 51% of the total of the Shares issued and
issuable upon conversion of outstanding Notes owned by Subscribers on the date
consent is requested.
(i) Maximum
Payments.
Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed by
the
Company to the Subscriber and thus refunded to the Company.
27
(j) Calendar
Days/Time Periods.
All
references to “days” in the Transaction Documents shall mean calendar days
unless otherwise stated. The term “business
days”
shall
mean days that the New York Stock Exchange is open for trading for three or
more
hours. Time periods shall be determined as if the relevant action, calculation
or time period were occurring in New York City.
(k) Conditions
Precedent.
Each of
the following shall be a condition precedent to the initial closing under this
Agreement:
(A) The
Company shall have entered into the Exchange Agreement (the “Exchange
Agreement”)
by and
among the Company and the parties named therein in the form of Schedule
14(k)(A)
attached
hereto; and
(B) Each
member of the Selling Group (as that term is defined in the Exchange Agreement)
shall have entered into and delivered to each of the Subscribers a Lock-Up
Agreement in the form of Schedule
14(k)(B)
attached
hereto.
(l) Additional
Covenant.
No
later than the fifth business day after the First Closing Date, the Company
shall file with the appropriate regulatory authority and shall thereafter
diligently seek approval of a proxy or other appropriate action by the Company’s
shareholders to authorize amendment of the Company’s charter to increase the
number of shares of common stock that the Company is authorized to issue from
75,000,000 shares to 200,000,000 shares or such other number of shares as may
be
mutually agreed by the parties to the Exchange Agreement.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
28
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (A)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
a
Delaware corporation
|
||
| |
|
|
| By: | ||
|
|
||
|
Name:
Xxxxxx Xxxx
Title:
CFO
|
||
| Dated: December 19, 2007 |
|
SUBSCRIBER
|
PURCHASE
PRICE AND NOTE PRINCIPAL
|
|
Name
of Subscriber:
__________________________________________________________
Address:
__________________________________________________
_________________________________________________________
Fax
No.: __________________________________________________
Taxpayer
ID# (if applicable): __________________________________
_________________________________________________________
(Signature)
By:
|
29
LIST
OF EXHIBITS AND SCHEDULES
| Exhibit A |
Form
of Note
|
| Exhibit B |
Form
of Warrant
|
| Exhibit C |
Form
of Security Agreement
|
| Exhibit D |
Form
of Collateral Agent Agreement
|
| Exhibit E |
Form
of Legal Opinion
|
| Schedule 3 |
Security
Interest
|
| Schedule 5(a) |
Subsidiaries
|
| Schedule 5(d) |
Additional
Issuances / Capitalization / Reset
Rights
|
| Schedule 5(j) |
Material
Information
|
| Schedule 5(o) |
Undisclosed
Liabilities
|
| Schedule 5(x) |
Transfer
Agent
|
| Schedule 8(a) |
Brokerage
Fee
|
| Schedule 9(p) |
Additional
Permitted Liens
|
| Schedule 11.1 |
Other
Registrable Shares
|
| Schedule 12(a) |
Additional
Excepted Issuances
|
| Schedule 14(k)(A) |
Exchange
Agreement
|
| Schedule 14(k)(B) |
Form
of Lock-Up Agreement
|
30
Subscription
Agreement - Schedule 3
As
security for the Obligations of Debtor, the Debtor hereby grants the Collateral
Agent, for the benefit of the Lenders, a security interest in the Collateral,
which security interest shall be a first priority security interest except
the
following:
| 1. |
As
of June 30, 2007, Advance Nanotech Inc is obligated to issue 8,000,000
shares of its wholly owned subsidiary Advance Homeland Security in
the
future to the credit facility provider pending the conclusion of
the
entity’s share authorization
approvals.
|
| 2. |
Security
interest in favor of lender in connection with existing credit facility
up
to $3,000,000 or new credit facility in the principal amount of up
to
$3,000,000 to be provided to the
Company.
|
31
Subscription
Agreement - Schedule 5a
As
of
June 30, 2007, Advance Nanotech, Inc. possessed controlling interests in five
direct and six indirect subsidiaries and a minority interest in one company,
as
outlined below. With the exception of Owlstone Nanotech, Inc. and Advance
Nanotech Singapore, Pte. Ltd., all of these companies are incorporated in the
UK. Owlstone Nanotech, Inc. is incorporated in the State of Delaware. Advance
Nanotech Singapore Pte. Ltd. is incorporated in Singapore and is not to be
considered a pledged security for this transaction. The pledged securities
are:
Subsidiary
Structure (ownership % is based on the direct level
above)
| o Advance Display Technologies plc | (92.9% owned)1, 2 | |
| o Advance Nanotech Ltd. | (100% owned) 2 | |
| o Owlstone Nanotech Inc. | (63.27 % owned) 3 | |
| o Advance Homeland Security plc | (100% owned) 2,4 |
1
Advance
Display Technologies plc is listed on the PLUS-Quoted market in London
(ADTP).
2
Security
Interest to be delivered Post-Closing within 30 days.
3
Certificates to be delivered to Xxxxxxx Xxxxx on Closing (copies of certificates
attached).
4
Advance
Homeland Security plc is obligated to issue 8,000,000 shares in the future
to
the credit facility provider pending the conclusion of the entities share
authorization approvals.
32
Subscription
Agreement: Schedule 5(d) Additional Issuances / Capitalization / Reset
Rights
The
common stock of the company on a fully diluted basis outstanding as of the
last
Business Day preceding the First Closing Date is: 47,773,127.
Agreements
or understandings with respect to the sale or issuance of any shares of Common
Stock or equity of the Company or subsidiaries or other equity interest in
the
Company except as set forth in the Transaction Documents and as described in
the
reports are:
| 1. |
Stock
option and employee stock grant plans established and to be established
for employees of Advance Nanotech, Inc. or one of its subsidiaries
which
permit the issuance of up to a number of shares equal to 10% of the
issued
and outstanding shares of AVNA on a fully-diluted
basis.
|
| 2. |
As
of June 30, 2007, Advance Nanotech Inc is obligated to issue 8,000,000
shares of its wholly owned subsidiary Advance Homeland Security in
the
future to the credit facility provider pending the conclusion of
the
entity’s share authorization
approvals.
|
| 3. |
Any
rights under the Owlstone Convertible Notes referred to in the Exchange
Agreement.
|
33
Subscription
Agreement: Schedule 5(j) Material Information
The
Company has met with various potential investors and placement agents in its
efforts to obtain the equity financing currently being sought by the Company.
One private equity firm so contacted subsequently responded with an unsolicited
suggestion that the Company engage in a going private transaction at a price
to
public shareholders below the trading price of the Company's common stock as
of
October 29, 2007. As a matter of course, the Company's Board of Directors will
review and evaluate all of the discussions with potential investors and
placement agents at its next Board meeting along with the advice of the
Company's outside legal counsel.
34
Subscription
Agreement: Schedule 5(o) Undisclosed Liabilities
None
35
Subscription
Agreement: Schedule
5(x)
Computershare
Trust Company
Team
B
000
Xxxxxxx Xxxxxx
Xxxxx
000
Xxxxxx,
XX, 00000
Telephone:
000-000-0000
xxx.xxxxxxxxxxxxx.xxx
36
Subscription
Agreement: Schedule 8 Brokerage Fee
1.
Cash
Fee: As compensation for its services in connection with the Private Placement,
Advance Nanotech, Inc., ("Company") shall pay to Axiom Capital Management,
Inc.
("Axiom"), a cash placement fee equal to ten percent (10%) of the aggregate
purchase price paid by each purchaser of Securities that were placed in the
Offering (the “Placement Agent’s Fee”) at each Closing. The Placement Agent’s
Fee will be deducted from the gross proceeds of the Securities sold at each
Closing. The Placement Agent will also receive a cash fee equal to ten percent
(10%) of all amounts received by the Company in connection with the exercise
of
any Warrants by Purchasers.
2.
Expenses: Regardless of whether an Offering is consummated, and in addition
to
any Fees payable to Axiom hereunder, within ten (10) days after written request
therefor, Company shall reimburse Axiom for all reasonable fees and
disbursements of Axiom’s outside counsel, including reasonable post-closing fees
and expenses, and Axiom’s reasonable travel and other out-of-pocket expenses as
incurred in connection with the service performed by Axiom pursuant to this
Agreement, including without limitation, transportation, hotel, meals and
associated expenses including postage, express/overnight mail delivery, courier
services, etc. Axiom will submit any expense in excess of five hundred dollars
($500.00) to the Company for prior written approval.
3.
Warrants: In addition to the Placement Agent’s Fee, upon the closing of the sale
of securities in connection with the Offering, the Company shall issue to the
Placement Agent warrants (the “PA Warrants”) granting the Placement Agent the
right to purchase a number of shares of the Company’s Common Stock equal to the
Cash Fee divided by the initial conversion price of the Senior Secured
Convertible Debentures. The PA Warrants shall be exercisable at 100% of the
initial conversion price of the Senior Secured Convertible Debentures. The
PA
Warrants shall expire five (5) years from the date of issuance. The PA Warrants
shall be in the same form, including, without limitation, the same registration
rights and anti-dilution provisions, as the securities sold in the Offering.
Upon initial Closing of the Offering, the Company shall extend the expiration
dates of the warrants issued to the Placement Agents in conjunction with the
Company’s Common Stock financing closed in February 2005 to the same date as the
PA Warrants issued under this Agreement, and adjust the exercise price of those
warrants to the initial exercise price of the PA Warrants issued under this
Agreement.
37
Subscription
Agreement: Schedule 9(p) Additional Permitted Liens
As
security for the Obligations of Debtor, the Debtor hereby grants the Collateral
Agent, for the benefit of the Lenders, a security interest in the Collateral,
which security interest shall be a first priority security interest except
the
following:
| 1. |
Security
interest in favor of lender in connection with existing credit facility
up
to $3,000,000 or new credit facility in the principal amount of up
to
$3,000,000 to be provided to the
Company.
|
| 2. |
As
of June 30, 2007, Advance Nanotech, Inc. is obligated to issue 8,000,000
shares of its wholly owned subsidiary, Advance Homeland Security,
in the
future to the credit facility provider pending the conclusion of
the
entity’s share authorization
approvals.
|
38
Subscription
Agreement: Schedule 11.1 Other Registrable Shares
Any
and
all registrable shares, warrants and options to be issued in transactions
consummated pursuant to the terms of the Exchange Agreement.
39
Subscription
Agreement: Schedule 12(a) Additional Excepted Issuances
None
40
Subscription
Agreement - Schedule 14(k)(A) Exchange Agreement
41
Subscription
Agreement - Schedule 14(k)(B) Form of Lock-Up Agreement
42
