Exhibit 10.1
FORM OF SUBSCRIPTION AGREEMENT
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China Evergreen Environmental Corporation
5/F, Guowei Building
73 Xianlie Middle Road
Guangzhou, Guangdong
People's Republic of China
Ladies and Gentlemen:
The undersigned (the "Investor") is writing to advise you of the
following terms and conditions under which the Investor hereby offers to
subscribe (the "Offer") for the securities of this private placement (the
"Offering") offered by China Evergreen Environmental Corporation, a Nevada
corporation (the "Company"). The exclusive placement agent for the Offering is
Westminster Securities Corporation (the "Placement Agent"). The Company is
issuing investment units at the rate of $30,000 per unit, consisting of (a)
200,000 shares ("Shares") of the Company's common stock, par value $0.001
("Common Stock") at the rate of $0.15 per Share and (b) 200,000 detachable
warrants (the "Warrants") to purchase one share each of Common Stock at an
exercise price of $0.20 per share (the "Warrant Shares"), expiring five years
from their date of issuance. The Shares and the Warrants shall be collectively
referred to as the "Units".
The Company may issue up to $4,020,000 of Units (the "Maximum
Offering") in this Offering. The Company and the Placement Agent, upon mutual
agreement, may also sell up to an additional $810,000 of Units, representing an
over-allotment allowance in the event the Offering is oversubscribed. The
Investor understands that the Units are being issued pursuant to the exemption
from registration requirements of the Securities Act of 1933, as amended (the
"Securities Act" or the "Act"), in a private placement pursuant to an exemption
from registration under Regulation D promulgated under Section 4(2) and Rule 506
of the Act. As such, the Shares, Warrants and the Warrant Shares are "restricted
securities".
The Units are being offered on a "best efforts, all or none" basis by
the Company through the Placement Agent with respect to the initial $1,020,000
of Units (the "Minimum Offering"), during an offering period commencing on
August 25, 2005 (the "Commencement Date"), which is the date of the Company's
Private Placement Memorandum (together with all exhibits and supplements
thereto, the "Memorandum") and continuing until September 30, 2005 (the
"Offering Period"). If the Minimum Offering is not reached, the Offering will
terminate on September 30, 2005 (unless earlier terminated by the Company and
the Placement Agent) and all funds will be returned without interest or
deduction. In the event the Minimum Offering is reached, the Offering will
continue on a "best efforts" basis until the earlier of (i) the close of
business (5:00 p.m. EST) on October 20, 2005, (ii) termination by mutual
agreement of the Company and the Placement Agent, or (iii) completion of the
sale of the Maximum Offering, including any over-allotment sales to which the
Company and Placement Agent may agree ("Final Closing"). Any subscription
documents or funds received after the Final Closing will be returned.
All proceeds received from subscribers for the Units offered hereby
will be deposited by the Placement Agent in a special non-interest bearing
escrow account (the "Escrow Account") with Signature Bank and will be released
to the Company against delivery by the Company to the Placement Agent, within
ten (10) calendar days of each such release, of certificates representing the
Shares and the Warrants comprising the Units (each a "Closing" and each such
date, "Closing Date").
1. SUBSCRIPTION.
Subject to the terms and conditions hereinafter set forth in
this Subscription Agreement, the Investor hereby offers to purchase Units as set
forth in the Investor Signature Page attached hereto.
If the Offer is accepted, the Units shall be paid for by the
delivery of such amount by wire transfer or check payable to the order of
"Signature Bank as EA for CEEC", which is being delivered contemporaneously
herewith.
Closings will be held, at the discretion of the Company and
the Placement Agent, at reasonable intervals during the Offering Period, but in
no event later than the Final Closing.
2. CONDITIONS TO OFFER.
The Offering is made subject to the following conditions: (i)
that the Company shall have the right to accept or reject this Offer, in whole
or in part, for any reason whatsoever; and (ii) that the Investor agrees to
comply with the terms of this Subscription Agreement.
Acceptance of this Offer shall be deemed given by the
countersigning of this Subscription Agreement on behalf of the Company and
inclusion of this Subscription Agreement in a Closing.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor, in order to induce the Company to accept this
Offer, hereby warrants and represents as follows:
(a) ORGANIZATION; AUTHORITY. The Investor, if not an
individual, is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with
the requisite power and authority to enter into and to consummate the
transactions contemplated by this Subscription Agreement and otherwise
to carry out its obligations hereunder. The purchase by Investor of the
Units hereunder has been duly authorized by all necessary action on the
part of Investor. This Subscription Agreement has been duly executed by
Investor, and when delivered by Investor in accordance with the terms
hereof, will constitute the valid and legally binding obligation of
Investor, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law. Investor agrees that the Investor's
subscription shall be irrevocable by Investor, and that, except as
required by applicable law, Investor shall not be otherwise entitled to
cancel, terminate or revoke this Subscription Agreement or any of
Investor's obligations hereunder.
(b) INVESTOR REPRESENTATION. Investor understands that the
Shares, Warrants and Warrant Shares each are "restricted securities"
and have not been registered under the Securities Act or any applicable
state securities law. The Investor hereby agrees that the Company may
insert the following or similar legend on the face of the certificates
evidencing the Shares, Warrants and Warrant Shares, if required in
compliance with federal and state securities laws:
"These securities have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") or under the
securities laws of any state. They may not be sold, offered for sale,
or hypothecated in the absence of a registration statement in effect
with respect to the securities under such act or an opinion of counsel
reasonably satisfactory to the company that such registration is not
required pursuant to a valid exemption therefrom under the Securities
Act."
(c) NO DISTRIBUTION. Investor is acquiring the Units as
principal for its own account, in the ordinary course of its business,
and not with a view to or for distributing or reselling such Units or
any part thereof. Investor has no present intention of distributing any
of such Shares, Warrants or Warrant Shares and has no agreement or
understanding, directly or indirectly, with any other individual,
corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock
company, government (or an agency or subdivision thereof) or other
entity of any kind (each, a "PERSON") regarding the distribution of
such Units or Warrant Shares (this representation and warranty not
limiting such Investor's right to sell the Shares, Warrants or Warrant
Shares pursuant to a Registration Statement or otherwise in compliance
with applicable federal and state securities laws).
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(d) INVESTOR STATUS. Investor is, and on each date on which it
exercises any Warrants it will be an "Accredited Investor" as defined
in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act. In general, an "Accredited Investor" is deemed to be an
institution with assets in excess of $5,000,000 or individuals with net
worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse. In connection with a subscription
hereunder, Investor will complete, execute and return the Statement of
Accredited Investor attached hereto as Exhibit A certifying such
status. Investor has provided on the signature page to this Agreement
its correct address.
(e) EXPERIENCE OF INVESTOR. Investor, either alone or together
with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Units, and has so evaluated the merits and risks of such investment.
The Investor has not authorized any Person to act as his Purchaser
Representative (as that term is defined in Regulation D of the General
Rules and Regulations under the Act) in connection with this
transaction. Investor is able to bear the economic risk of an
investment in the Units and, at the present time, is able to afford a
complete loss of such investment.
(f) GENERAL SOLICITATION. Investor is not purchasing the Units
as a result of any advertisement, article, notice or other
communication regarding the Units published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement
(g) ACCESS TO INFORMATION. The Investor has reviewed the
Memorandum and the Company has not made any other representations or
warranties to the Investor with respect to the Company except as
contained herein or in the Memorandum. The Investor has also been
afforded the opportunity to ask questions of, and receive answers from,
the officers and/or directors of the Company concerning the terms and
conditions of the Offering and to obtain any additional information, to
the extent that the Company possesses such information or can acquire
it without unreasonable effort or expense, necessary to verify the
accuracy of the information furnished; and has availed himself of such
opportunity to the extent he considers appropriate in order to permit
him to evaluate the merits and risks of an investment in the Units. It
is understood that all documents, records and books pertaining to this
investment have been made available for inspection by the Investor
during reasonable business hours at its principal place of business.
Notwithstanding the foregoing, it is understood that the Investor is
purchasing the Units without being furnished any prospectus setting
forth all of the information that would be required to be furnished
under the Act and this Offering has not been passed upon or the merits
thereof endorsed or approved by any state or federal authorities.
(h) SUBSCRIPTIONS BY PLACEMENT AGENT. The Investor hereby
acknowledges that the Placement Agent, its affiliates and/or its
beneficial owners may subscribe for Units.
The Investor certifies that each of the foregoing
representations and warranties set forth in subsection (a) through (h)
inclusive of this Section 3 are true as of the date hereof and shall
survive such date.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties
to the Investor. Exceptions to the below, if any, shall be set forth in
a disclosure schedule ("Company Disclosure Schedule"), attached hereto,
each such disclosure schedule numbered in accordance with the section
and paragraph number below to which it relates.
(a) SUBSIDIARIES. The Company, through its wholly-owned
subsidiary Evergreen Asset Group Limited, owns a majority interest,
directly or indirectly, in multiple subsidiaries through which it
conducts its operations (each wholly-owned or majority-owned subsidiary
of the Company individually a "Subsidiary" and collectively,
"Subsidiaries"). All capital stock owned by the Company directly or
through one or more Subsidiaries in each such Subsidiary is validly
issued and is fully paid, non-assessable and free of preemptive and
similar rights.
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(b) ORGANIZATION AND QUALIFICATION. Each of the Company and
its Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of this
Subscription Agreement, (ii) a material adverse effect on the results
of operations, assets, business, prospects or financial condition of
the Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's ability to perform in any material
respect on a timely basis its obligations under this Subscription
Agreement (any of (i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT") and
no action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened ("PROCEEDING") has been
instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or
qualification.
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
Offering. The execution and delivery of this Subscription Agreement by
the Company and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of
the Company and no further consent or action is required by the
Company, other than the Required Approvals (as defined below). This
Subscription Agreement, when executed and delivered in accordance with
the terms hereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(d) NO CONFLICTS. The execution, delivery and performance of
this Subscription Agreement by the Company and the consummation by the
Company of the Offering do not and will not: (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) subject to obtaining the Required Approvals (as
defined below), conflict with, or constitute a default (or an event
that 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 (with or without notice, lapse of time or
both) of any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiaries' debt or otherwise) or other
understanding to which the Company or either of the Subsidiaries is a
party or by which any property or asset of the Company or its
Subsidiaries is bound or affected, or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority as currently in
effect to which the Company or either of the Subsidiaries is subject
(including federal and state securities laws and regulations), or by
which any property or asset of the Company or either of the
Subsidiaries is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the
aggregate (a) adversely affect the legality, validity or enforceability
of the Offering, (b) have or result in or be reasonably likely to have
or result in a material adverse effect on the results of operations,
assets, prospects, business or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (c) adversely
impair the Company's ability to perform fully on a timely basis its
obligations under this Subscription Agreement (any of (a), (b) or (c),
a "MATERIAL ADVERSE EFFECT").
(e) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor
the Subsidiaries is required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the
execution, delivery and performance by the Company of this Subscription
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Agreement, other than: (i) the filing with the Securities and Exchange
Commission ("COMMISSION") of the Registration Statement, (ii) the
filing with the Commission of a Form D pursuant to Commission
Regulation D, and (iii) applicable Blue Sky filings (collectively, the
"REQUIRED APPROVALS")
(f) ISSUANCE OF THE SECURITIES. The Units, and each component
or underlying security, are duly authorized and, when issued and paid
for in accordance with this Subscription Agreement, will be duly and
validly issued, fully paid and nonassessable, free and clear of all
liens, and not subject to any preemptive rights. The Company has
reserved from its duly authorized capital stock a number of shares of
Common Stock required for issuance of the Shares and the Warrant
Shares.
(g) CAPITALIZATION. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is as
set forth in the Memorandum. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the Offering. Except for options and shares of capital
stock issued or issuable under the Company's stock option plan or
disclosed in the Memorandum, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person or entity
any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the
Company or either of the Subsidiaries is or may become bound to issue
additional shares of Common Stock, or securities or rights convertible
or exchangeable into shares of Common Stock. Except as set forth in the
Company Disclosure Schedule, the issuance and sale of the Units will
not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than pursuant to this Offering) and
will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under such
securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the
issuance and sale of the Units and the Warrant Shares. There are no
stockholders agreements, voting agreements or other similar agreements
with respect to the Company's capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the
Company's stockholders. A complete list of stockholders of the Company
that are officers, directors and individuals holding more than 5% of
the outstanding Common Stock is included in the Memorandum.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
all reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934, as amended ("EXCHANGE Act"), including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding
the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively
referred to herein as the "SEC REPORTS") in accordance with the time
requirements of the Securities Act and the Exchange Act. Except as set
forth in the Company Disclosure Schedule, as of their respective dates,
the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the
SEC Reports, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
has advised Investor that a correct and complete copy of each of the
SEC Reports (together with all exhibits and schedules thereto and as
amended to date) is available at XXXX://XXX.XXX.XXX, a website
maintained by the Commission where Investor may view the SEC Reports.
The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as
in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash
flows for the periods then ended.
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(i) MATERIAL CHANGES. Except as disclosed in the Company
Disclosure Schedule, since the date of the latest audited financial
statements included in the SEC Reports: (i) there has been no event,
occurrence or development that has had a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made
with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, except as disclosed in the
SEC Reports (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders except in
the ordinary course of business consistent with prior practice, or
purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock except consistent with prior practice or
pursuant to existing Company stock option or similar plans, and (v) the
Company has not issued any equity securities to any officer, director
or Affiliate, except pursuant to existing Company stock option or
similar plans or as disclosed in the SEC Reports.
(j) LITIGATION. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, the
Subsidiaries or any of its properties before or by any court,
arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"ACTION") which: (i) adversely affects or challenges the legality,
validity or enforceability of this Subscription Agreement or the Units
or (ii) could, if there were an unfavorable decision, individually or
in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor
any director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal or
state securities laws or a claim of a breach of fiduciary duty. The
Company does not have pending before the Commission any request for
confidential treatment of information. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiaries
under the Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company or any Subsidiary which could reasonably be
expected to result in a Material Adverse Effect.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business except in each
case as could not have a Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct its business as currently conducted, except where
the failure to possess such permits would not, individually or in the
aggregate, have or reasonably be expected to result in a Material
Adverse Effect ("MATERIAL PERMITS"), and the Company has not received
any notice of proceedings relating to the revocation or modification of
any Material Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have
good and marketable title in all real and personal property owned by
them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of any liens, encumbrances or
other restrictions. Any real property and facilities held under lease
by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.
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(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as currently
conducted and which the failure to so have could have a Material
Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS").
Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights of others.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged. To
the best of Company's knowledge, such insurance contracts and policies
are accurate and complete. Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. None of the
officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to
any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), 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 $60,000 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.
(r) INTERNAL ACCOUNTING CONTROLS. Each of the Company and the
Subsidiaries is in material compliance with all provisions of the
Sarbanes Oxley Act of 2002 which are presently applicable to it. Each
of the Company and the Subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and
to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization,
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by
others within those entities. The Company's certifying officers have
evaluated the effectiveness of the Company's controls and procedures as
of June 30, 2005 (such date, the "EVALUATION DATE"). The Company
presented in the Form 10-QSB for the quarter ended June 30, 2005 the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company's internal controls (as such term is
defined in Item 307(b) of Regulation S-B under the Exchange Act),
except with respect to the acquisition of Evergreen Asset Group
Limited, as disclosed in the SEC Reports.
(s) PRIVATE PLACEMENT. Assuming the accuracy of the Investor
representations and warranties set forth in Section 3, no registration
under the Securities Act is required for the offer and sale of the
Units by the Company to the Investors as contemplated hereby.
(t) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
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of its state of incorporation that is or could become applicable to the
Investors as a result of the Investors and the Company fulfilling their
obligations or exercising their rights under this Subscription
Agreement, including without limitation as a result of the Company's
issuance of the Units and the Investor's ownership of the Units and
Warrant Shares.
(u) DISCLOSURE. The Company confirms that all written
statements provided to the Investor regarding the Company, its business
and the transactions contemplated hereby, furnished by or on behalf of
the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and
warranties and do not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that the
Investor makes or has made no representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in this Subscription Agreement.
(v) NO INTEGRATED OFFERING. Assuming the accuracy of the
Investor's representations and warranties set forth in this
Subscription Agreement, 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 this
Offering to be integrated with prior offerings by the Company for
purposes of the Securities Act or any applicable shareholder approval
provisions in a manner that would require the registration under the
Securities Act of the Offering or, if then listed or quoted on a
trading market, that would be integrated with the Offering for purposes
of the rules and regulations of any trading market.
(w) SOLVENCY. Based on the financial condition of the Company
as of each Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Units hereunder, (i) the
Company's fair saleable value of its assets exceeds the amount that
will be required to be paid on or in respect of the Company's existing
debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company's assets do not constitute unreasonably
small capital to carry on its business for the current fiscal year as
now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements
and capital availability thereof; and (iii) the current cash flow of
the Company, together with the proceeds the Company would receive, were
it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on
or in respect of its debt when such amounts are required to be paid.
The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts
of cash to be payable on or in respect of its debt).
(x) TAX STATUS. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary
has filed all necessary federal, state and foreign income and franchise
tax returns and has paid or accrued all taxes shown as due thereon, and
the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
(y) NO GENERAL SOLICITATION. Neither the Company nor any
Person acting on behalf of the Company (which does not include the
Placement Agent for purposes of this subpart (y)) has offered or sold
any of the Units by any form of general solicitation or general
advertising. The Company has offered the Units for sale only to each
Investor in the Offering and certain other "accredited investors"
within the meaning of Rule 501 under the Securities Act.
(z) FOREIGN CORRUPT PRACTICES. Neither the Company, nor to the
knowledge of the Company, any agent or other Person acting on behalf of
the Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
8
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any Person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(aa) ACCOUNTANTS. The Company's accountants are set forth in
the SEC Reports. To the Company's knowledge, such accountants, who the
Company expects will express their opinion with respect to the
financial statements to be included in the Company's upcoming annual
report, are a registered public accounting firm as required by the
Securities Act.
(bb) INDEBTEDNESS. Except as set forth in the Company
Disclosure Schedule, as of each Closing Date, the Company has not
materially increased its indebtedness.
(cc) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company, that would,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect.
(dd) LISTING AND MAINTENANCE REQUIREMENTS. The Company's
Common Stock currently trades on the Nasdaq Over-the-Counter Bulletin
Board (OTCBB). The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
the periodic SEC reporting requirements necessary to maintain trading
on the OTCBB.
5. REGISTRATION RIGHTS.
The Company grants registration rights to the Investor under the
following terms and conditions:
(a) The Company shall prepare and file, at its own expense, within
thirty (30) days of the Final Closing, a registration statement under the
Securities Act (the "REGISTRATION STATEMENT") with the Commission sufficient to
permit the non-underwritten public offering and resale of all of the Shares and
Warrant Shares (as subject to adjustment) and the shares of common stock
issuable upon exercise of the Green Shoe Option (defined in Section 6(o) below)
(the "Registrable Securities") through the facilities of all appropriate
securities exchanges, if any, on which the Company's Common Stock is being sold
or on the over-the-counter market if the Company's Common Stock is traded
thereon.
(b) The Company will use its reasonable best efforts to cause such
Registration Statement to become effective within one hundred and twenty (120)
days from the Final Closing or, if earlier, within three (3) business days of
Commission clearance to request acceleration of effectiveness. The number of
shares designated in the Registration Statement to be registered shall include
all of the Registrable Securities and shall include appropriate language
regarding reliance upon Rule 416 to the extent permitted by the Commission. The
Company will notify the Investor of the date of effectiveness of the Demand
Registration within two (2) business days of such event. In the event that the
number of shares so registered shall prove to be insufficient to register the
resale of all of the Registrable Securities, then the Company shall be obligated
to file, within thirty (30) days of notice from any Investor, a further
Registration Statement registering such remaining shares and shall use its
reasonable best efforts to prosecute such additional Registration Statement to
effectiveness within ninety (90) days of the date of such notice.
(c) The Company will maintain the Registration Statement or
post-effective amendment filed under the terms of this Subscription Agreement
effective under the Securities Act until the earlier of (i) the date that all of
the Registrable Securities have been sold pursuant to such Registration
Statement, (ii) all Registrable Securities have been otherwise transferred to
Persons who may trade such shares without restriction under the Securities Act,
and the Company has delivered a new certificate or other evidence of ownership
for such securities not bearing a restrictive legend, or (iii) all Registrable
Securities may be sold at any time, without volume or manner of sale limitations
pursuant to Rule 144(k) or any similar provision then in effect under the
Securities Act in the opinion of counsel to the Company, which counsel shall be
reasonably acceptable to the Investor (the "EFFECTIVENESS PERIOD").
(d) If, at any time during which the Registration Statement required by
Section 5(a) and 5(b) above is not effective, the Company shall determine to
proceed with the preparation and filing of a registration statement pursuant to
the Securities Act in connection with the proposed offer and sale of any of its
securities by it or any of its security holders (other than a registration
statement on Form X-0, X-0, or other limited purpose form), the Company will
9
give written notice of its determination to each Investor. Upon receipt of a
written request from any Investor, within thirty (30) days after receipt of any
such notice from the Company, the Company will cause all such Shares and Warrant
Shares ("REGISTRABLE SECURITIES") requested by the Investor to be included in
such registration statement (a "REGISTRATION STATEMENT"), all to the extent
required to permit the sale or other disposition by such Investor, of such
shares. The obligation of the Company under this Section 5(a) shall be unlimited
as to the number of registration statements to which it applies, unless the
Effectiveness Period has ended.
(e) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement, in making filings with NASD or NASDR (including, without
limitation, pursuant to NASD Rule 2710), and in complying with applicable
federal securities and Blue Sky laws (including, without limitation, all
attorneys' fees of the Company) shall be borne by the Company. The Investor
shall bear the cost of underwriting and/or brokerage discounts, fees and
commissions, if any, applicable to the Registrable Securities being registered
and the fees and expenses of their counsel. The Company shall use its reasonable
best efforts to qualify any of the Securities for sale in such states as any
Investor reasonably designates and shall furnish indemnification. However, the
Company shall not be required to qualify in any state which will require an
escrow or other restriction relating to the Company and/or the sellers, or which
will require the Company to qualify to do business in such state or require the
Company to file therein any general consent to service of process. The Company
at its expense will supply each of the Investors with one unbound copy of the
applicable Registration Statement and any prospectus included therein and other
related documents.
(f) Certificates evidencing the Registrable Securities shall not
contain any legend: (i) while a Registration Statement covering the resale of
such security is effective under the Securities Act, or (ii) following any sale
of such Registrable Securities pursuant to Rule 144, or (iii) if such
Registrable Securities are eligible for legend removal under Rule 144(k), or
(iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission); PROVIDED, HOWEVER, in connection with the issuance
of the Shares and Warrant Shares, Investor hereby agrees to adhere to and abide
by all prospectus delivery requirements under the Securities Act and rules and
regulations of the Commission. The Company shall instruct its transfer agent
(or, if required by transfer agent, cause an attorney to issue a legal opinion
to such transfer agent) promptly after the effectiveness of the Registration
Statement (in the case of item (i) herein) or upon request of the Investor (in
the case of items (ii), (iii) or (iv) herein) to effect the removal of the
legend hereunder. If all or any portion of a Warrant is converted or exercised
at a time when there is an effective registration statement to cover the resale
of the Warrant Shares, or if such Warrant Shares may be sold under Rule 144(k)
or if such legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations thereof) then such Warrant
Shares shall be issued free of all legends. The Company agrees that following
the effectiveness of the Registration Statement or at such time as such legend
is no longer required under this Section 5(f), it will, no later than three
business days following the delivery by Investor to the Company's transfer agent
of a certificate representing Registrable Securities accompanied by appropriate
stock power or other required documentation, as applicable, issued with a
restrictive legend (such third Business Day, the "LEGEND REMOVAL Date"), deliver
or cause to be delivered to such Investor a certificate representing such shares
that is free from all restrictive and other legends, in each case without charge
to the Investor other than customary transfer fees which may be charged by the
transfer agent or broker-dealer. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section 5(f). Without limiting
the Investor's other legal remedies, the Company shall immediately upon demand
reimburse the Investor for the cost and losses occasioned by any buy-in
resulting from the Company's failure to timely deliver unlegended share
certificates, provided Investor provides documentation confirming such buy-in
was initiated by Investor's broker, securities custodian, or other such outside
party, and not by Investor.
(g) In the event that (i) the Registration Statement is not filed with
the Commission within thirty (30) days of the Final Closing, (ii) such
Registration Statement is not declared effective by the Commission within the
earlier of one hundred and twenty (120) days from the Final Closing or three (3)
business days of clearance by the Commission to request effectiveness, (iii)
such Registration Statement is not maintained as effective by the Company for
the Effectiveness Period or as allowed by 5(k)(ii) below or (iii) the additional
Registration Statement referred to in Section 5(b) is not filed within thirty
(30) days or declared effective within ninety (90) days as set forth therein
(each a "REGISTRATION DEFAULT") then the Company will pay Investor (pro rated on
a daily basis), as partial compensation for such failure and not as a penalty
two percent (2.0%) of the purchase price of the Registrable Securities purchased
from the Company and held by the Investor for each month (or portion thereof)
10
until such Registration Statement has been filed (in the case of clause (i) and
clause (iv)), and in the event of late effectiveness (in case of clause (ii)
above) or lapsed effectiveness (in the case of clause (iii) above), two percent
(2.0%) of the purchase price of the Registrable Securities purchased from the
Company and held by the Investor each month (or portion thereof) (regardless of
whether one or more such Registration Defaults are then in existence, but
without duplication of such partial compensatory payments) until such
Registration Statement has been declared effective. Such compensatory payments
shall be made to the Investors in cash, no later than the fifth business day
following the month in which such Registration Default(s) occurred, PROVIDED,
HOWEVER, that the payment of such amounts shall not relieve the Company from its
obligations to register the Registrable Securities pursuant to this Section.
(h) If the Company does not remit the payment to the Investor as set
forth in Section 5(g) above, the Company will pay the Investor interest at the
rate of 12% per annum, or the highest rate permitted by law, if less, until such
sums have been paid in full, and reasonable costs of collection, including
attorneys' fees, in addition to the liquidated damages. The registration of the
Registrable Securities pursuant to this provision or payment of such
compensatory amounts shall not affect or limit the Investor's other rights or
remedies as set forth in this Subscription Agreement or at law.
(i) In the event a Registration Statement is not effective at any time
after one year following the issuance date of the Warrants (other than an
Allowed Delay, as defined in Section 5(k)(ii) below), compensatory payments as
described in Section 5(g) above shall cease, the Warrants shall become
exercisable pursuant to a cashless exercise feature, and the Company shall cause
its counsel to issue such legal opinions as may be reasonably requested by the
Investor in connection with any sales of the Warrant Shares in accordance with
Rule 144 under the Securities Act in accordance with the procedures of Section
5(f) above.
(j) At all times after one (1) year following the Final Closing Date,
the Company will prepare and furnish to Investor and make publicly available in
accordance with Rule 144(c) such information as is required for Investor to sell
the Registrable Securities under Rule 144. The Company further covenants that it
will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144. In
addition, the Investor shall be entitled to unlimited piggyback registration
rights under Section 5(d) above.
(k) In the case of each registration effected by the Company pursuant
to any section herein, the Company will keep each Investor advised in writing as
to the initiation of each registration and as to the completion thereof. At its
expense, the Company will:
(i) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to a
disposition of all securities covered by such registration statement;
(ii) Notify the Investor at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or incomplete in light of the circumstances then existing,
and at the request of shareholders, prepare and furnish to them a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
Investor, such prospectus shall not include an 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 or
incomplete in light of the circumstances then existing; PROVIDED THAT,
for not more than forty-five (45) calendar days in any twelve (12)
month period), the prospectus made part of such registration statement
may omit material information concerning the Company (an "Allowed
Delay"); PROVIDED FURTHER that the Company shall promptly (a) notify
each Investor in writing of the existence of (but in no event, without
the prior written consent of such Investor, shall the Company disclose
to such Investor any of the facts or circumstances regarding) the
omission of any material information giving rise to an Allowed Delay
and (b) advise each Investor in writing to cease all sales under such
registration statement until the termination of the Allowed Delay;
11
(iii) Use its commercially reasonable best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
registration statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify
Investor (and, in the event of an underwritten offering, the managing
underwriter) of the issuance of such order and the resolution thereof;
(iv) If NASD Rule 2710 requires any broker-dealer to make a filing
prior to executing a sale of Registrable Securities by an Investor,
make an Issuer Filing with the NASD Corporate Financing Department
pursuant to NASD Rule 2710 and respond within five business days to any
comments received from NASD in connection therewith.
(v) Otherwise use its commercially reasonable best efforts to comply
with all applicable rules and regulations of the Commission.
(l) To the extent Investor includes any Shares or Warrant Shares in a
registration statement pursuant to the terms hereof, the Company will indemnify
and hold harmless Investor, its directors and officers, and each Person, if any,
who controls Investor within the meaning of the Securities Act, from and
against, and will reimburse Investor, its directors and officers and each
controlling Person with respect to, any and all loss, damage, liability, cost
and expense to which Investor or such controlling Person may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, 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, in light of the circumstances in which they were made, not
misleading; PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such loss, damage, liability, cost or expense 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
Investor or any such controlling Person in writing specifically for use in the
preparation thereof.
(m) To the extent Investor includes any Shares or Warrant Shares in a
registration statement pursuant to the terms hereof, Investor will indemnify and
hold harmless the Company, its directors and officers and any controlling Person
from and against, and will reimburse the Company, its directors and officers and
any controlling Person with respect to, any and all loss, damage, liability,
cost or expense to which the Company, its directors and officers or such
controlling Person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused by
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, 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, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
conformity with written information furnished by or on behalf of the Investor
specifically for use in the preparation thereof and provided further, that the
maximum amount that may be recovered from Investor shall be limited to the
amount of proceeds received by Investor from the sale of such shares of Common
Stock
(n) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
hereunder to the extent permitted by law, provided that (i) no contribution
shall be made under circumstances where the indemnifying party would not have
been liable for indemnification pursuant to the provisions hereof, (ii) no
seller of securities guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any seller of securities who was not guilty of such fraudulent
misrepresentation, and (iii) the amount of the contribution together with any
other payments made in respect of such loss, damage, liability or expense, by
any seller of securities shall be limited to the net amount of proceeds received
by such seller from the sale of such securities.
(o) The Investor will cooperate with the Company in connection with
this Subscription Agreement, including timely supplying all information and
executing and returning the Selling Securityholder Notice and Questionnaire
attached hereto as Exhibit B, and any other documents requested by the Company
which are required to enable the Company to perform its obligations to register
the Shares and the Warrant Shares.
12
6. OTHER AGREEMENTS OF THE COMPANY AND THE INVESTOR.
(a) RIGHT TO PLEDGE. The Company acknowledges and agrees that Investor
may from time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of the
Shares, Warrants or Warrant Shares to a financial institution that is an
"accredited investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and, if required under
the terms of such arrangement, such Investor may transfer pledged or secured
Units or Warrant Shares to the pledgees or secured parties. Such a pledge would
not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At Investor's
expense, the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of such securities may reasonably request in connection
with a pledge of the Shares, Warrants or Warrant Shares.
(b) ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Warrant Shares may result in dilution of the outstanding shares
of Common Stock, which dilution may be substantial. The Company further
acknowledges that its obligations under this Subscription Agreement, including
without limitation its obligation to issue the Shares and Warrant Shares, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Investor and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
(c) FURNISHING OF INFORMATION. Until the earlier of (i) five (5) years
from the Final Closing after such date or (ii) the date that all Warrants issued
in the Offering have been exercised, redeemed or expired, and all Registrable
Securities have been sold, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act.
(d) INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Units in a manner that would require the registration under the
Securities Act of the Offering or, if then listed or quoted on a trading market,
that would be integrated with the Offering for purposes of the rules and
regulations of any trading market.
(e) EXERCISE PROCEDURES. The form of Notice of Exercise included in the
Warrant sets forth the totality of the procedures required of the Investor in
order exercise its Warrant. No additional legal opinion or other information or
instructions shall be required of the Investor to exercise its Warrant. The
Company shall honor exercises of the Warrants and shall deliver the underlying
Warrant Shares in accordance with the terms, conditions and time periods set
forth in this Subscription Agreement and the form of Warrant.
(f) SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Investor
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Investor
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving the Shares, Warrants or Warrant Shares or under any other
agreement between the Company and the Investor. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(g) INTENTIONALLY OMITTED.
(h) USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Units hereunder for working capital purposes only and not for the
satisfaction of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices or repayment of
the bridge loan made to the Company for an aggregate of up to $500,000). The
Company will not use any proceeds from the sale of the Units to redeem any
Common Stock, or to settle any outstanding litigation.
13
(i) REIMBURSEMENT. If Investor becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by such
Investor to or with any current stockholder), solely as a result of such
Investor's acquisition of the Shares, Warrants or Warrant Shares, and the
Investor is successful in the Proceeding, the Company will reimburse such
Investor for its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of the Investor who is actually named in such
action, proceeding or investigation, and partners, directors, agents, employees
and controlling persons (if any), as the case may be, of the Investor and any
such Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Investor and any such Affiliate and any such Person. The Company also agrees
that neither the Investor nor any such Affiliates, partners, directors, agents,
employees or controlling persons shall have any liability to the Company or any
Person asserting claims on behalf of or in right of the Company solely as a
result of acquiring the Units and Warrant Shares under this Agreement.
(j) INDEMNIFICATION OF INVESTOR. Subject to the provisions of this
Section 6(j), the Company will indemnify and hold the Investor and its
directors, officers, shareholders, partners, employees and agents (each, an
"INVESTOR PARTY") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Investor Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Subscription
Agreement or (b) any action instituted against Investor, or its respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Investor, with respect to any of the transactions contemplated by this
Subscription Agreement (unless such action is based upon a breach of such
Investor's representation, warranties or covenants under this Subscription
Agreement or any agreements or understandings such Investor may have with any
such stockholder or any violations by the Investor of state or federal
securities laws or any conduct by such Investor which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Investor Party in respect of which indemnity may be sought pursuant
to this Agreement, such Investor Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing. Any Investor Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Investor
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Investor Party. The Company will not be liable to any
Investor Party under this Agreement (i) for any settlement by a Investor Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Investor Party's
breach of any of the representations, warranties, covenants or agreements made
by Investor in this Subscription Agreement.
(k) TRANSFER AND TRADABILITY OF THE SHARES AND WARRANT SHARES. The
Company shall provide a transfer agent and registrar for all shares of its
Common Stock, including the Shares and Warrant Shares at least until such time
as all the Shares and Warrant Shares have been sold. Once listed on a nationally
recognized exchange or marketplace, the Company shall cause all shares of Common
Stock which are registered in accordance with the provisions of Section 5 above
to be listed or included for quotation on each exchange or marketplace on which
the Company's shares of Common Stock are then listed or included for quotation
(or a superior marketplace as may be applicable in the future) at least until
the later of (i) five (5) years from the Final Closing and (ii) such time as all
the Shares and Warrant Shares have been sold by all of the Investors in the
Offering and there are no Warrants outstanding and unexercised.
(l) CERTAIN ADJUSTMENTS. If at any time prior to the earlier of (i) the
date the legend is removed from the Investor's Shares or (ii) two years from the
Closing in which the Investor's Shares were issued, the Corporation shall offer,
sell, grant any option to purchase or offer, sell or grant any right to reprice
its securities, or otherwise dispose of or issue (or announce any offer, sale,
grant or any option to purchase or other disposition), Additional Shares of
Common Stock (as hereinafter defined) without consideration or for a
14
consideration per share less than $0.15 per share (subject to proportional
adjustment in the event of combinations, subdivisions, recapitalizations and the
like) (the "Dilutive Price"), then forthwith upon the occurrence of any such
event (the "Dilutive Issuance"), the Company shall have the option to either
issue additional Shares or pay cash to the holders of the Shares such that the
effective share price of any Shares still held by the Investors hereunder shall
become equivalent to the lower share price in the Dilutive Issuance.
As used herein, "Additional Shares of Common Stock" shall mean all
shares of Common Stock or any securities of the Corporation which would entitle
the holder thereof to acquire at any time Common Stock (including without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock), whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
per share which is issued in connection with such issuance, at an effective
price per share which is less than the Dilutive Price. If the Corporation issues
any securities convertible or exchangeable into Common Stock, the maximum number
of shares of Common Stock issuable thereunder shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue, if the consideration
per share of such Additional Shares of Common Stock (as hereinafter determined)
is less than the Dilutive Price. Additional Shares of Common Stock, however,
shall not include the issuance of (i) shares of Common Stock or options to
employees, officers or directors of the Corporation pursuant to any stock or
option plan duly adopted by a majority of the non-employee members of the Board
of Directors of the Corporation or a majority of the members of a committee of
non-employee directors established for such purpose, (ii) securities upon the
exercise of or conversion of any securities issued hereunder, convertible
securities, options or warrants issued and outstanding as of the Final Closing,
provided that such securities have not been amended since the date of the Final
Closing to increase the number of such securities, and (iii) securities issued
pursuant to mergers, acquisitions or strategic transactions, provided any such
issuance shall only be to an entity which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business
of the Company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities.
(m) FUTURE PRICED SECURITIES. From the date hereof until the date that
less than 20% of the Warrants remain outstanding and unexercised, the Company
shall be prohibited from effecting or entering into an agreement to effect any
financing involving a "VARIABLE RATE TRANSACTION" unless the Company obtains
express written consent and authorization from the holders of at least seventy
(70%) percent of the then-outstanding and unexercised Warrants. The term
"VARIABLE RATE TRANSACTION" shall mean a transaction in which the Company issues
or sells any debt or equity securities that are convertible into, exchangeable
or exercisable for, or include the right to receive additional shares of Common
Stock at a conversion, exercise or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the shares of
Common Stock at any time after the initial issuance of such debt or equity
securities.
(n) APPOINTMENT OF CHIEF FINANCIAL OFFICER. The Company shall appoint
to the position of Chief Financial Officer an individual who has experience with
US GAAP accounting, Xxxxxxxx-Xxxxx and US financial markets, and can communicate
with the investment community in the US. If this requirement is not met within
ninety (90) days of Final Closing, the Company shall pay to Investor, pro rated
on a daily basis, as liquidated damages and not as a penalty, an amount equal to
six percent (6%) of Investor's initial purchase amount hereunder, per annum,
payable monthly. Such payment shall be made until such time as this requirement
is met. Nothing shall preclude the Investor from pursuing or obtaining specific
performance or other equitable relief with respect to this Section 6(n). The
parties hereto agree that the liquidated damages provided for in this Section
6(n) constitute a reasonable estimate of the damages that may be incurred by the
Investor by reason of the failure of the Company to appoint a Chief Financial
Officer as described herein.
(o) GREEN SHOE. Investors purchasing 34 Units ($1,020,000) or more
shall be granted the right to participate in a green shoe option ("Green Shoe
Option") to purchase additional securities from the Company at the same terms as
the Units, at such Investors' option. The Green Shoe Option shall be for a total
of $1,005,000 of Units, and the right shall be distributed pro rata among any
Investors who qualify for such option. Holders of the Green Shoe Option may
exercise their option for the period beginning with the initial effective date
of the Registration Statement and continuing until the six (6) month anniversary
of such date. Any additional investment pursuant to this Section 6(o) will be on
terms and prices identical to those set forth in this Subscription Agreement,
and pursuant to a subscription agreement entered into by the Company and the
Investor that is identical to this Subscription Agreement, MUTATIS MUTANDIS,
except that:
15
(i) the introductory 2nd, 3rd and 4th paragraphs will be
updated to indicate the maximum offering is $1,005,000,
all on a "best efforts" basis, expiring six (6) months
from the initial effective date of the Registration
Statement;
(ii) Section 1 will be updated to indicate the Units may be
paid for by direct payment to the Company;
(iii) the Company Disclosure Schedule will be updated, if
necessary;
(iv) Section 5(a) and 5(b) will be updated to indicate that
a registration statement for the Warrant Shares
issuable upon exercise of the Green Shoe Option shall
be filed within thirty (30) days and effective within
one hundred twenty (120) days from the earlier of (i)
the date that the exercise of all of the Green Shoe
Option has been completed or (ii) the expiration of the
Green Shoe Option or remaining balance thereof.
(p) EQUAL TREATMENT OF INVESTORS. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of such Person's Subscription Agreement unless the same consideration
is also offered to all Investors in the Offering. For clarification purposes,
this provision constitutes a separate right granted to each Investor by the
Company and shall not in any way be construed as the investors in the Offering
acting in concert or as a group with respect to the purchase, disposition or
voting of the Shares, Warrants, Warrant Shares or otherwise.
7. SPECIFIC STATE LEGENDS.
FOR NEW HAMPSHIRE RESIDENTS ONLY: NEITHER THE FACT THAT A REGISTRATION
STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED WITH THE STATE OF NEW
HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS
LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF
STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR
THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A
TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
FOR FLORIDA RESIDENTS ONLY: EACH FLORIDA RESIDENT WHO SUBSCRIBES FOR
THE PURCHASE OF SECURITIES HEREIN HAS THE RIGHT, PURSUANT TO SECTION
517.061(11)(A)(5) OF THE FLORIDA SECURITIES ACT, TO WITHDRAW HIS SUBSCRIPTION
FOR THE PURCHASE AND RECEIVE A FULL REFUND OF ALL MONIES PAID WITHIN THREE
BUSINESS DAYS AFTER THE EXECUTION OF THIS SUBSCRIPTION AGREEMENT OR PAYMENT FOR
THE PURCHASE HAS BEEN MADE, WHICHEVER IS LATER. WITHDRAWAL WILL BE WITHOUT ANY
FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER
NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT THE ADDRESS SET FORTH IN
THIS SUBSCRIPTION AGREEMENT INDICATING HIS INTENTION TO WITHDRAW.
SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END
OF THE AFOREMENTIONED THIRD BUSINESS DAY. IT IS ADVISABLE TO SEND SUCH LETTER BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO
TO EVIDENCE THE TIME IT WAS MAILED. IF THE REQUEST IS MADE ORALLY, IN PERSON OR
BY TELEPHONE TO AN OFFICER OF THE COMPANY, A WRITTEN CONFIRMATION THAT THE
REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
FOR GEORGIA RESIDENTS ONLY THE SECURITIES OFFERED HEREBY ARE BEING
ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE
GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT
16
FOR RESIDENTS OF ALL STATES: THE SECURITIES OFFERED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
8. MISCELLANEOUS.
(a) TERMINATION. The Investor agrees that he shall not cancel,
terminate or revoke this Subscription Agreement or any agreement of the Investor
made hereunder other than as set forth herein, and that this Subscription
Agreement shall survive the death or disability of the Investor. If the Company
elects to cancel this Subscription Agreement, in whole or in part, provided that
it returns to the Investor, without interest and without deduction, all sums
paid by the Investor (or such rejected portion thereof), this Offer shall be
null and void and of no further force and effect, and no party shall have any
rights against any other party hereunder
(b) ENTIRE AGREEMENT. This Subscription Agreement, together with the
schedules and exhibits hereto, contains the entire understanding of the Company
and the Investor with respect to the subject matter hereof.
(c) NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Business Day, (b) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Business Day or later than 5:30 p.m. (New York City time) on any
Business Day, (c) the second Business Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be to the Investor at his address set
forth on the Investor Signature Page, to the Company at the addresses set forth
above, and to the Placement Agent at 000 Xxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX
00000.
(d) AMENDMENTS; WAIVERS. No provision of this Subscription Agreement
may be waived or amended except in a written instrument signed, in the case of
an amendment, by the Company and each Investor in the Offering or, in the case
of a waiver, by the party against whom enforcement of any such waiver is sought.
No waiver of any default with respect to any provision, condition or requirement
of this Subscription Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right. Notwithstanding any of the representations, warranties, acknowledgments
or agreements made herein by the Investor, the Investor does not thereby or in
any manner waive any rights granted to the Investor under federal or state
securities laws.
(e) CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Subscription Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
(f) SUCCESSORS AND ASSIGNS. This Subscription Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. The Company may not assign this Subscription Agreement or any
rights or obligations hereunder without the prior written consent of each
Investor in the Offering. Investor may assign any or all of its rights under
17
this Subscription Agreement to any Person to whom Investor assigns or transfers
any of the Shares, Warrants or Warrant Shares, provided such transferee agrees
in writing to be bound, with respect to such transferred securities, by the
provisions hereof that apply to the Investor.
(g) NO THIRD-PARTY BENEFICIARIES. This Subscription Agreement is
intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person, except as otherwise set forth in
Section 6(i).
(h) GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Subscription Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the State
of New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Subscription
Agreement (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York.
Each party hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of this Subscription Agreement, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
(i) SURVIVAL. The representations and warranties contained herein shall
survive each Closing Date and the delivery and/or exercise of the Units and
Warrant Shares, as applicable for the applicable statue of limitations for a
period of three (3) years from the date hereof.
(j) EXECUTION. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
(k) SEVERABILITY. If any provision of this Subscription Agreement is
held to be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Subscription
Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Subscription Agreement.
(l) RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) this
Subscription Agreement, whenever Investor exercises a right, election, demand or
option under this Subscription Agreement or the Warrant, and the Company does
not timely perform its related obligations within the periods therein provided,
then Investor may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; PROVIDED,
HOWEVER, in the case of a rescission of an exercise of a Warrant, Investor shall
be required to return any shares of Common Stock subject to any such rescinded
exercise notice.
(m) REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Shares, Warrants or Warrant Shares is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement securities.
18
(n) REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of
Investor and the Company will be entitled to specific performance under this
Subscription Agreement. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
(o) PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to Investor pursuant to this Subscription Agreement or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
(p) LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under this Subscription Agreement is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
19
INVESTOR SIGNATURE PAGE FOR CHINA EVERGREEN ENVIRONMENTAL CORPORATION
SUBSCRIPTION AGREEMENT
PLEASE PRINT OR TYPE, USE INK ONLY. (ALL PARTIES MUST SIGN)
The undersigned Investor hereby certifies that he (i) has received and relied
solely upon the Memorandum, the SEC Reports and this Subscription Agreement and
their respective exhibits and schedules, (ii) agrees to all the terms and
conditions of this Subscription Agreement, (iii) meets the suitability standards
set forth herein and (iv) is a resident of the state or foreign jurisdiction
indicated below.
Dollar Amount of Units Subscribed for: $_________ ($30,000 Units for 200,000 Shares and
200,000 Warrants)
-------------------------------------------------- If other than individual check one and indicate
Name of Investor (Print) capacity of signatory under the signature:
[ ] Trust
-------------------------------------------------- [ ] Estate
Name of Joint Investor (if any) (Print) [ ] Uniform Gifts to Minors Act, State of __________
[ ] Attorney-in-fact
[ ] Corporation
-------------------------------------------------- [ ] Other
Signature of Investor
If Joint Ownership, Check one:
[ ] Joint Tenants with Right of Survivorship
-------------------------------------------------- [ ] Tenants in Common
Signature of Joint Investor (if any) [ ] Tenants by the Entirety
[ ] Community by Property
--------------------------------------------------
Capacity of Signatory (if applicable) Backup Withholding Statement:
[ ] Please check this box only if the investor is
-------------------------------------------------- subject to backup withholding
Social Security or Taxpayer Identification Number
Foreign Person:
Investor Address: [ ] Please check this box only if the investor
is a nonresident alien, foreign corporation,
-------------------------------------------------- foreign partnership, foreign trust or foreign estate
Street Address
Country ________________ Passport # ___________
--------------------------------------------------
City State Zip Code ID # ___________________ ID Type ______________
Telephone: ( ) Fax: ( )
Email:_____________________________________________
Address for Delivery of Securities (if different from above):
--------------------------------------------------
--------------------------------------------------
City State Zip Code
Broker:
[ ] Westminster Registered Rep.________________ [ ] Other Investor Representative: ____________________
The investor agrees to the terms of this Subscription Agreement and, as required
by the Regulations pursuant to the Internal Revenue Code, certifies under
penalty of perjury that (1) the Social Security Number or Taxpayer
Identification Number and address provided above is correct, (2) the investor is
not subject to backup withholding (unless the Backup Withholding Statement box
is checked) either because he has not been notified that he is subject to backup
withholding as a result of a failure to report all interest or dividends or
because the Internal Revenue Service has notified him that he is no longer
subject to backup withholding and (3) the investor (unless, the Foreign Person
box above is checked) is not a nonresident alien, foreign partnership, foreign
trust or foreign estate.
THE SUBSCRIPTION FOR UNITS OF CHINA EVERGREEN ENVIRONMENTAL CORPORATION
BY THE ABOVE NAMED INVESTOR(S) IS ACCEPTED THIS _______ DAY OF __________, 2005.
CHINA EVERGREEN ENVIRONMENTAL CORPORATION
By:
-------------------------------------
Name: Pu Xxxxx Xxxxx
Title: Chairman & CEO
20
DISCLOSURE SCHEDULE
SECTION 4(g)
The Company has previously sold 12% Convertible Debentures (the
"Debentures") in the aggregate principal amount of $500,000. The Debentures were
previously due on August 1, 2005 but have been extended by agreement of the
Company and the investors to September 30, 2005. Pursuant to the anti-dilution
provisions of the Debentures, the conversion price of the Debentures will
decrease from $0.20 per share to $0.135 per share and the exercise price of the
warrants issued in connection with the Debentures will decrease from $0.20 per
share to $0.15 per share as a result of the Company's sale of the Units offered
hereby.
SECTION 4(h)
The SEC Reports do not include all material contracts required to be
filed as exhibits thereto.
SECTION 4(i)
In May 2005, the Company completed the sale of sale of 20 units, at
$25,000 per unit, for the gross proceeds of $500,000. Each unit consisted of (a)
one 12% convertible debenture in the original principal amount of $25,000
convertible at the rate of $0.20 per share of the Company's common stock, and
(b) 125,000 detachable warrants to purchase one share each of the Company 's
common stock at an exercise price of $0.20 per share, expiring ten years from
their date of issuance. As described in the disclosure for Section 4(g) above,
the conversion price will now decrease to $0.135 and the exercise price will
decrease to $0.15. The conversion price of the debentures and exercise price of
the warrants may trigger beneficial conversion accounting under US GAAP.
SECTION 4(bb)
In May 2005, the Company completed the sale of sale of 20 units, at
$25,000 per unit, for the gross proceeds of $500,000. Each unit consisted of (a)
one 12% convertible debenture in the original principal amount of $25,000, and
(b) 125,000 detachable warrants to purchase one share each of the Company 's
common stock at an exercise price of $0.20 per share, expiring ten years from
their date of issuance
21
EXHIBIT A
STATEMENT OF ACCREDITED INVESTOR
To: China Evergreen Environmental Corporation
5/F, Guowei Building
73 Xianlie Middle Road
Guangzhou, Guangdong
People's Republic of China
Ladies and Gentlemen:
The undersigned hereby refers to the Subscription Agreement executed
and delivered to China Evergreen Environmental Corporation (the "Company") by
the undersigned as of the date herewith. In connection with the subscription
thereunder by the undersigned to purchase securities of the Company, the
undersigned hereby represents and warrants to you that such individual or entity
meets at least one of the tests listed on the attached Exhibit I for an
"accredited investor" (as such term is defined under Regulation D promulgated
pursuant to the Securities Act of 1933, as amended).
Dated: ______________, 2005
Very truly yours,
___________________________________
Name of Individual #1 or Entity
___________________________________
Authorized Signature
___________________________________
Name of Individual #2, if applicable
___________________________________
Authorized Signature
22
EXHIBIT I TO STATEMENT OF ACCREDITED INVESTOR
ACCREDITED INVESTOR STATUS
NOTE: "Accredited Investors" are accorded special status under the federal
securities laws. Individuals who hold certain positions with an issuer or its
affiliates, or who have certain minimum individual income or certain minimum net
worth (each as described below) may qualify as Accredited Investors.
Partnerships, corporations or other entities may qualify as Accredited Investors
if they fulfill certain financial and other standards or if all of their equity
owners have incomes and/or net worth which qualify them individually as
Accredited Investors, and trusts may qualify as Accredited Investors if they
meet certain financial and other tests (as described below).
You may qualify as an Accredited Investor under Regulation D
promulgated under the Securities Act of 1933 (the "1933 Act") if you meet any of
the following tests:
FOR INDIVIDUALS ONLY
--------------------
1. You are a director or an executive officer of China Evergreen
Environmental Corporation. An "executive officer" is the president, any vice
president in charge of a principal business unit, division or function (such as
sales, administration or finance), any other officer who performs a policy
making function or any other person who performs similar policy making functions
for China Evergreen Environmental Corporation.
OR
2. You had individual income (exclusive of any income attributable to
your spouse) of more than $200,000 in each of the two most recent fiscal years,
and reasonably expect to have an individual income in excess of $200,000 in the
current year, or your spouse and you had a joint income in excess of $300,000 in
each of the two most recent fiscal years, and you reasonably expect to have a
joint income in excess of $300,000 in the current year. For purposes hereof,
income means adjusted gross income, as reported for federal income tax purposes,
increased by the following amounts: (i) the amount of any tax exempt interest
income under Section 103 of the Internal Revenue Code (the "Code") received,
(ii) the amount of losses claimed as a limited partner in a limited partnership
as reported on Schedule E of Form 1040, (iii) any deduction claimed for
depletion under Section 611 of the Code or (iv) any amount by which income has
been reduced in arriving at adjusted gross income pursuant to the provisions of
Section 1202 of the Code. In determining personal income, however, unrealized
capital gains should not be included.
OR
3. You have an individual net worth, or your spouse and you have a
combined net worth in excess of $1,000,000. For purposes of this statement, "net
worth" means the excess of total assets at fair market value, including home,
home furnishings and automobiles, over total liabilities.
FOR TRUSTS ONLY
---------------
4. The Trust has total assets in excess of $5,000,000, was not formed
for the specific purpose of acquiring securities of China Evergreen
Environmental Corporation, and the purchase of such securities is directed by a
person with such knowledge and experience in financial and business matters that
he is capable of evaluating the risks and merits of the prospective investment
in such securities.
FOR CORPORATIONS, PARTNERSHIPS OR OTHER PURCHASING ENTITIES
-----------------------------------------------------------
5. Any corporation, partnership, limited liability company or limited
liability partnership not formed for the specific purpose of acquiring
securities of China Evergreen Environmental Corporation, with total assets in
excess of $5,000,000.
OR
6. All equity owners of the purchasing entity are Accredited Investors.
23
EXHIBIT B
CHINA EVERGREEN ENVIRONMENTAL CORPORATION
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial owner of common stock, par value $0.001 per
share (the "COMMON STOCK"), of China Evergreen Environmental Corporation, a
Nevada corporation (the "COMPANY"), understands that the Company has filed or
intends to file with the Securities and Exchange Commission (the "COMMISSION") a
registration statement (the "REGISTRATION STATEMENT") for the registration and
resale under Rule 415 of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), of the securities subscribed for in accordance with the terms of the
Subscription Agreement among the Company and each Investor named therein (the
"SUBSCRIPTION AGREEMENT") (the "REGISTRABLE SECURITIES"). A copy of the
Subscription Agreement is available from the Company upon request at the address
set forth below. All capitalized terms not otherwise defined herein shall have
the meanings ascribed thereto in the Subscription Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "SELLING SECURITYHOLDER") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. NAME.
(a) Full Legal Name of Selling Securityholder
--------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a)
above) through which Registrable Securities Listed in Item 3
below are held:
--------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a
natural person who directly you indirectly alone or with
others has power to vote or dispose of the securities covered
by the questionnaire):
--------------------------------------------------------------
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2. ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone:
--------------------------------------------------------------------
Fax:
--------------------------------------------------------------------------
Contact Person:
--------------------------------------------------------------
3. BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:
(a) Type and Principal Amount of Registrable Securities
beneficially owned:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
4. BROKER-DEALER STATUS:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
Note: If yes, the Commission's staff has indicated that you should
be identified as an underwriter in the Registration Statement.
(b) Are you an affiliate of a broker-dealer?
Yes [ ] No [ ]
(c) If you are an affiliate of a broker-dealer, do you certify
that you bought the Registrable Securities in the ordinary
course of business, and at the time of the purchase of the
Registrable Securities to be resold, you had no agreements or
understandings, directly or indirectly, with any person to
distribute the Registrable Securities?
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. BENEFICIAL OWNERSHIP OF OTHER SECURITIES OF THE COMPANY OWNED BY THE SELLING
SECURITYHOLDER.
EXCEPT AS SET FORTH BELOW IN THIS ITEM 5, THE UNDERSIGNED IS NOT THE
BENEFICIAL OR REGISTERED OWNER OF ANY SECURITIES OF THE COMPANY OTHER
THAN THE REGISTRABLE SECURITIES LISTED ABOVE IN ITEM 3.
(a) Type and Amount of Other Securities beneficially owned by the
Selling Securityholder:
--------------------------------------------------------------
--------------------------------------------------------------
25
6. RELATIONSHIPS WITH THE COMPANY:
EXCEPT AS SET FORTH BELOW, NEITHER THE UNDERSIGNED NOR ANY OF ITS
AFFILIATES, OFFICERS, DIRECTORS OR PRINCIPAL EQUITY HOLDERS (OWNERS OF
5% OF MORE OF THE EQUITY SECURITIES OF THE UNDERSIGNED) HAS HELD ANY
POSITION OR OFFICE OR HAS HAD ANY OTHER MATERIAL RELATIONSHIP WITH THE
COMPANY (OR ITS PREDECESSORS OR AFFILIATES) DURING THE PAST THREE
YEARS.
State any exceptions here:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
7. SHORT SELLING COVENANT:
EACH HOLDER UNDERSTANDS AND ACKNOWLEDGES THAT THE COMMISSION CURRENTLY
TAKES THE POSITION THAT COVERAGE OF SHORT SALES OF SHARES OF THE COMMON
STOCK "AGAINST THE BOX" PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT WITH THE SHARES PURCHASED HEREUNDER IS A VIOLATION OF SECTION
5 OF THE SECURITIES ACT, AS SET FORTH IN ITEM 65, SECTION 5 UNDER
SECTION A, OF THE MANUAL OF PUBLICLY AVAILABLE TELEPHONE
INTERPRETATIONS, DATED JULY 1997, COMPILED BY THE OFFICE OF CHIEF
COUNSEL, DIVISION OF CORPORATION FINANCE. ACCORDINGLY, EACH HOLDER
HEREBY AGREES NOT TO USE ANY OF THE SHARES TO COVER ANY SHORT SALES
MADE PRIOR TO THE EFFECTIVE DATE.
The undersigned agrees to promptly notify the Company of any
inaccuracies or changes in the information provided herein that may occur
subsequent to the date hereof at any time while the Registration Statement
remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus. The undersigned understands that such information will be relied
upon by the Company in connection with the preparation or amendment of the
Registration Statement and the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: Beneficial Owner:
---------------------- -----------------------------
By:
-------------------------------------------
Name:
Title:
PLEASE FAX OR MAIL A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE
TOGETHER WITH YOUR EXECUTED SUBSCRIPTION AGREEMENT.
26
