SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
dated
as of February 16, 2007, by and among VoIP, Inc., a Texas corporation (the
“Company”),
and
the subscribers identified on the signature page hereto (each a “Subscriber”
and
collectively “Subscribers”).
WHEREAS,
the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “1933
Act”).
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided herein,
and the Subscribers, in the aggregate, shall purchase up to $3,462,719 (the
“Aggregate
Principal Amount”)
of
principal amount of promissory notes of the Company (“Note”
or
“Notes”),
a
form of which is annexed hereto as Exhibit
A,
convertible into shares of the Company’s Class A common stock, $0.001 par value
(the “Common
Stock”),
at a
per share conversion price set forth in the Note (“Conversion
Price”);
and
share purchase warrants (the “Warrants”),
in
the form annexed hereto as Exhibit
B,
to
purchase shares of Common Stock (the “Warrant
Shares”).
The
Notes, shares of Common Stock issuable upon conversion of the Notes (the
“Shares”),
Settlement 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 pending the closing of the transactions contemplated
by
this Agreement pursuant to the terms of a Funds Escrow Agreement to be executed
by the parties substantially in the form attached hereto as Exhibit
C
(the
“Escrow
Agreement”).
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:
1. Aggregate
Purchase Price.
The
aggregate purchase price for the Notes (the “Aggregate
Purchase Price”)
shall
equal the result of (x) divided by (y), where (x) equals the Aggregate Principal
Amount and (y) equals 1.25. Each date upon which a Closing occurs is a
“Closing
Date”.
2. Closing.
Subject
to the satisfaction or waiver of the terms and conditions of this Agreement,
on
the 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 and Warrants as described in Section 2 of this Agreement. The Aggregate
Purchase Amount of the Notes to be purchased by the Subscribers on the Initial
Closing Date shall be $3,462,719 in exchange for $2,770,175 of Aggregate
Purchase Price. The Aggregate Purchase Price will be paid with a combination
of
cash, surrender of certain outstanding promissory notes of the Company held
by
Subscribers and waiver or deemed payment of interest, default interest and
liquidated damages in connection with such surrendered promissory notes as
more
fully described on the signature pages hereto. The “Closing
Date”
shall
be the date that the Aggregate 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 for all closings shall take place at the
offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx,
Xxx Xxxx 00000, upon the satisfaction of all conditions to Closing set forth
in
this Agreement.
3. Warrants.
On the
Closing Date, the Company will issue and deliver Warrants to the Subscribers.
One Class D Warrant will be issued for each Share which would be issued on
each
Closing Date assuming the conversion of all of the Notes issued on the Closing
Date at the Conversion Price in effect on the Closing Date. The per Warrant
Share exercise price to acquire a Warrant Share upon exercise of a Class D
Warrant shall be equal to the greater of $.30, or (ii) 110% of the closing
price
of the Common Stock as reported by Bloomberg L.P. for the trading day preceding
the Closing Date. The Class D Warrants shall be exercisable until five years
after the Closing Date.
4. Subscriber's
Representations and Warranties.
Each
Subscriber hereby represents and warrants to and agrees with 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 has the requisite corporate power to own
its
assets and to carry on its business.
(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 such
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.
(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 Notes or acquire the Warrants 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 year ended December 31, 2005
and
all periodic reports filed with the Commission thereafter, but not later than
five business days before the Closing Date (hereinafter referred to as the
"Reports").
In
addition, the Subscriber has received in writing from the Company such other
information concerning its operations, financial condition and other matters
as
the Subscriber has requested in writing (such other information is collectively,
the "Other
Written Information"),
and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(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 made investments of a speculative nature
and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber 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, but
Subscriber does not agree to hold the Notes and Warrants for any minimum amount
of time.
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(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. For so
long as Subscriber holds Notes, the Subscriber will not maintain a net short
position in the Common Stock contrary to applicable rules and regulations.
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 when employed in connection with the Company
includes each Subsidiary [as defined in Section 5(a)] 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.
(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 AND ANY APPLICABLE STATE SECURITIES LAW
OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VOIP, INC. 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 AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VOIP,
INC. 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 AND ANY APPLICABLE STATE SECURITIES
LAW
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VOIP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
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(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.
(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 corporate power and authority necessary to enter into
this Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Subscriber relating
hereto.
(m) 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.
(n) 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.
(o) Survival.
The
foregoing representations and warranties shall survive the Closing Date until
three years after the Closing Date.
5. Company
Representations and Warranties.
The
Company represents and warrants to and agrees with each Subscriber that except
as set forth in the Reports and as otherwise qualified in the Transaction
Documents:
(a) Due
Incorporation.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
corporate power to own its properties and to carry on its business is disclosed
in the Reports.
The
Company is duly qualified as a foreign corporation to do business and is in
good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a “Material
Adverse Effect”
shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken individually, or in
the
aggregate, as a whole. For purposes of this Agreement, “Subsidiary”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by such
entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
5(a)
hereto.
(b) Outstanding
Stock.
All
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
(c) Authority;
Enforceability.
This
Agreement, the Notes, the Warrants, the Escrow Agreement, and any other
agreements delivered together with this Agreement or in connection herewith
(collectively “Transaction
Documents”)
have
been duly authorized, executed and delivered by the Company and Subsidiaries
(as
the case may be) and are valid and binding agreements enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights generally and to general principles of equity.
The Company and Subsidiaries have full corporate power and authority necessary
to enter into and deliver the Transaction Documents and to perform their
obligations thereunder.
4
(d) Additional
Issuances.
There
are no outstanding agreements or preemptive or similar rights affecting the
Company's common stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described on Schedule
5(d) or as described in the Reports.
The
Common Stock of the Company on a fully diluted basis outstanding as of
immediately preceding and following the Closing is set forth on Schedule
5(d).
(e) Consents.
Except
as described in Section 9(f), 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, any Principal Market (as defined in
Section 9(b) of this Agreement), nor the Company’s shareholders is required for
the execution by the Company of the Transaction Documents and compliance and
performance by the Company of its obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the Securities, and
all
such consents will have been obtained by the Company prior to
Closing.
(f) No
Violation or Conflict.
Assuming the representations and warranties of the Subscribers in Section 4
are
true and correct, and except as disclosed on Schedule
5(f),
neither
the issuance and sale of the Securities nor the performance of the Company’s
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i)
violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default in any material respect) of a material nature
under (A) the articles or certificate of incorporation, charter or bylaws of
the
Company, (B) 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 contemplated herein; or
(iii) result
in
the activation of any anti-dilution rights or a reset or repricing of any debt
or security instrument of any other creditor or equity holder of the Company,
nor result in the acceleration of the due date of any obligation of the Company;
or
(iv) result
in
the activation of any piggy-back registration rights of any person or entity
holding securities or debt of the Company or having the right to receive
securities of the Company.
(g) The
Securities.
The
Securities upon issuance:
(i)
are,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and
any
applicable state securities laws;
(ii)
have
been, or will be, duly and validly authorized and on the date of issuance of
the
Shares and upon exercise of the Warrants, the Shares and Warrant Shares will
be
duly and validly issued, fully paid and nonassessable or if registered pursuant
to the 1933 Act, and resold pursuant to an effective registration statement
will
be free trading and unrestricted;
5
(iii) will
not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders, provided Subscriber’s representations herein are true and accurate and
Subscribers take no actions or fail to take any actions required for their
purchase of the Securities to be in compliance with all applicable laws and
regulations; and
(v) provided
Subscriber’s representations herein are true and accurate, will have been issued
in reliance upon an exemption from the registration requirements of and will
not
result in a violation of Section 5 under the 1933 Act.
(h) Litigation.
Except
as disclosed on Schedule
5(h),
or in
the Reports, there is no pending 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 that would affect
the execution by the Company or the performance by the Company of its
obligations under the Transaction Documents. There is no pending, or, to the
knowledge of the Company, basis for any, action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect.
(i) Reporting
Company.
The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13 of the Securities Exchange Act of 1934 (the “1934
Act”)
and
has a
class of common shares registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, the Company has filed all reports
and other materials required to be filed thereunder with the Commission during
the preceding thirty-six months.
(j) No
Market Manipulation.
The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock to
facilitate the sale or resale of the Securities or affect the price at which
the
Securities may be issued or resold, provided, however, that this provision
shall
not prevent the Company from engaging in investor relations/public relations
activities consistent with past practices.
(k) Information
Concerning Company.
The
Reports contain all material information relating to the Company and its
operations and financial condition which is required to be disclosed by
applicable securities laws, rules or regulations, as of their respective dates
and all the information required to be disclosed therein. Since the last day
of
the fiscal year of the most recent audited financial statements included in
the
Reports (“Latest
Financial Date”),
and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no Material Adverse Effect relating to the Company’s business,
financial condition or affairs not disclosed in the Reports. The Reports do
not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made.
(l) Stop
Transfer.
The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Securities, except as may be required by any
applicable federal or state securities laws and unless contemporaneous notice
of
such instruction is given to the Subscriber.
(m) Defaults.
The
Company is not in violation of its articles of incorporation or bylaws. Except
as described on Schedule
5(m),
the
Company is (i) not in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect,
(ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under
any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority
which
violation would have a Material Adverse Effect.
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(n) Not
an
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the OTC Bulletin Board (“Bulletin
Board”)
or any
Principal Market 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 or 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.
(o) No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 0000 Xxx)
in
connection with the offer or sale of the Securities.
(p) Listing.
The
Common Stock is quoted on the Bulletin Board under the symbol: VOII.OB. The
Company has not received any oral or written notice that the Common Stock is
not
eligible nor will become ineligible for quotation on the Bulletin Board nor
that
the Common Stock does not meet all requirements for the continuation of such
quotation.
(q) No
Undisclosed Liabilities.
The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company’s
businesses since the Latest Financial Date and which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse
Effect,
except
as disclosed on Schedule
5(q).
(r) No
Undisclosed Events or Circumstances.
Since
the Latest Financial Date, 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.
(s) Capitalization.
The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and the Closing Date (not including the Securities) are set forth
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. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized
and
issued and are fully paid and nonassessable, except for 9,958 shares of Class
B
Common Stock which are assessable.
(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.
(u) No
Disagreements with Accountants and Lawyers.
Except
as disclosed on Schedule
5(u),
there
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers, nor
have there been any such disagreements during the two years prior to the Closing
Date.
7
(v) 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(v)
hereto.
(w) Investment
Company.
Neither
the Company nor any Affiliate is an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.
(x) Subsidiary
Representations.
The
Company makes each of the representations contained in Sections 5(a), (b),
(d),
(e), (f), (h), (k), (m), (q), (r), (u) and (w) of this Agreement, as same relate
to each Subsidiary of the Company, except as set forth on Schedule
5(a).
(y) Company
Predecessor.
All
representations made by or relating to the Company of a historical or
prospective nature and all undertakings described in Sections 9(g) through
9(l)
shall relate, apply and refer to the Company and its predecessors.
(z) 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 Closing Date, shall be
true
and correct in all material respects as of Closing Date.
(AA)
Survival.
The
foregoing representations and warranties shall survive until three years after
the Second Closing Date.
6. Regulation
D Offering.
The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder. On the Closing Date, the Company will provide an opinion
reasonably acceptable to Subscriber from the Company’s legal counsel opining on
the availability of an exemption from registration under the 1933 Act as it
relates to the offer and issuance of the Securities and other matters reasonably
requested by Subscribers. A form of the legal opinion is annexed hereto as
Exhibit
D.
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 under the 1933 Act, Rule 144
under the 1933 Act (“Rule
144”),
or an
exemption from registration.
7.1. Conversion
of Note.
(a) Upon
the
conversion of a Note, interest, any sum due to the Subscriber under the
Transaction Documents including Liquidated Damages, or part thereof, the Company
shall, at its own cost and expense, take all necessary action, including
obtaining and delivering, an opinion of counsel to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or
its
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 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
and Warrant Shares, assuming (i) a registration statement registering such
shares under the 1933 Act is effective and the prospectus, as supplemented
or
amended, contained therein is current and (ii) the Subscriber confirms in
writing to the transfer agent that the Subscriber has complied with the
prospectus delivery requirements, the restrictive legend will be removed 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, or for 90 days if pursuant to the other provisions
of
Rule 144 of the 1933 Act).
8
(b) Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, any sum due to the Subscriber under the Transaction Documents
including Liquidated Damages, or part thereof by telecopying an executed and
completed Notice
of Conversion
(a form
of which is annexed as Exhibit
A
to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement. The Subscriber will not be
required to surrender the Note
until
the Note has been fully converted or satisfied. Each date on which a Notice
of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion
Date.
The
Company will itself or cause the Company’s transfer agent to transmit the
Company’s Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt by
such
Subscriber within three (3) business days after receipt by the Company of the
Notice of Conversion (such third day being the “Delivery
Date”).
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, 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. “Business
day”
and
“trading
day”
as
employed in the Transaction Documents is a day that the New York Stock Exchange
is open for trading for three or more hours.
(c) The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
described in Section 7.2 hereof, respectively after the Delivery Date or the
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty)
to
the Subscriber for late issuance of Shares in the form required pursuant to
Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
business day after the Delivery Date for each $10,000 of Note principal amount
being converted of the corresponding Shares which are not timely delivered.
The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Subscriber, in the event that the Company fails
for any reason to effect delivery of the Shares by the Delivery Date or make
payment by the Mandatory Redemption Payment Date, the Subscriber may revoke
all
or part of the relevant Notice of Conversion or rescind all or part of the
notice of Mandatory Redemption by delivery of a notice to such effect to the
Company whereupon the Company and the Subscriber shall each be restored to
their
respective positions immediately prior to the delivery of such notice, except
that the liquidated damages described above shall be payable through the date
notice of revocation or rescission is given to the Company.
(d) Within
three (3) business days (such third business day being the “Unlegended Shares
Delivery Date”) after the business day on which the Company has received (i) a
notice that Shares or Warrant Shares or any other Common Stock held by a
Subscriber have been sold pursuant to Rule 144 under the 1933 Act, (ii) a
representation that 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) 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, or pursuant to Rule 144
(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.
(e) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 7.1(e) hereof later than two business days after the
Unlegended Shares Delivery Date could result in economic loss to a Subscriber.
As compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber
for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company
fails
to deliver Unlegended Shares as required by this Agreement for an aggregate
of
thirty (30) days, then each Subscriber or assignee holding Securities subject
to
such default may, at its option, require the Company to redeem all or any
portion of the Shares and Warrant Shares subject to such default at a price
per
share equal to the greater of (i) 120%, or (ii) a fraction in which the
numerator is the highest closing price during the aforedescribed thirty day
period and the denominator of which is the lowest conversion
price during such thirty day period, multiplied by the Purchase Price of such
Common Stock and Warrant Shares (“Unlegended
Redemption Amount”).
The
amount of the aforedescribed liquidated damages that have accrued or been paid
for the ten day period prior to the receipt by the Subscriber of the Unlegended
Redemption Amount shall be credited against the Unlegended Redemption Amount.
Damages calculated pursuant to Section 7.1(c) and Section 7.1(e) for the same
Shares and Unlegended Shares shall be calculated only under one such section
at
the Subscriber’s election.
9
(f) In
lieu
of delivering physical certificates representing the Shares or Unlegended
Shares, if the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer program, upon request of a
Subscriber, so long as the certificates 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 must cause its transfer agent to electronically
transmit the Shares or Unlegended Shares by crediting the account of
Subscriber’s prime Broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Delivery Date
or
Unlegended Shares Delivery Date, as the case may be.
(g) 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.
(h) The
Company shall pay all damages payable pursuant to Section 7 hereof and all
other
liquidated damages and payments in immediately available funds upon
demand.
7.2. Mandatory
Redemption at Subscriber’s Election.
In the
event the Company is prohibited from issuing Shares, or fails to timely deliver
Shares on a Delivery Date, or upon the occurrence of any other Event of Default
(as defined in the Note or in this Agreement) that is not cured during any
applicable cure period and an additional ten days thereafter, then at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber, at the Subscriber’s election, a sum of
money determined by (i) multiplying up to the outstanding principal amount
of
the Note designated by the Subscriber by 115%, or (ii) multiplying the number
of
Shares otherwise deliverable upon conversion of an amount of Note principal
and/or interest designated by the Subscriber (with the date of giving of such
designation being a “Deemed
Conversion Date”)
at the
then Conversion Price that would be in effect on the Deemed Conversion Date
by
the highest closing price of the Common Stock on the Principal Market for the
period commencing on the Deemed Conversion Date until the day prior to the
receipt of the Mandatory Redemption Payment, whichever is greater, together
with
accrued but unpaid interest thereon and any other sums arising and outstanding
under the Transaction Documents ("Mandatory
Redemption Payment").
The
Mandatory Redemption Payment must be received by the Subscriber on the same
date
as the Company Shares otherwise deliverable or within ten (10) business days
after request, whichever is sooner ("Mandatory
Redemption Payment Date").
Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
for
the twenty day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment calculated pursuant to subsections (i) and (ii) above of this Section
7.2. In the event of a “Change
in Control”
(as
defined below), the Subscriber may demand, and the Company shall pay, a
Mandatory Redemption Payment equal to 115% of the outstanding principal amount
of the Note designated by the Subscriber together with accrued but unpaid
interest thereon and any other sums arising and outstanding under the
Transaction Documents. For purposes of this Section 7.2, “Change
in Control”
shall
mean (i) the Company no longer having a class of shares publicly tradable and
listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
entity or merging into or with another entity, (iii) a majority of the board
of
directors of the Company as of the Closing Date no longer serving as directors
of the Company except for the addition or replacement of up to six directors,
other than due to natural causes, (iv) if the holders of the Company’s Common
Stock as of the Closing Date beneficially owning at any time after the Closing
Date less than thirty-five percent of the Common stock owned by them on the
Closing Date, or (v) the sale, lease, license or transfer of substantially
all
the assets of the Company or Subsidiaries.
10
7.3. Maximum
Conversion.
The
Subscriber shall not be entitled to convert on a Conversion Date that amount
of
the Note in connection with that number of shares of Common Stock which would
be
in excess of the sum of (i) the number of shares of common stock beneficially
owned by the Subscriber and its Affiliates on a Conversion Date, and (ii) the
number of shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Subscriber
and its Affiliates of more than 4.99% of the outstanding shares of common stock
of the Company on such Conversion Date. Beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 4.99% and
aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber may
waive the conversion limitation described in this Section 7.3, in whole or
in
part, upon and effective after 61 days prior written notice to the Company
to
increase such percentage to up to 9.99%. The Subscriber may decide whether
to
convert a Note or exercise Warrants to achieve an actual 4.99% or up to 9.99%
ownership position as described above.
7.4. Injunction
Posting of Bond.
In the
event a Subscriber shall elect to convert a Note or part thereof or exercise
the
Warrant in whole or in part or request the delivery of Unlegended Shares
pursuant to the terms of this Agreement, the Company may not refuse conversion,
exercise or delivery based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of such Note or exercise
of all or part of such Warrant, or delivery of Unlegended Shares shall have
been
sought and obtained by the Company
or at
the Company’s request or with the Company’s assistance, and
the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the outstanding principal and interest of the Note, or
aggregate purchase price of the Shares, Warrant Shares and Unlegended Shares
which are sought to be subject to the injunction, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment in Subscriber’s favor.
7.5. Buy-In.
In
addition to any other rights available to the Subscriber, if the Company fails
to deliver to the Subscriber Shares issuable upon conversion of a Note or
exercise of a Warrant by the Delivery Date (as defined herein and in the
Warrant) or fails to deliver Unlegended Shares by the Unlegended Shares Delivery
Date and if after seven (7) business days after such date the Subscriber or
a
broker on the Subscriber’s behalf, purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the Common Stock which the Subscriber was entitled to receive
upon
such conversion (a "Buy-In"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion, exercise or
required delivery was not timely honored,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall
be
paid as liquidated damages and not as a penalty). For
example, if the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of note principal and/or interest or exercise of Warants
having an aggregate purchase price of $10,000, or Unlegended Shares having
an
aggregate purchase price of $10,000, then the Company shall be required to
pay
the Subscriber $1,000,
plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
7.6. Adjustments.
The
Conversion Price, Warrant exercise price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be adjusted as
described in this Agreement, the Notes and Warrants.
7.7. Redemption.
The
Note and Warrants shall not be redeemable or mandatorily convertible except
as
described in the Note and Warrants.
8.
Finder/Legal
Fees.
(a) Finder’s
Fee.
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 and arising out of such party’s actions. The Company
represents that there are no parties entitled to receive fees, commissions,
or
similar payments in connection with the Offering except as described in Section
8(b) below.
11
(b) Due
Diligence Fee.
The
Company will pay a due diligence fee (“Due
Diligence Fee”).
The
aggregate Due Diligence Fee shall be equal to ten percent (10%) of the Aggregate
Purchase Price as more fully described on Schedule
8
hereto.
The Due Diligence Fee shall be paid in the form of a Note with terms
substantially similar to the Notes to be issued to Subscribers in this
Offering.
(c) Legal
Fees.
The
Company shall pay to Grushko & Xxxxxxx, P.C., a fee of $30,000
(“Legal
Fees”)
as
reimbursement for services rendered to the Subscribers in connection with this
Agreement and the purchase and sale of the Notes, and Warrants (the
“Offering”)
and
acting as Escrow Agent for the Offering. The Legal Fees will be payable on
the
Closing Date out of funds held pursuant to the Escrow Agreement. Grushko &
Xxxxxxx, P.C. will be reimbursed on the Closing Date for all UCC search and
filing fees, if any.
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 two hours after the Company 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.
The
Company shall promptly secure the listing of the Shares and the Warrant Shares
upon each national securities exchange, or electronic or automated quotation
system upon which they are or become listed and shall use commercially
reasonable efforts to maintain such listing so long as any Notes or Warrants
are
outstanding. The Company will maintain the listing of its Common Stock on the
American Stock Exchange, Nasdaq Capital Market, Nasdaq National Market System,
Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at
the
time the principal trading exchange or market for the Common Stock (the
“Principal
Market”)),
and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common
Stock
from any Principal Market. As of the date of this Agreement, the Bulletin Board
is 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 later of (i) two (2) years after the
Closing Date, or (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, the Company will
(A)
cause its Common Stock to continue to be registered under Section 12(b) or
12(g)
of the 1934 Act, (B) comply in all respects with its reporting and filing
obligations 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 commercially reasonable 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 two (2) years after
the Closing Date. Until the earlier of the resale of the Common Stock and the
Warrant Shares by each Subscriber or two (2) years after the Warrants have
been
exercised, the Company will use its commercially reasonable efforts to continue
the listing or quotation of the Common Stock on a Principal Market and will
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market; provided that
the
Company shall not be required to consummate a reverse stock split in order
to
comply with the foregoing covenant. 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.
12
(e) Use
of
Proceeds.
The
proceeds of the Offering will be employed by the Company for the purposes set
forth on Schedule
9(e)
hereto.
Except as set forth on Schedule
9(e),
the
Purchase Price may not and will not be used for accrued and unpaid officer
and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company, litigation related expenses or
settlements, brokerage fees, nor non-trade obligations outstanding on a Closing
Date.
(f) Reservation.
After
the
Reservation Approval (as described in Section 9(q) of this Agreement), the
Company will reserve pro-rata on behalf of the Subscribers from its authorized
but unissued Common Stock a number of common shares equal to 200% of the amount
of Common Stock necessary to allow each holder of a Note to be able to convert
all such outstanding Notes and interest and reserve the amount of Warrant Shares
issuable upon exercise of the Warrants. Failure to have sufficient shares
reserved pursuant to this Section 9(f) for three (3) consecutive business days
or ten (10) days in the aggregate shall be a material default of the Company’s
obligations under this Agreement and an Event of Default under the Note. The
Subscribers acknowledge that until the Reservation Approval is obtained, shares
of Common Stock will not be reserved on their behalf and the Notes will not
be
convertible nor the Warrants exercisable.
(g) Taxes.
From
the date of this Agreement and until the conversion or satisfaction of the
Note,
in its entirety, 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.
(h) Insurance.
From
the date of this Agreement and until the conversion or satisfaction of the
Note,
in its entirety, 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.
(i) Books
and Records.
From the
date of this Agreement and until the conversion or satisfaction of the Note,
in
its entirety, 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.
(j) Governmental
Authorities.
From the
date of this Agreement and until the conversion or satisfaction of the Note,
in
its entirety, 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.
(k) Intellectual
Property.
From
the date of this Agreement and until the conversion or satisfaction of the
Note,
in its entirety, the Company shall maintain in full force and effect its
corporate existence, rights and franchises and all licenses and other rights
to
use intellectual property owned or possessed by it and reasonably deemed to
be
necessary to the conduct of its business, unless it is sold for
value.
(l) Properties.
From the
date of this Agreement and until the conversion or satisfaction of the Note,
in
its entirety, 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.
13
(m) Confidentiality/Public
Announcement.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (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, the Company agrees
that except in connection with a Form 8-K or the Registration Statement or
as
otherwise required in any other Commission filing, it will not disclose publicly
or privately the identity of the Subscribers unless expressly agreed to in
writing by a Subscriber, only to the extent required by law and then only upon
five days prior notice to Subscriber. In any event and subject to the foregoing,
the Company shall file
a
Form 8-K or make a public announcement describing the Offering not later than
the second business day after the Closing Date. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of common stock
outstanding immediately after the Closing. A form of the proposed Form 8-K
or
public announcement to be employed in connection with the Closing is annexed
hereto as Exhibit
E.
(n) Non-Public
Information.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf will provide any Subscriber or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber shall
be
relying on the foregoing representations in effecting transactions in securities
of the Company.
(o) Offering
Restrictions.
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 365 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, or at any time during the pendency of an Event
of
Default, except for the Excepted Issuances, the Company will not enter into
an
agreement to nor issue any equity, convertible debt or other securities
convertible into common stock or equity of the Company nor modify any of the
foregoing which may be outstanding at anytime, without the prior written consent
of a majority of the Subscriber, which consent may be withheld for any reason.
For so long as the Notes are outstanding, except for the Excepted Issuances,
the
Company will not enter into any equity line of credit or similar agreement,
nor
issue nor agree to issue any floating or variable priced equity linked
instruments nor any of the foregoing or equity with price reset rights.
The
only
officer, director, employee and consultant stock option or stock incentive
plan
currently in effect or contemplated by the Company has been submitted to the
Subscribers. No other plan will be adopted nor may any options or equity not
included in such plan be issued for so long as any sum is outstanding under
the
Note.
(p) Additional
Negative Covenants.
So long
as at least twenty-five percent (25%) of the principal amount of Notes issued
by
the Company pursuant to Subscription Agreements entered into by the Company
on
or about the date of this Agreement are outstanding or at any time during the
pendency of an Event of Default (as defined in the Note), except as described
on
Schedule
9(p),
without
the consent of the Subscribers, the Company will not and will not permit any
of
its Subsidiaries to 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 (i)
the
Excepted Issuances (as defined in Section 12(a) hereof), (ii) (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 30 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, or (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”)
and
(iii) indebtedness for borrowed money which is not senior or pari passu in
right
of payment to the payment of the Notes;
14
(ii) amend
its
certificate of incorporation, bylaws or its charter documents so as to 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) prepay
any financing related debt obligations; or
(v) 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 $20,000
other than (i) for payment of salary or consulting fees for services rendered,
(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.
(q) Shareholder
Approval.
The
Company and Subscribers agree that until the Company obtains shareholder
approval of an increase in the authorized Common Stock of the Company and files
an amendment to the Company’s Articles of Incorporation and reserves the amount
of shares of Common Stock necessary to allow the conversion of Note principal
and interest that may accrue thereon and Common Stock issuable upon exercise
of
the Warrants issued in connection with this Agreement (in the aggregate such
shares of Common Stock being the “Reserve
Amount”),
each
Subscriber may not convert the Note nor exercise Warrants in excess of the
available Reserve Amount. The Company covenants to obtain the authorization
and
reservation of Common Stock on behalf of the Subscribers of not less than 200%
of the amount of shares of Common Stock issuable upon conversion of the Note
principal and 100% of shares of Common Stock issuable upon exercise of the
Warrants (such approval being the “Shareholder
Approval”
and
such reservation being the “Reservation”).
Failure to obtain the Shareholder Approval and Reservation on or before April
15, 2007 (a “Reservation
Default”)
is an
Event of Default under the Note and for which liquidated damages will accrue
at
the rate of two percent (2%) for each thirty (30) days, or pro rata portion
thereof during the pendency of such Reservation Default.
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 or material 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 material
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 material 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.
15
(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 dollar amount of the net proceeds
actually received by such Subscriber upon the sale of the Shares.
(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. If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements in connection with registrable securities
as
defined in Subscription Agreements entered into by the Company and Subscribers
and others on or about October 17, 2006 (“October
Subscription Agreements”)
and on
Forms X-0, X-0 or another form not available for registering the “Registrable
Securities”,
which
shall mean 130% of the Shares issuable upon conversion of the Notes issuable
to
Subscribers, Settlement Shares, and 100% of the Warrant Shares issuable pursuant
to this Agreement upon exercise of the Warrants, 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 fifteen (15) days' prior written notice to
the
record holder of the Registrable Securities of its intention so to do. Upon
the
written request of the holder, received by the Company within fifteen (15)
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(ii) shall be,
in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the 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 without
thereby incurring any liability to the Seller.
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 11.1 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) and Grushko & Xxxxxxx, P.C. (by telecopier and by email to
Xxxxxxxxx@xxx.xxx)
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;
16
(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;
(e) if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) notify
the Subscribers within two 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, all publicly available,
non-confidential financial and other records, pertinent corporate documents
and
properties of the Company, and cause the Company's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the seller, attorney, accountant or agent in connection
with such registration statement; 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.
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 any
Registration Statement is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any registration
statement required under Section 11.1 is not filed within 60 days after written
request and declared effective by the Commission within 120 days after such
request, and maintained in the manner and within the time periods contemplated
by Section 11 hereof, and it would not be feasible to ascertain the extent
of
such damages with precision. Accordingly, if (A) any Registration Statement
is
not filed on or before the Filing Date, (B) is not declared effective on or
before the Effective Date, (C) 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 any Registration Statement will not be reviewed or
that
the Commission has no further comments, (D) if the registration statement
described in Sections 11.1 is not filed within 60 days after such written
request, or is not declared effective within 120 days after such written
request, or (E) any registration statement described in Sections 11 is filed
and
declared effective but shall thereafter cease to be effective without being
succeeded within fifteen (15) business days by an effective replacement or
amended Registration Statement or for a period of time which shall exceed thirty
(30) days in the aggregate per year (defined as every rolling period of 365
consecutive days commencing on the Actual Effective Date (each such event
referred to in clauses A through E 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 two percent (2%) for each thirty (30) days (or such lesser
pro-rata amount for any period of less than thirty (30) days) of the Principal
Amount of the outstanding Notes and purchase price of Shares issued upon
conversion of the Notes owned of record by such holder which are subject to
such
Non-Registration Event. The Company may pay the Liquidated Damages in cash.
The
maximum amount of Liquidated Damages payable in connection with Non-Registration
Event may not exceed twenty-four percent (24%). The Liquidated Damages must
be
paid within ten (10) 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 within
fifteen (15) business days after receipt of comments from the Commission.
Failure
to
timely respond to Commission comments is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders
of
Registrable Securities at the same rate set forth above. Notwithstanding the
foregoing, the Company shall not be liable to the Subscriber under this Section
11.4 for any events or delays occurring as a consequence of the acts or
omissions of the Subscribers contrary to the obligations undertaken by
Subscribers in this Agreement. Liquidated Damages will not accrue nor be payable
pursuant to this Section 11.4 nor will a Non-Registration Event be deemed to
have occurred for times during which Registrable Securities are transferable
by
the holder of Registrable Securities pursuant to Rule 144(k) under the 1933
Act.
17
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 National Association of Securities Dealers, Inc., 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.
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.
18
(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 or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage
or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability
of
the Seller hereunder shall be limited to the net proceeds actually received
by
the Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 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
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.
19
11.7. Delivery
of Unlegended Shares.
(a) Within
three (3) business days (such third business day being the “Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a notice that Shares
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,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the
1933
Act (the “Unlegended
Shares”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
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.
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, if
the
Company’s transfer agent is participating in the Depository Trust Company
(“DTC”)
Fast
Automated Securities Transfer program, upon request of a Subscriber, so long
as
the certificates 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 DTC through
its Deposit Withdrawal Agent Commission system. Such delivery must be made
on or
before the Unlegended Shares Delivery Date.
(c) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof later than two business days after the Unlegended
Shares Delivery Date could result in economic loss to a Subscriber. As
compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber
for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company
fails
to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities subject
to such default may, at its option, require the Company to redeem all or any
portion of the Shares and Warrant Shares subject to such default at a price
per
share equal to the greater of (i) 120%, or (ii) a fraction in which the
numerator is the highest closing price during the aforedescribed thirty day
period and the denominator of which is the lowest conversion price during such
thirty day period, multiplied by the Purchase Price of such Common Stock and
Warrant Shares (“Unlegended
Redemption Amount”).
The
amount of the aforedescribed liquidated damages that have accrued or been paid
for the ten day period prior to the receipt by the Subscriber of the Unlegended
Redemption Amount shall be credited against the Unlegended Redemption Amount.
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
(d) In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of common stock so purchased exceeds (B) the aggregate purchase
price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together
with interest thereon at a rate of 15% per annum, accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber
$1,000,
plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
20
(e) In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 11.7 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or
for
any other reason, unless, an injunction or temporary restraining order from
a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares or exercise of all or part of said Warrant shall have been sought and
obtained by the Company or at the Company’s request or with the Company’s
assistance,
and the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the amount of the aggregate purchase price of the Common
Stock
and Warrant Shares which are subject to the injunction or temporary restraining
order, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor.
12. Additional
Agreements.
(a) Right
of First Refusal.
Subject
and subordinate to similar rights granted by the Company prior to the Closing
Date, until the later of one year after the actual effective date of the
Registration Statement or the Notes are no longer outstanding, the Subscribers
shall be given not less than seven (7) business days prior written notice of
any
proposed sale by the Company of its Common Stock or other securities or debt
obligations, or instruments convertible into or exchangeable for Common Stock
except in connection with (i) full or partial consideration in connection with
a
strategic merger, acquisition, consolidation or purchase of substantially all
of
the securities or assets of corporation
or other entity which holders of such securities or debt are not at any time
granted registration rights, (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 and which
holders of such securities or debt are not at any time granted registration
rights,
(iii)
the Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock pursuant to stock option plans and employee stock purchase
plans described on Schedule
5(d)
hereto
at prices equal to or higher than the closing price of the Common Stock on
the
issue date of any of the foregoing, (iv) as a result of the exercise of Warrants
or conversion of Notes which are granted or issued pursuant to this Agreement
or
that have been issued prior to the Closing Date, the issuance of which has
been
disclosed in a Report filed not less than five (5) days prior to the Closing
Date, (v) the payment of any interest on the Notes and liquidated damages or
other damages pursuant to the Transaction Documents or other securities
instruments that have been issued prior to the Closing Date, the issuance of
which has been disclosed in a Report filed not less than five days prior to
the
Closing Date, (vi) the Additional Subscriber Investments, and (vii) the
issuances listed on Schedule
12(a) (collectively
the foregoing are “Excepted
Issuances”).
The
aggregate amount of Common Stock that may be issued as Excepted Issuances under
items
12(a)(i), (ii) and (iii) may not exceed 1,000,000 shares of Common Stock. The
Excepted Issuances may be modified as to all Subscribers with the consent of
the
Subscribers. The Subscribers who exercise their rights pursuant to this Section
12(a) shall have the right during the seven (7) business days following receipt
of the notice to purchase in the aggregate such offered convertible debt
instruments or other securities in accordance with the terms and conditions
set
forth in the notice of sale in the same proportion to each other as their
purchase of Notes in the Offering. In the case of Common stock or equity of
the
Company convertible, exercisable or exchangeable for Common Stock, the
Subscriber may purchase an amount equal to the aggregate purchase prices of
all
of the debt or equity of the Company ever purchased by such Subscriber pursuant
to a Subscription Agreement or exercise of a Warrant. In the event such terms
and conditions are modified during the notice period, the Subscribers shall
be
given prompt notice of such modification and shall have the right during the
seven (7) business days following the notice of modification to exercise such
right.
21
(b) Favored
Nations Provision.
Other
than in connection with the Excepted Issuances, if at any time Notes are
outstanding and in the case of the Warrants, for as long as both Notes and
Warrants are outstanding, the Company shall offer, issue or agree to issue
any
common stock or securities convertible into or exercisable for shares of common
stock (or modify any of the foregoing which may be outstanding) to any person
or
entity at a price per share or conversion or exercise price per share which
shall be less than the Conversion Price in respect of the Shares, or if less
than the Warrant exercise price in respect of the Warrant Shares, without the
consent of each Subscriber holding Notes, Shares, Warrants, or Warrant Shares,
then the Company shall issue, for each such occasion, additional shares of
Common Stock to each Subscriber so that the average per share purchase price
of
the shares of Common Stock issued to the Subscriber (of only the Common Stock
or
Warrant Shares still owned by the Subscriber) is equal to such other lower
price
per share and the Conversion Price and Warrant exercise price shall
automatically be reduced to such lower price. The average Purchase Price of
the
Shares and average exercise price in relation to the Warrant Shares shall be
calculated separately for the Shares and Warrant Shares. The foregoing
calculation and issuance shall be made separately for Shares received upon
conversion and separately for Warrant Shares. The delivery to the Subscriber
of
the additional shares of Common Stock shall be not later than the closing date
of the transaction giving rise to the requirement to issue additional shares
of
Common Stock. The Subscriber is granted the registration rights described in
Section 11 hereof in relation to such additional shares of Common Stock except
that the Filing Date and Effective Date vis-à-vis such additional common shares
shall be, respectively, the thirtieth (30th)
and
sixtieth (60th)
date
after the closing date giving rise to the requirement to issue the additional
shares of Common Stock. For purposes of the issuance and adjustment described
in
this paragraph, the issuance of any security of the Company carrying the right
to convert such security into shares of Common Stock or of any warrant, right
or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the sooner of the agreement to or actual issuance
of
such convertible security, warrant, right or option and again at any time upon
any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price or Warrant exercise price in effect upon such issuance. The
rights of the Subscriber set forth in this Section 12 are in addition to any
other rights the Subscriber has pursuant to this Agreement, the Note, any
Transaction Document, and any other agreement referred to or entered into in
connection herewith. The Subscriber is also given the right to elect to
substitute any term or terms of any other offering in connection with which
the
Subscriber has rights as described in Section 12(a), for any term or terms
of
the Offering in connection with Securities owned by Subscriber as of the date
the notice described in Section 12(a) is required to be given to
Subscriber.
(c) Maximum
Exercise of Rights.
In the
event the exercise of the rights described in Section 12(a) or
12(b)
would or could result in the issuance of an amount of common stock of the
Company that would exceed the maximum amount that may be issued to a Subscriber
calculated in the manner described in Section 7.3 of this Agreement, then the
issuance of such additional shares of common stock of the Company to such
Subscriber will be deferred in whole or in part until such time as such
Subscriber is able to beneficially own such common stock without exceeding
the
applicable maximum amount set forth calculated in the manner described in
Section 7.3 of this Agreement. The determination of when such common stock
may
be issued shall be made by each Subscriber as to only such
Subscriber.
13. Security
Interest.
On or
about July 5, 2005, January 6, 2006, February 2, 2006 and the October
Subscription Agreements, the Subscribers were granted a security interest in
assets of the Company and Subsidiaries (as defined in Section 5(a) of this
Agreement), including ownership of the Subsidiaries. The security interest
was
memorialized in Security Agreements. Each Subsidiary executed and delivered
to
the Subscribers a form of Guaranty. The Company and Subsidiaries will execute
such other agreements, documents and financing statements reasonably requested
by Subscribers to affirm such security agreement, which will be filed at the
Company’s expense with such jurisdictions, states and counties designated by the
Subscribers. The
Company and Subsidiaries 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 appointed a Collateral
Agent
to represent them collectively in connection with the security interest. The
appointment was pursuant to a Collateral Agent Agreement. The Notes and all
sums
due under the Notes and the Transaction Documents (as defined in Section 5(c)
below) are included in the term “Obligations” as defined in the Security
Agreements and are secured by the Collateral (as defined in the Security
Agreements) in the same manner and having the same priority as granted to the
Subscribers pursuant to the Security Agreements. The Subsidiaries by signing
this Agreement consent and agree that the Guarantees provided by them on or
about January 6, 2006, include as guaranteed obligations all sums which may
become due to the Subscribers under the Transaction Documents (as defined in
Section 5(c)). The Company and Subscribers agree that Schedule 13 hereto sets
forth as of the date stated therein, the principal and interest outstanding
on
Notes issued by the Company to the Subscribers which are included as
“Obligations” under various “Security Agreements” to which the Company and
Subscribers are parties. Such “Obligations” include additional amounts as
described in the documents and other agreements entered into in connection
with
such “Obligations”. The Subscribers agree that their interests in all
Obligations are pari passu in proportion to their specific Obligation amounts
and of equal priority with each other. The Subscribers, Company, and
Subsidiaries agree that the Collateral Agent Agreement dated as of February
2,
2006 is the Collateral Agent Agreement which shall govern the rights and
obligations of the Subscribers in connection with the Obligations and shall
remain in full force and effect except as modified in this Agreement. The
Subscribers agree that for so long as any Obligations relating to the
Obligations as set forth on Schedule 13 hereto and other sums which may become
Obligations which derive from such stated Obligations (“Schedule 13
Obligations”), remain outstanding, “Majority In Interest” as employed in the
Collateral Agent Agreement shall relate only to holders of such described
Obligations. After such Schedule 13 Obligations are no longer outstanding,
Majority In Interest shall be determined among the holders of all other
Obligations. As employed in this Agreement, “Subscribers” includes assignees of
a Subscriber who by their signature on the signature pages hereto are deemed
to
be and become parties to the Security Agreements and Collateral Agent Agreement
and become beneficiaries of all the rights and benefits of the other Subscribers
and assume the corresponding obligations, and assignors who hold any portion
of
the Obligations.
22
14. Modification
of Prior Fundings.
(a) Bridge
Funding.
On
November 27, 2006, December 15, 2006 and January 4, 2007, respectively, the
Company issued to several of the Subscribers an aggregate $866,667.00 in
promissory notes (“Initial
Funding”).
On
January 18, 2007 and January 26, 2007, respectively, the Company issued to
several of the Subscribers an aggregate $800,000.00 in promissory notes
(“Second
Funding”).
Collectively, the Initial Funding and Second Funding are referred to as the
“Bridge
Fundings”.
Upon
the Closing of this Offering and the rollover of the Bridge Funding Notes into
the Notes being issued herein, all of the Bridge Fundings Notes shall be deemed
cancelled. In consideration of entering into this Agreement, and other good
and
valuable mutual consideration, receipt of which is acknowledged, the Company
and
Subscribers agree to the following modifications of the terms of the Bridge
Fundings.
(b) Outstanding
Amounts.
The
Company acknowledges and agrees that the amount of principal, interest and
default interest in connection with the Bridge Fundings is set forth on
Schedule
14(b)
hereto.
(c) Settlement
Shares.
The
Company shall issue and deliver to each Subscriber who participated in the
Initial Funding its proportionate amount of an aggregate of 4,000,000 shares
of
Common Stock set forth on Schedule
14(c)
hereto
(“Settlement
Shares”)
in
lieu of and in payment for the accrued damages within 10 days of the Company
obtaining Shareholder Approval and Reservation but in no event later than April
25, 2007.
(d) October
17, 2006 Modifications.
The
following modifications as acknowledged by the Company and Subscribers, are
made
to the October 17, 2006 Transaction Documents as follows:
(i) Section
9(s) of the Subscription Agreement - Shareholder
Approval,
is
deleted and replaced with the following:
|
“Shareholder
Approval.
The Company and Subscribers agree that until the Company obtains
shareholder approval of an increase in the authorized Common Stock
of the
Company and files an amendment to the Company’s Articles of Incorporation
and reserves the amount of shares of Common Stock necessary to allow
the
conversion of Note principal and interest that may accrue thereon
and
Common Stock issuable upon exercise of the Warrants issued in connection
with this Agreement (in the aggregate such shares of Common Stock
being
the “Reserve
Amount”),
each Subscriber may not convert the Note nor exercise Warrants in
excess
of the available Reserve Amount. The Company covenants to obtain
the
authorization and reservation of Common Stock on behalf of the Subscribers
of not less than 200% of the amount of shares of Common Stock issuable
upon conversion of the Note principal and 100% of shares of Common
Stock
issuable upon exercise of the Warrants (such approval being the
“Shareholder
Approval”
and such reservation being the “Reservation”).
Failure to obtain the Shareholder Approval and Reservation on or
before
April 15, 2007 (a “Reservation
Default”)
is an Event of Default under the Note and for which liquidated damages
will accrue at the rate of two percent (2%) for each thirty (30)
days, or
pro rata portion thereof during the pendency of such Reservation
Default.”
|
23
(ii) Section
1.2 of the Convertible Note - Conversion Privileges, is deleted and replaced
with the following:
“1.2
Conversion
Privileges.
Subject
to Sections 9(f) and 9(s) of the Subscription Agreement, the Conversion
Privileges set forth in Article II shall remain in full force and effect
immediately from the date hereof and until the Note is paid in full regardless
of the occurrence of an Event of Default. The Note shall be payable in full
on
the Maturity Date, unless previously converted into Common Stock in accordance
with Article II hereof; provided, that if an Event of Default has occurred,
the
Holder may extend the Maturity Date up to an amount of time equal to the
pendency of the Event of Default. Such extension must be on notice in
writing.”
(iii) Section
2.2 of the Convertible Note - Optional Redemption of Principal Amount, is
deleted and replaced with the following:
“2.2
Optional
Redemption of Principal Amount.
Provided an Event of Default or an event which with the passage of time or
the
giving of notice could become an Event of Default has not occurred, whether
or
not such Event of Default has been cured, the Borrower will have the option
of
prepaying the outstanding Principal amount of this Note ("Optional Redemption"),
in whole or in part, by paying to the Holder a sum of money equal to the number
of Shares of Common Stock issuable upon an assumed conversion of the outstanding
principal and interest of this Note multiplied by $1.50 (subject to adjustment
for stock splits, stock dividends and similar events), and any and all other
sums due, accrued or payable to the Holder arising under this Note or any
Transaction Document through and as of the Redemption Payment Date as defined
below (the "Redemption Amount"). Borrower’s election to exercise its right to
prepay must be by notice in writing (“Notice of Redemption”). The Notice of
Redemption shall specify the date for such Optional Redemption (the "Redemption
Payment Date"), which date shall be thirty (30) business days after the date
of
the Notice of Redemption (the "Redemption Period"). A Notice of Redemption
shall
not be effective with respect to any portion of the Principal Amount for which
the Holder has a pending election to convert, or for conversions initiated
or
made by the Holder during the Redemption Period. On the Redemption Payment
Date,
the Redemption Amount, less any portion of the Redemption Amount against which
the Holder has exercised its conversion rights, shall be paid in good funds
to
the Holder. In the event the Borrower fails to pay the Redemption Amount on
the
Redemption Payment Date as set forth herein, then (i) such Notice of Redemption
will be null and void, (ii) Borrower will have no right to deliver another
Notice of Redemption, and (iii) Borrower’s failure may be deemed by Holder to be
a non-curable Event of Default. A Redemption Notice may be given only at a
time
a registration statement covering all of the shares issuable upon conversion
of
all amounts convertible under this Note (“Registration Statement”) is effective.
A Notice of Redemption may not be given nor may the Borrower effectuate a
Redemption without the consent of the Holder, if at any time during the
Redemption Period an Event of Default or an Event which with the passage of
time
or giving of notice could become an Event of Default (whether or not such Event
of Default has been cured), has occurred or the Registration Statement is not
effective each day during the Redemption Period.”
24
15. 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: VoIP,
Inc., 000 Xx. Xxxxxx Xxxx, Xxxxx 0000, Xxxxxxxxx Xxxxxxx, XX 00000, Attn:
Xxxxxxx Xxxxxxx, CEO, telecopier: (000) 000-0000, with a copy by telecopier
only
to: Xxxxxxx, Xxxxxxx & Xxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000,
Attn: Xxxxxx X. Xxxxxxx, Esq., telecopier: (000) 000-0000, and (ii) if to the
Subscriber, to: the one or more addresses and telecopier numbers indicated
on
the signature pages hereto, with an additional copy by telecopier only to:
Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx
00000, telecopier number: (000) 000-0000.
(b) 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 conflicts
of laws
principles that would result in the application of the substantive laws of
another jurisdiction. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought
only
in the civil or state courts of New York or in the federal courts located in
New
York County. The
parties and the individuals executing this Agreement and other agreements
referred to herein or delivered in connection herewith on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by
jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
25
(e) Specific
Enforcement, Consent to Jurisdiction.
To the
extent permitted by law, the Company and Subscriber acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to one or more preliminary and final injunctions to prevent or cure breaches
of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any
of
them may be entitled by law or equity. Subject to Section 12(d) hereof, each
of
the Company, Subscriber and any signator hereto in his personal capacity hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction 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.
(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) Damages.
In the
event the Subscriber is entitled to receive any liquidated damages pursuant
to
the Transaction Documents, the Subscriber may elect to receive the greater
of
actual damages or such liquidated damages.
(h) Consent.
As used
in the Agreement, “consent of the Subscribers” or similar language means the
consent of holders of not less than 65% of the total of the Shares issued and
issuable upon conversion of outstanding Notes owned by Subscribers on the date
consent is requested.
(i) Equal
Treatment.
No
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of the Transaction Documents unless
the
same consideration is also offered and paid to all the Subscribers and their
permitted successors and assigns.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
26
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
ALPHA
CAPITAL ANSTALT
Pradafant
7
9490
Furstentums
Vaduz,
Lichtenstein
Fax:
000-00-00000000
_________________________________
(Signature)
By:
|
$449,940.00
|
$562,425.00
|
624,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to Alpha Capital Anstalt
on November 27, 2006, December 15, 2006, January 4, 2007 and January 18, 2007
and additional amounts in connection therewith.
27
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (B)
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
WHALEHAVEN
CAPITAL FUND LIMITED
0xx
Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx,
Xxxxxxx XX00
Fax:
(000) 000-0000
_________________________________
(Signature)
By:
|
$407,640.00
|
$509,550.00
|
576,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to Whalehaven Capital
Fund Limited on November 27, 2006, December 15, 2006, January 4, 2007 and
January 18, 2007 and additional amounts in connection therewith.
28
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (C)
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
XXXXX
INTERNATIONAL LTD.
53rd
Street
Urbanizacion Obarrio
Swiss
Tower, 16th
Floor, Panama
Republic
of Panama
Fax
(000) 000-0000
_________________________________
(Signature)
By:
|
$407,595.00
|
$509,493.91
|
560,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to Xxxxx International
Ltd. on November 27, 2006, December 15, 2006, January 4, 2007 and January 18,
2007 and additional amounts in connection therewith.
29
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (D)
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
BRISTOL
INVESTMENT FUND, LTD.
By:_______________________________
Name: Xxxx Xxxxxxx
Title: Director
REGISTERED
OFFICE:
Caledonian
Fund Services (Cayman) Limited
69
Xx. Xxx’x Drive
Xxxxxx
Town, Grand Cayman, Cayman Islands
NOTICE
TO:
c/o
Bristol Capital Advisors, LLC
00000
Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention:
Xxx Xxxx, Esq.
Fax:
(000) 000-0000
|
$518,166.00
|
$647,707.50
|
720,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to Bristol Investment
Fund, Ltd. on November 27, 2006, December 15, 2006, January 4, 2007, January
18,
2007, January 26, 2007 and additional amounts in connection therewith.
30
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (E)
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
CHESTNUT
RIDGE PARTNERS LP
00
Xxxx Xxxxxxxxx
Xxxxxxxxx
Xxxx, XX 00000
Fax:
(000) 000-0000
_________________________________
(Signature)
By:
|
$184,800.00
|
$231,000.00
|
288,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to Chestnut Ridge
Partners LP on November 27, 2006, December 15, 2006, January 4, 2007 and January
18, 2007 and additional amounts in connection therewith.
31
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (F)
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
CENTURION
MICROCAP, L.P.
0000
Xxxxxx X
Xxxxxxxx,
XX 00000
Fax:
(000) 000-0000
_________________________________
(Signature)
By:
|
$319,500.00
|
$399,375.00
|
480,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to Centurion Microcap,
L.P. on November 27, 2006, December 15, 2006, January 4, 2007 and January 18,
2007 and additional amounts in connection therewith.
32
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (G)
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
PLATINUM
LONG TERM GROWTH II INC.
000
Xxxx 00xx
Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attn:
Xxxx Xxxxxxxxx
Fax:
(212)
_________________________________
(Signature)
By:
|
$154,000.00
|
$192,500.00
|
240,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to Platinum Long Term
Growth II Inc. on November 27, 2006, December 15, 2006, January 4, 2007 and
January 18, 2007 and additional amounts in connection therewith.
33
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (H)
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
DOUBLE
U MASTER FUND L.P.
P.
O. Xxx 000
Xxxxxxx
Xxxxx
Xxxxxxxx,
Xxxxxxx, BVI
Fax:
(000) 000-0000
_________________________________
(Signature)
By:
|
$184,800.00
|
$231,000.00
|
288,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to Double U Master Fund
L.P. on November 27, 2006, December 15, 2006, January 4, 2007 and January 18,
2007 and additional amounts in connection therewith.
34
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (I)
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
DKR
SOUNDSHORE OASIS HOLDING FUND LTD.
C/o
DKR Capital Partners, L.P.
0000
Xxxx Xxxx Xxxxxx
Xxxxxxxx,
XX 00000
Fax:
(000) 000-0000
_________________________________
(Signature)
By:
|
$71,867.00
|
$89,833.59
|
112,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to DKR Soundshore Oasis
Holding Fund Ltd. on November 27, 2006, December 15, 2006, January 4, 2007
and
January 18, 2007 and additional amounts in connection therewith.
35
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (J)
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.
|
VOIP,
INC.
a
Texas corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxx
Xxxxxx
Title:
Chief
Accounting Officer
Dated:
February 16, 2007
|
||
|
SUBSCRIBER
|
AGGREGATE
PURCHASE PRICE *
|
AGGREGATE
PRINCIPAL AMOUNT
|
SETTLEMENT
SHARES
|
|
CMS
CAPITAL
0000
Xxx Xxxx Xxxx., Xxxxx 000
Xxxxxxxx
Xxxx, XX 00000
Fax:
(000) 000-0000
_________________________________
(Signature)
By:
|
$71,867.00
|
$89,833.59
|
112,000
|
*
The
Aggregate Purchase Price will be paid by a cash payment and the deemed surrender
and cancellation of Notes deemed issued by the Company to CMS Capital on
November 27, 2006, December 15, 2006, January 4, 2007 and January 18, 2007
and
additional amounts in connection therewith.
36
LIST
OF EXHIBITS AND SCHEDULES
|
Exhibit
A
|
Form
of Note
|
|
Exhibit
B
|
Form
of Class D Warrant
|
|
Exhibit
C
|
Escrow
Agreement
|
|
Exhibit
D
|
Form
of Legal Opinion
|
|
Exhibit
E
|
Form
of Form 8-K or Public Announcement
|
|
Schedule
5(a)
|
Subsidiaries
|
|
Schedule
5(d)
|
Additional
Issuances / Capitalization
|
|
Schedule
5(f)
|
Conflicts
|
|
Schedule
5(h)
|
Litigation
|
|
Schedule
5(m)
|
Defaults
|
|
Schedule
5(q)
|
Undisclosed
Liabilities
|
|
Schedule
5(u)
|
Disagreements
|
|
Schedule
5(v)
|
Transfer
Agent
|
|
Schedule
8
|
Due
Diligence Fee
|
|
Schedule
9(e)
|
Use
of Proceeds
|
|
Schedule
9(p)
|
Additional
Negative Covenants
|
|
Schedule
12(a)
|
Excepted
Issuances
|
|
Schedule
13
|
Obligations
|
|
Schedule
14(b)
|
Outstanding
Amounts
|
37
SCHEDULE
8
DUE
DILIGENCE FEE
|
DUE
DILIGENCE FEE RECIPIENT
|
DUE
DILIGENCE FEE
|
|
XXXXX
CAPITAL LTD.
|
$259,703.92
|
|
BRISTOL
CAPITAL ADVISORS LLC
00000
Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx
Xxxxxxx, XX 00000
Fax:
(000) 000-0000
|
$86,567.98
|
|
TOTAL
|
$346,271.90
|
38
