SUBSCRIPTION AGREEMENT
$3,000,000
Of The Company’s Five-Year Secured Debentures Convertible Into
The
Company’s
Common Stock.
1
SUBSCRIPTION
PROCEDURES
Convertible
Debentures (the “Debentures”)
of
Marmion Industries Corp., a Nevada corporation (the “Company”)
are
being offered pursuant to this Subscription Agreement (this “Subscription
Agreement”).
This
offering is being made in accordance with the exemptions from registration
provided under Section 4(2) of the Securities Act of 1933, as amended (the
“Securities
Act”)
and
Rule 506 of Regulation D promulgated under the Securities Act.
In
order
to purchase Debentures, each Subscriber must complete and execute this
Subscription Agreement and the accompanying investor questionnaire (the
“Questionnaire”).
In
addition, the Holder, as defined herein, must make a payment for the amount
being subscribed for hereunder directly to the Company. All subscriptions are
subject to acceptance by the Company, which shall not occur until the Company
has returned the signed “Company Signature Page”.
The
Questionnaire is designed to enable the Holder to demonstrate the minimum legal
requirements under federal and state securities laws to purchase the Debentures.
The Signature Page for the Questionnaire and the Subscription Agreement contain
representations relating to the subscription and should be reviewed carefully
by
each subscriber.
If
the
Holder is a foreign person or foreign entity, the Holder may be subject to
a
withholding tax equal to thirty percent (30%) of any dividends paid by the
Company. In order to eliminate or reduce such withholding tax, the Holder must
submit a properly executed I.R.S. Form 4224 “Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of a Trade or Business in
the
United States” or I.R.S. Form 1001 “Ownership Exemption or Reduced Trade
Certificate”, claiming exemption from withholding or eligibility for treaty
benefits in the form of a lower rate of withholding tax on interest or
dividends.
Payment
of the full subscription amount will be made by wire transfer by Dutchess
Private Equities Fund, LTD (the “Holder”)
on or
prior to the closing per the wire instructions that will be established. In
the
event of a termination of the offering or the rejection of a subscription,
subscription funds will be returned by the Company without interest or charges.
2
THE
SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933, AS AMENDED (THE “SECURITIES
ACT”)OR
ANY
STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE SUBJECT
TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION
THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”
OR
THE
“COMMISSION”)
OR ANY
OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED
UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF
THE
OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
0000
Xxxxxx Xxxx, Xxxxxxxx 0, Xxxxx X
Xxxxxxx,
Xxxxx 00000
Attention:
Xxxxxxx Xxxxxxx
This
Subscription Agreement is made between Marmion Industries Corp., a Nevada
corporation (the “Company”),
and
the undersigned prospective Holder (the “Holder”)
who is
subscribing hereby for the Company’s secured convertible debentures (the
“Debentures”)
on
March 22, 2007. This subscription is submitted to you in accordance with and
subject to the terms and conditions described in this Subscription Agreement,
together with any Exhibits hereto, relating to an offering (the “Offering”)
of
Three Million dollars ($3,000,000) of the Debentures. The Offering is limited
to
accredited investors and is made in accordance with the exemptions from
registration provided for under Section 4(2) of the Securities Act and Rule
506
of Regulation D promulgated under the Securities Act (“Regulation
D”).
Contemporaneously
with the execution and delivery of this Subscription Agreement, the parties
hereto are executing and delivering a Debenture Registration Rights Agreement,
Warrant, Security Agreement and Debenture, all of even date herewith
(collectively with the documents referenced in the foregoing documents, the
“Transaction
Documents”).
1.
Subscription.
(a) The
closing shall be deemed to have occurred on March 22, 2007 (the “Closing
Date”
or
a
“Closing”).
The
Company shall pay twelve percent (12%) interest per annum on the unpaid
principal amount of the Debenture at such times and in such amounts as outlined
in the Debenture.
3
(b) Upon
receipt by the Company of the requisite payment for the Debentures being
purchased, the Debentures so purchased will be forwarded by the Company to
the
Holder or its broker, as listed on the signature page, and the name of the
Holder will be registered on the Debenture transfer books of the Company as
the
record owner of such Debentures.
(c) As
long
as the Holder owns the Debenture, the Holder shall have the right, to change
the
terms for the balance of the Debenture it then holds, to change the terms of
any
other offering of securities made by the Company as set forth in Section 3
(v.).
(d)
The
Holder shall fund (i) seven hundred fifty thousand dollars ($750,000) upon
the
Closing (minus any fees due) (ii) an additional two million two hundred fifty
thousand dollars ($2,250,000) simultaneously on the date the registration
statement covering this Offering is filed with SEC;
(e) The
Holder will be granted a security interest in all of the Company's and its
Subsidiaries' assets, currently owned or hereinafter acquired, (as defined
in
Schedule
3(a)
of this
Subscription Agreement), as more fully set forth in the Security
Agreement.
2. Representations
And Warranties Of The Holder.
The
Holder hereby represents and warrants to, and agrees with, the Company as
follows:
(a) The
Holder has been furnished with, and has carefully read the applicable form
of
Debenture Registration Rights Agreement, and the Debenture and is familiar
with
and understands the terms of the Offering. With respect to tax and other
economic considerations involved in his investment, the Holder is not relying
on
the Company. The Holder has carefully considered and has, to the extent the
Holder believes such discussion necessary, discussed with the Holder's
professional legal, tax, accounting and financial advisors the suitability
of an
investment in the Company, by purchasing the Debentures, for the Holder's
particular tax and financial situation and has determined that the investment
being made by the Holder is a suitable investment for the Holder.
(b) The
Holder acknowledges that all documents, records, and books pertaining to this
investment which the Holder has requested, have been made available for
inspection, or the Holder has had access thereto.
(c) The
Holder has had a reasonable opportunity to ask questions of and receive answers
from a person or persons acting on behalf of the Company concerning the
Offering, and if such opportunity was taken, then all such questions have been
answered to the full satisfaction of the Holder.
4
(d) The
Holder will not sell, or otherwise dispose of the Debentures or the common
stock
of the Company, par value $0.001 per share (the “Common
Stock”)
issued
upon conversion of the Debentures without registration under the Securities
Act
or applicable state securities laws or compliance with an exemption therefrom
including but not limited to Rule 144(b) and 144(k) under the Securities Act
(an
“Exemption”).
The
Debentures have not been registered under the Securities Act or under the
securities laws of any state. Resales of the Common Stock underlying the
Debentures or issued in payment of accrued interest on the Debentures are to
be
registered by the Company pursuant to the terms of the Debenture Registration
Rights Agreement incorporated herein and made a part hereof.
(e) The
Holder recognizes that an investment in the Debentures involves substantial
risks, including loss of the entire amount of such investment. Further, the
Holder has carefully read and considered the schedules attached hereto.
(f)
The
Holder acknowledges that each certificate representing the Debentures (and
the
shares of Common Stock issued upon conversion of the Debentures, unless
registered or with an Exemption) or in payment of interest on the Debentures
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
THE
SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT
(OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR
(iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH
ACT.
If
the
Holder sends a Notice of Conversion (see Exhibit
A
attached
hereto), and a registration statement under the Securities Act is in effect
as
to the sale, then in such event the Company shall have its transfer agent send
Holder the appropriate number of shares of Common Stock without restrictive
legends (other than a legend referring to the resale registration and prospectus
delivery requirements) and not subject to stop transfer instructions.
(g) If
this
Subscription Agreement is executed and delivered on behalf of a corporation
or
legal entity other than a natural person: (i) such corporation or other entity
has the full legal right and power and all authority and approval required
(a)
to execute and deliver, or authorize execution and delivery of this Subscription
Agreement and all other Transaction Documents executed and delivered by or
on
behalf of such corporation in connection with the purchase of the Debentures,
and (b) to purchase and hold the Debentures; and (ii) the signature of the
party
signing on behalf of such corporation or entity is binding upon such
corporation.
5
(h) The
Holder is not subscribing for the Debentures as a result of, or pursuant to,
any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or meeting, or any other general
solicitation.
(i) The
Holder is purchasing the Debentures for its own account for investment, and
not
with a view toward the resale or distribution thereof, except pursuant to sales
registered or exempted from registration under the Securities Act. The Holder
has not offered or sold any portion of the Debentures being acquired nor does
the Holder have any present intention of dividing the Debentures with others
or
of selling, distributing or otherwise disposing of any portion of the Debentures
either currently or after the passage of a fixed or determinable period of
time
or upon the occurrence or non-occurrence of any predetermined event or
circumstance in violation of the Securities Act provided, however, that by
making the representations herein, the Holder does not agree to hold any of
the
Debentures for any minimum or other specific term and reserves the right to
dispose of the Debentures at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The Holder
is
neither an underwriter of, nor a dealer in, the Debentures or the Common Stock
issuable upon conversion thereof or upon the payment of interest thereon and
is
not participating in the distribution or resale of the Debentures or the Common
Stock issuable upon conversion or exercise thereof. Notwithstanding anything
in
this Section to the contrary, the Holder reserves the right to pledge any of
the
Debenture for margin purposes and dispose of the Debentures at any time in
accordance with federal and state securities laws applicable to such
dispositions.
(j) The
Holder or the Holder's representatives, as the case may be, has such knowledge
and experience in financial, tax and business matters so as to enable the Holder
to utilize the information made available to the Holder in connection with
the
Offering to evaluate the merits and risks of an investment in the Debentures
and
to make an informed investment decision with respect thereto.
(k) The
Holder is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D.
(l) The
Holder understands that the Debentures and the related warrants are being
offered and sold to ti in reliance upon specific exemptions from the
registration requirements of the Unites States federal and state securities
laws
and that the Company is relying upon the truth and accuracy of, and the Holder’s
compliance with, the representations, warranties, agreement, acknowledgments
and
understandings of the Holder set forth herein in order to determined the
availability of such exemptions and the eligibility of the Holder to acquire
the
Debentures and related warrants.
6
(m) The
Holder understands that no United States federal or state agency or any other
government or governmental agency has passed upon or made any recommendation
or
endorsement of the Debentures or related warrants
3. Representations
And Warranties Of The Company.
Except
as
set forth in any filing made by the Company with the Securities and Exchange
Commission or the Schedules attached hereto, the Company hereby represents
and
warrants to, and agrees with the Holder, as follows:
a.
Organization
and Qualification.
The
Company and its “Subsidiaries”
(which
for purposes of this Subscription Agreement means any entity in which the
Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule
3(a))
are
corporations duly organized and validly existing in good standing under the
laws
of the respective jurisdictions of their incorporation, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Both the Company and its Subsidiaries are
duly
qualified to do business and are in good standing in every jurisdiction in
which
their ownership of property or the nature of the business conducted by them
makes such qualification necessary, except to the extent that the failure to
be
so qualified or be in good standing would not have a Material Adverse Effect.
As
used in this Subscription Agreement, the term “Material
Adverse Effect”
means
any material adverse effect on the business, properties, assets, operations,
results of operations, financial condition or prospects of the Company and
its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined in Section
3.b
hereof).
b.
Authorization;
Enforcement; Compliance with Other Instruments.
(i) The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents, and to issue the
Debentures in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents by the Company and the consummation
by
it of the transactions contemplated hereby and thereby, including without
limitation the reservation for issuance and the issuance of the Debentures
pursuant to this Subscription Agreement, have been duly and validly authorized
by the Company's Board of Directors and no further consent or authorization
is
required by the Company, its Board of Directors, or its shareholders, (iii)
the
Transaction Documents have been duly and validly executed and delivered by
the
Company, and (iv) the Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.
7
c.
Capitalization.
As of
the date hereof, the authorized capital stock of the Company consists of (i)
500,000,000 shares of Common Stock, of which as of the date hereof,
approximately 57,709,990 shares are issued and outstanding; (ii) 500,000,000
shares of preferred stock, par value $.001 per share of which (A) 10,000,000
shares have been designated Class A Preferred Stock of which 9,500,000 shares
are issued and outstanding and (B) 30,000,000 shares have been designated Series
B Preferred Stock of which 30,000,000 shares are issued and outstanding. All
of
such outstanding shares have been, or upon issuance will be, validly issued
and
are fully paid for and nonassessable. Except as disclosed in Schedule
3(c),
which
is attached hereto and made a part hereof, (i) no shares of the Company's
capital stock are subject to preemptive rights or any other similar rights
or
any liens or encumbrances suffered or permitted by the Company, (ii) there
are
no outstanding debt securities, (iii) there are no outstanding shares of capital
stock, options, warrants, scrip, rights to subscribe to, calls or commitments
of
any character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company
or
any of its Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, (iv) there are no agreements
or
arrangements under which the Company or any of its Subsidiaries is obligated
to
register the sale of any of their securities under the Securities Act (except
the as otherwise set forth in the Transaction Documents), (v) there are no
outstanding securities of the Company or any of its Subsidiaries which contain
any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance
of
the Securities as described in this Subscription Agreement, (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement, and (viii) there is no dispute
as
to the class of any shares of the Company's capital stock. The Company has
furnished to the Holder, or the Holder has had access through XXXXX to, true
and
correct copies of the Company's Articles of Incorporation, as in effect on
the
date hereof (the “Articles
Of Incorporation”),
and
the Company's Bylaws, as in effect on the date hereof (the “Bylaws”).
d. Issuance
of Debentures. A
sufficient number of Debentures issuable pursuant to this Subscription
Agreement, but not more than four and ninety-nine one hundredths percent (4.99%)
of the shares of Common Stock outstanding as of the date hereof (if, and only
if, the Company becomes listed on Nasdaq or the American Stock Exchange), has
been duly authorized and reserved for issuance pursuant to this Subscription
Agreement. Upon issuance in accordance with this Subscription Agreement, the
Debentures will be validly issued, fully paid for and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof. In the
event the Company cannot register a sufficient number of shares of Common Stock,
due to the remaining number of authorized shares of Common Stock being
insufficient, the Company will use its best efforts to register the maximum
number of shares it can based on the remaining balance of authorized shares
and
will use its best efforts to increase the number of its authorized shares as
soon as reasonably practicable.
8
e.
No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby
and
thereby will not (i) result in a material violation of the Articles of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the Bylaws or (ii)
conflict with, or constitute a material default (or an event which with notice
or lapse of time or both would become a material default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, contract, indenture mortgage, indebtedness or instrument
to which the Company or any of its Subsidiaries is a party, or result in a
material violation of any law, rule, regulation, order, judgment or decree,
including United States federal and state securities laws and regulations and
the rules and regulations of the principal securities exchange or trading market
on which the Common Stock is traded or listed (the “Principal
Market”),
applicable to the Company or any of its Subsidiaries or by which any property
or
asset of the Company or any of its Subsidiaries is bound or affected. Except
as
disclosed in Schedule
3(e),
neither
the Company nor its Subsidiaries is in material violation of any term of, or
in
default under, the Articles of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the Bylaws or their organizational charter or bylaws, respectively,
or any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to
the
Company or its Subsidiaries, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that
would
not individually or in the aggregate have a Material Adverse Effect. To its
knowledge, the business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, statute,
ordinance, rule, order or regulation of any governmental authority or agency,
regulatory or self-regulatory agency, or court, except for possible violations
the sanctions for which either individually or in the aggregate would not have
a
Material Adverse Effect. Except as specifically contemplated by this
Subscription Agreement and as required under the Securities Act, the Company
is
not required to obtain any consent, authorization, permit or order of, or make
any filing or registration (except the filing of a registration statement)
with,
any court, governmental authority or agency, regulatory or self-regulatory
agency or other third party in order for it to execute, deliver or perform
any
of its obligations under, or contemplated by, the Transaction Documents in
accordance with the terms hereof or thereof. All consents, authorizations,
permits, orders, filings and registrations which the Company is required to
obtain pursuant to the preceding sentence have been obtained or effected on
or
prior to the date hereof and are in full force and effect as of the date hereof.
Except as disclosed in Schedule 3(e), the Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company is not, and will not be, in violation of the listing
requirements of the Principal Market as in effect on the date hereof and on
each
of the Closing Dates and is not aware of any facts which would reasonably lead
to delisting of the Common Stock by the Principal Market in the foreseeable
future.
9
f.
SEC
Documents; Financial Statements.
Since
February 27, 2004, the Company has to its knowledge filed all reports,
schedules, forms, statements and other documents required to be filed by it
with
the SEC pursuant to the reporting requirements of the Securities and Exchange
Act of 1934, as amended (“Exchange
Act”)
(all
of the foregoing filed since the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC
Documents”).
The
Company has delivered to the Holder or its representatives, or they have had
access through XXXXX, to true and complete copies of the SEC Documents. As
of
their respective dates, the SEC Documents complied in all material respects
with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, and are not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with
respect thereto. Such financial statements have been prepared in accordance
with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Holder which is
not
included in the SEC Documents, including, without limitation, information
referred to in Section
3.d.
hereof,
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements therein, in the light of the circumstance
under which they are or were made, and are not misleading.
g.
Absence
of Certain Changes.
Except
as disclosed in Schedule
3.g
or the
SEC Documents, since November 1, 2006 there has been no change or development
in
the business, properties, assets, operations, financial condition, results
of
operations or prospects of the Company or its Subsidiaries which has had or
reasonably could have a Material Adverse Effect. The Company has not taken
any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its Subsidiaries have
any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
10
h.
Absence
of Litigation.
Except
as set forth in the Company’s SEC filings, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of
the
executive officers of Company or any of its Subsidiaries, threatened against
or
affecting the Company, the Common Stock or any of the Company's Subsidiaries
or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, in which an adverse decision could have a Material
Adverse Effect.
i.
Acknowledgment
Regarding the Purchase of Debentures.
The
Company acknowledges and agrees that the Holder is acting solely in the capacity
of an arm's-length investor with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Holder is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and
the
transactions contemplated hereby and thereby and any advice given by the Holder
or any of its respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby
is
merely incidental to the Holder's purchase of the Debentures. The Company
further represents to the Holder that the Company's decision to enter into
the
Transaction Documents has been based solely on the independent evaluation by
the
Company and its representatives.
j. Intentionally
omitted.
k.
Employee
Relations.
Neither
the Company nor any of its Subsidiaries is involved in any union labor dispute
nor, to the knowledge of the Company or any of its Subsidiaries, is any such
dispute threatened. Neither the Company nor any of its Subsidiaries is a party
to a collective bargaining agreement, and the Company and its Subsidiaries
believe that relations with their employees are good. No executive officer
(as
defined in Rule 501(f) under the Securities Act) has notified the Company that
such officer intends to leave the Company's employ or otherwise terminate such
officer's employment with the Company.
l.
Intellectual
Property Rights.
All
patents, patent applications, trademark registrations and applications for
trademark registration held by the Company are owned free and clear of all
mortgages, liens, charges or encumbrances whatsoever. No licenses have been
granted with respect to these items and the Company and its Subsidiaries do
not
have any knowledge of any infringement by the Company or its Subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, and, except as set forth on Schedule
3.l.,
there
is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its Subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its Subsidiaries are unaware of
any
facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual
property.
11
m.
Environmental
Laws.
To its
knowledge, the Company and its Subsidiaries (i) are in material compliance
with
any and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
(“Environmental
Laws”),
(ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective and (iii) are in
material compliance with all terms and conditions of any such permit, license
or
approval where, in each of the three foregoing cases, the failure to so comply
would have, individually or in the aggregate, a Material Adverse
Effect.
n.
Title.
The
Company and its Subsidiaries have good and marketable title in fee simple to
all
real property and good and marketable title to all personal property owned
by
them which is material to the business of the Company and its Subsidiaries,
in
each case free and clear of all liens, encumbrances and defects except such
as
are described in Schedule
3.n.
or such
as do not materially affect the value of such property and do not interfere
with
the use made and proposed to be made of such property by the Company or any
of
its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting
and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by
the
Company and its Subsidiaries.
o.
Insurance.
[The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company
nor
any such Subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such 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 at a cost that would not have a Material
Adverse Effect.]
p.
Regulatory
Permits.
The
Company and its Subsidiaries have in full force and effect all certificates,
approvals, authorizations and permits from the appropriate federal, state,
local
or foreign regulatory authorities and comparable foreign regulatory agencies,
necessary to own, lease or operate their respective properties and assets and
conduct their respective businesses, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation
or
modification of any such certificate, approval, authorization or permit, except
for such certificates, approvals, authorizations or permits which if not
obtained, or such revocations or modifications which, would not have a Material
Adverse Effect.
12
q.
Internal
Accounting Controls.
The
Company and each of its Subsidiaries maintain 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 generally accepted accounting principles 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.
r.
No
Materially Adverse Contracts.
Neither
the Company nor any of its Subsidiaries is subject to any charter, corporate
or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the future
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment
of
the Company's officers has or is expected to have a Material Adverse
Effect.
s.
Tax
Status.
To its
knowledge, the Company has filed all federal and state income tax returns,
as
required and the Company and each of its Subsidiaries has made or filed all
United States federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject. The Company
represents that there are no unpaid taxes in any material amount claimed to
be
due by the taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.
t.
Certain
Transactions.
Except
as set forth in the SEC Documents and except for arm's-length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed on Schedule
3.c.
none of
the officers, directors, or employees of the Company is presently a party to
any
transaction with the Company or any of its Subsidiaries (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 corporation, partnership, trust or other entity in which
any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
u.
Dilutive
Effect.
The
Company understands and acknowledges that the number of shares of Common Stock
issuable upon purchases pursuant to this Subscription Agreement will increase
in
certain circumstances including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines following
the effective date of the registration statement covering the Common Stock
underlying the Debentures (the “Effective
Date”).
The
Company’s executive officers and directors have studied and fully understand the
nature of the transactions contemplated by this Subscription Agreement and
recognize that they have a potential dilutive effect. The board of directors
of
the Company has concluded, in its good faith business judgment that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in
the
Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Subscription Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
13
v.
Additional
Financings.
The
Company shall not, directly nor indirectly, without the prior written consent
of
the Holder, offer, sell, grant any option to purchase, or otherwise dispose
of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its Common Stock or securities convertible into Common
Stock, or file any registration statement, including those on Form S-8 for
any
securities (a “Subsequent
Financing”),
in
either case ending on the earlier to occur of (i) one hundred and eighty (180)
days after the effective date of the registration statement covering resale
of
the shares of Common Stock underlying the Debentures (also the “Effective
Date”)
or
(ii) the date on which the full Face Amount, accrued interest and penalties,
if
any, on the Debentures have been paid (“Lock
Up Period”),
as
set forth in the Debenture.
During
the Lock Up Period, the Holder shall retain a first right of refusal for any
additional financings. The Company must submit to the Holder a duly authorized
term sheet of the financing and the Holder may elect, in writing within five
(5)
business days, to exercise its right to finance the Company upon the same terms
and conditions, as set forth in the Debenture. In the event the Holder does
not
elect to complete such financing within such period, the Company may proceed
with the proposed third-party financing on the same terms and conditions as
contained in the notice to Holder.
If
at any
time while the Debenture is outstanding, if the Company issues or agrees to
issue any Common Stock or securities convertible into or exercisable for shares
of Common Stock (or modify any of the foregoing which may be outstanding prior
to the execution of this Agreement) to any person or entity at a price per
share
or conversion price per share less than the Conversion Price, with or without
the consent of the Holder, the Conversion Price shall automatically be reduced
to the price of the new issuance provided,
however,
that in
no event shall the Conversion Price be less than the Floor Conversion Price
(as
defined in the Debenture) and provided,
further,
that no
adjustment shall be made in the event the Company issues or distributes shares
or its Common Stock in connection with (i) full or partial consideration in
connection with a strategic merger, acquisition, consolidation or purchase
of
substantially all of the securities or assets of a corporation or other entity,
(ii)
the
Company’s issuance of securities in connection with strategic license
agreements, the entering into or acquiring of material contracts in connection
with the Company’s business as currently being conducted, and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital
and are
not issued for services,
(iii)
the Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock pursuant to stock option plans and employee stock purchase
plans in existence on the date hereof, (iv) the conversion of any notes,
debentures or exercise of any warrants in existence on the date hereof, (v)
as a
result of the exercise of Warrants or conversion of Debentures which are granted
or issued pursuant to this Agreement, (v) the payment of any interest on the
Debenture issued pursuant to this Agreement and liquidated damages, or damages
pursuant to the Transaction Documents (as defined in the Subscription Agreement,
and (vi)
as has
been described in the Reports or Other Written Information filed with the
Commission or delivered to the Holder prior to the Closing Date.
14
Additionally,
if the Company shall issue or agree to issue any of the aforementioned
securities to any person, firm or corporation at terms deemed by the Holder
to
be more favorable to the other person or entity than the terms or conditions
of
this Offering, then the Holder is granted the right, at its election, to modify
any term of this Offering to match a more favorable term provided by the Company
to such person or entity; provided,
however,
that
Holder must review the terms of such other transaction in context of the entire
transaction as compared to the Offering in determining whether such terms are
more favorable than the Offering and provided,
further,
that
Holder covenants and agrees not to solely isolate individual terms of such
other
transaction and modify terms of this Offering to match the most favorable terms
of any such other Offering. The rights of the Holder in this Section are in
addition to any other right the Holder has pursuant to this Subscription
Agreement and the Transaction Documents.
In
the
event the exercise of the rights described in the preceding paragraph
would
result in the issuance of an amount of Common Stock of the Company that would
exceed the maximum amount that may be issued to the Holder calculated in the
manner described in Section
3.d.
of this
Subscription Agreement, then the issuance of such additional shares of Common
Stock of the Company to such Subscriber will be deferred in whole or in part
until such time as such Subscriber is able to beneficially own such Common
Stock
without exceeding the maximum amount set forth calculated in the manner
described in Section
3.d.
of this
Subscription Agreement. The determination of when such Common Stock may be
issued shall be made by the Holder.
w.
[Xxxxxxxx-Xxxxx
Compliance.
The
Company hereby acknowledges that they are current with the requirement of
Xxxxxxxx-Xxxxx Act of 2002 (“SOX”),
and
will remain compliant with SOX and its rules and regulations for reporting
requirements in the time frame required by SOX, and any updates to deadlines
imposed by SOX.]
x.
Code
of Ethics.
The
Company has adopted a Code of Ethics and has filed the Code with the
SEC.
y.
No
Disagreements with Accountants, Auditors and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants, auditors
and
lawyers formerly or presently used by the Company, including but not limited
to
disputes or conflicts over payment owed to such accountants, auditors or
lawyers.
15
z.
Investment
Company.
Neither
the Company nor any Affiliate is an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.
4. Covenants
Of The Company.
a.
Best
Efforts.
The
Company shall use its reasonable best efforts timely to satisfy each of the
conditions to be satisfied by it as provided in this Subscription
Agreement.
b.
Blue
Sky.
The
Company shall, at its sole cost and expense, make all filings and reports
relating to the offer and sale of the Debentures and the Common Stock underlying
the Debentures as required under the applicable securities or “Blue Sky” laws of
such states of the United States as specified by the Holder or as required
by
law.
c.
Reporting
Status.
Until
the earlier of (i) the date that the Holder may sell all of the Common Stock
underlying the Debentures acquired pursuant to this Subscription Agreement
without restriction pursuant to Rule 144(k) under the Securities Act, or (ii)
the date on which the Holder shall have sold all the Common Stock underlying
the
Debentures, the Company shall file all reports required to be filed with the
SEC
pursuant to the Exchange Act, and the Company shall not terminate its status
as
a reporting company under the Exchange Act.
d. Use
of
Proceeds.
The
Company shall use the entire proceeds from the Debenture exclusively to further
the growth and interest of the Company as described herein:
-
Four
hundred and sixty thousand dollars ($460,000) for equipment purchases; two
hundred and fifty thousand dollars ($250,000) to pay down current vendor debt;
sixty thousand dollars ($60,000) for the purchase of four pickup trucks for
use
by the Company; one million one hundred thousand dollars ($1,100,000) to
construct a new manufacturing facility. Any other use of the funds contemplated
herein, shall be considered a breach of contract and an Event of Default. All
the purchases described herein shall also be designated as Pledged Collateral
as
defined in the Security Agreement, in addition to any current assets described
in the Security Agreement.
e. Conditions
to Closing.
The
Company shall sign and be in compliance with the Transaction Documents with
the
Holder.
f.
Financial
Information.
The
Company agrees to make available to the Holder via XXXXX or other electronic
means the following: (i) within five (5) business days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-KSB, its Quarterly Reports
on Form 10-QSB, any Current Reports on Form 8-K and any registration statements
or amendments filed pursuant to the Securities Act; (ii) on the same day as
the
release thereof, facsimile copies of all press releases issued by the Company
or
any of its Subsidiaries, (iii) copies of any notices and other information
made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders and (iv) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to,
the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc. (the “NASD”)
16
g. Reservation
of Common Stock.
Subject
to the following sentence, the Company shall its reasonable best efforts to
have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the issuance of the Common Stock
underlying the Debentures. In the event that the Company determines that it
does
not have a sufficient number of authorized shares of Common Stock to reserve
and
keep available for issuance, the Company shall use its reasonable best efforts
to increase the number of authorized shares of Common Stock by seeking
shareholder approval for the authorization of such additional shares. The Holder
shall have the right to reasonably determine the amount of shares to be
re-registered such as are necessary to satisfy the terms of the Agreement.
h.
Listing.
The
Company shall promptly secure the listing of all of the Common Stock underlying
the Debentures upon the Principal Market and each other national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, such listing. The Company shall maintain the Common Stock's
authorization for quotation on the Principal Market, unless the Holder and
the
Company agree otherwise. Neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting
or
suspension of the Common Stock on the Principal Market (excluding suspensions
of
not more than one trading day resulting from business announcements by the
Company). The Company shall promptly provide to the Holder copies of any notices
it receives from the Principal Market regarding the continued eligibility of
the
Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section.
i. Transactions
With Affiliates.
During
the Lock Up Period, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, shareholders who beneficially own five percent (5%)
or
more of the Common Stock, or affiliates or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any
such
entity or individual owns a five percent (5%) or more beneficial interest (each
a “Related
Party”)
during
the Lock Up Period; except for (i) customary employment arrangements and benefit
programs on reasonable terms (including changes currently under discussion
with
the Company's Board of Directors concerning the compensation, to be payable
in
stock, of the Chairman of the Board), (ii) any agreement, transaction,
commitment or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, or (iii) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company.
For purposes hereof, any director who is also an officer of the Company or
any
Subsidiary of the Company shall not be a disinterested director with respect
to
any such agreement, transaction, commitment or arrangement. “Affiliate”
for
purposes hereof means, with respect to any person or entity, another person
or
entity that, directly or indirectly, (i) has a five percent (5%) or more equity
interest in that person or entity, (ii) has five percent (5%) or more common
ownership with that person or entity, (iii) controls that person or entity,
or
(iv) shares common control with that person or entity. “Control”
or
“Controls”
for
purposes hereof means that a person or entity has the power, direct or indirect,
to conduct or govern the policies of another person or entity.
17
j.
Corporate
Existence.
The
Company shall use its commercially reasonable best efforts to preserve and
continue the corporate existence of the Company.
k. Notice
of Certain Events Affecting Registration.
The
Company shall promptly notify Holder upon the occurrence of any of the following
events in respect of a registration statement or related prospectus covering
the
Common Stock underlying the Debentures: (i) receipt of any request for
additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the registration statement
for
amendments or supplements to the registration statement or related prospectus;
(ii) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of any registration
statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Common Stock underlying the
Debentures for sale in any jurisdiction or the initiation or threatening of
any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in such registration statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case
of
a registration statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case
of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to the
Holder any such supplement or amendment to the related prospectus.
18
l. Indemnification.
In
consideration of the Holder’s execution and delivery of this Agreement and the
Debenture Registration Rights Agreement and acquiring the Debentures hereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless the
Holder and all of its shareholders, officers, directors, employees and direct
or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
“Indemnitees”)
from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the “Indemnified
Liabilities”),
incurred by any Indemnitee directly as a result of (i) any material
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any material breach of any
covenant, agreement or obligation of the Company contained in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (iii) any cause of action, suit or claim brought or made against
such Indemnitee by a third party and arising out of or resulting from the
execution, delivery, performance or enforcement of the Transaction Documents
or
any other certificate, instrument or document contemplated hereby or thereby,
(iv) any transaction financed or to be financed in whole or in part, directly
or
indirectly, with the proceeds of the issuance of the Debentures, (v) the status
of the Holder as an investor in the Company, except, in the case of any of
such
clauses, insofar as any such Indemnified Liability was attributable to gross
negligence, willful misconduct or any illegal activity on the part of Holder
and, in the case of clause, (v) only, insofar as any such Indemnified Liability
was attributable to an untrue statement, alleged untrue statement, omission
or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Holder which is specifically
intended by the Holder for use in the preparation of any Registration Statement,
preliminary prospectus or prospectus. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each
of
the Indemnified Liabilities which is permissible under applicable law. The
indemnity provisions contained herein shall be in addition to any cause of
action or similar rights the Holder may have, and any liabilities to which
the
Holder may be subject. Notwithstanding the foregoing, the Company shall have
no
indemnification responsibility in the event Holder fails to timely notify the
Company of a claim or potential claim for which indemnification is sought,
but
only to the extent the Company is prejudiced thereby. The Company shall have
the
right to control the defense of any such claim and the Holder shall not consent
to any settlement of any such claim without the prior written consent of the
Company (which shall not be unreasonably withheld or delayed). The Holder shall
provide indemnification comparable in scope and coverage to the Company and
corresponding related persons in respect of any Indemnified Liability if and
to
the extent attributable to (i) any material misrepresentation or breach of
any
representation or warranty made by the Holder in the Transaction Documents
or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any material breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument
or
document contemplated hereby or thereby, and specifically including the
coventants of Holder under Section 14 of this Agreement for which Holder will
indemnify Company for any breach thereof, or (iii) gross negligence, willful
misconduct or any illegal activity on the part of the Holder, and shall be
obligated to reimburse the Company and such persons to the same extent as the
Company’s reimbursement obligations under Section
4.m.
hereof.
19
m. Reimbursement.
If (i)
the Holder, other than by reason of its gross negligence or willful misconduct,
becomes involved in any capacity in any action, proceeding or investigation
brought by any shareholder of the Company, in connection with or as a result
of
the consummation of the transactions contemplated by the Transaction Documents,
or if the Holder is impleaded in any such action, proceeding or investigation
by
any person, or (ii) the Holder, other than by reason of its gross negligence
or
willful misconduct or by reason of its trading of the Common Stock in a manner
that is illegal under the federal securities laws, becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC against
or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Documents,
or
if the Holder is impleaded in any such action, proceeding or investigation
by
any person, then in any such case, the Company will reimburse the Holder for
its
reasonable legal and other expenses (including the cost of any investigation
and
preparation) incurred in connection therewith, as such expenses are incurred.
In
addition, other than with respect to any matter in which the Holder is a named
party, the Company will pay to the Holder the charges, as reasonably determined
by the Holder, for the time of any officers or employees of the Holder devoted
to appearing and preparing to appear as witnesses, assisting in preparation
for
hearings, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Subscription Agreement. The reimbursement obligations of the Company under
this
Section 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
Holder that are actually named in such action, proceeding or investigation,
and
partners, directors, agents, employees, attorneys, accountants, auditors and
controlling persons (if any), as the case may be, of Holder and any such
affiliate, and shall be binding upon and inure to the benefit of any successors
of the Company, Holder and any such affiliate and any such person.
n.
Transfer
Agent.
The
Company covenants and agrees that, in the event that the Company's agency
relationship with the transfer agent should be terminated for any reason prior
to the Maturity Date (as defined in the Debenture), and the Company shall
immediately appoint a new transfer agent. The Company shall be up to date with
all payments to the transfer agent, and continue to pay transfer agent as
outlined in the Irrevocable Transfer Agent Agreement.
5. Opinion
Letter/Board Resolution.
Prior
to
or on the Closing Date, the Company shall deliver to the Holder an opinion
letter signed by counsel for the Company in the form attached hereto as
Exhibit
D.
If
so
requested by the Holder (and Holder has not breached its obligations under
Section 14 hereof), the Company shall instruct counsel to write a Rule 144
opinion letter provided the necessary paperwork has been submitted and the
Exemption applies (as defined in the Debenture); provided, that, the Company
may
rely on the advice of its legal counsel as to whether such Exemption applies.
If
the Exemption applies and Company’s counsel fails to provide a Rule 144 opinion
letter in a timely manner, then the Company shall: (a) pay the Holder’s counsel
to write said Rule 144 opinion letter; and (b) instruct the designated transfer
agent to accept and rely upon the Rule 144 Opinion letter. The parties agree
that for the purposes of Rule 144, the Closing Date shall constitute the
original date of consideration. Also, prior to or on the Closing Date, the
Company shall deliver to the Holder a signed Board Resolution authorizing this
Offering, which shall be attached hereto as Exhibit
F.
20
6. Delivery
Instructions; Fees.
The
Debentures being purchased hereunder shall be delivered to the Holder on the
Closing Date at which time funds will be wired to the Company and the Debentures
will be delivered to the Holder, per the Holder’s instructions.
7. Understandings.
The
Holder understands, acknowledges and agrees as follows:
a. No
U.S.
federal or state agency or any agency of any other jurisdiction has made any
finding or determination as to the fairness of the terms of the Offering for
investment nor any recommendation or endorsement of the Debentures or the
Company.
b. The
representations, warranties and agreements of the Holder and the Company
contained herein shall be true and correct in all material respects on and
as of
the date of the sale of the Debentures as if made on and as of such date and
shall survive the execution and delivery of this Subscription Agreement and
the
purchase of the Debentures.
c. In
making
an investment decision, the Holder is relying on its own examination of the
Company and the terms of the Offering, including the merits and risks involved.
The shares have not been recommended by any federal or state securities
commission or regulatory authority. Furthermore, the foregoing authorities
have
not confirmed the accuracy or determined the adequacy of this document. Any
representation to the contrary is a criminal offense.
d. The
Offering is intended to be exempt from registration by virtue of Section 4(2)
of
the Securities Act and the provisions of Regulation D thereunder, which is
in
part dependent upon the truth, completeness and accuracy of the statements
made
by the undersigned herein and in the Questionnaire.
e. It
is
understood that in order not to jeopardize the Offering’s exempt status under
Section 4(2) of the Securities Act and Regulation D, the Holder may, at a
minimum, be required to fulfill the investor suitability requirements
thereunder.
21
f. The
shares may not be resold except as permitted under the securities act and
applicable state securities laws, pursuant to registration or exemption
therefrom. Holder should be aware that they will be required to bear the
financial risks of this investment for an indefinite period of
time.
|
8.
|
Disputes
Subject To Arbitration Governed By Massachusetts Law.
|
a.
All
disputes arising under this Subscription Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this
Subscription Agreement shall submit all disputes arising under this Subscription
Agreement to arbitration in Boston, Massachusetts before a single arbitrator
of
the American Arbitration Association (the “AAA”).
The
arbitrator shall be selected by application of the rules of the AAA, or by
mutual agreement of the parties, except that such arbitrator shall be an
attorney admitted to practice law in the Commonwealth of Massachusetts. No
party
to this Subscription Agreement shall challenge the jurisdiction or venue
provisions as provided in this Section
8.
Nothing
in this Section
8
shall
limit the Holder's right to seek and obtain an injunction for violation of
the
terms and conditions of this Subscription Agreement.
9. Miscellaneous.
a. Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Subscription Agreement must be in writing and
will
be deemed to have been delivered (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided a confirmation of
transmission is mechanically or electronically generated and kept on file by
the
sending party); or (iii) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If
to the
Company: Marmion
Industries Corp.
0000
Xxxxxx Xxxx, Xxxxxxxx 0, Xxxxx X
Xxxxxxx,
Xxxxx 00000
Attention:
Xxxxxxx Xxxxxxx
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
If
to the
Holder: Dutchess
Capital Management, LLC
00
Xxxxxxxxxxxx Xxx, Xxxxx 0
Xxxxxx,
XX 00000
Attention:
Xxxxxxx Xxxxxxxx
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
22
Each
party shall provide five (5) business days prior notice to the other party
of
any change in address, phone number or facsimile number.
b. All
pronouns and any variations thereof used herein shall be deemed to refer to
the
masculine, feminine, impersonal, singular or plural, as the identity of the
person or persons may require.
c. Neither
this Subscription Agreement nor any provision hereof shall be waived, modified,
changed, discharged, terminated, revoked or canceled, except by an instrument
in
writing signed by the party effecting the same against whom any change,
discharge or termination is sought.
d. Notices
required or permitted to be given hereunder shall be in writing and shall be
deemed to be sufficiently given when personally delivered or sent by facsimile
transmission: (i) if to the Company, at it’s executive offices, or (ii) if to
the Holder, at the address for correspondence set forth in the Questionnaire,
or
at such other address as may have been specified by written notice given in
accordance with this paragraph.
e. This
Subscription Agreement shall be enforced, governed and construed in all respects
in accordance with the laws of the Commonwealth of Massachusetts, as such laws
are applied by Massachusetts courts to agreements entered into, and to be
performed in, Massachusetts by and between residents of Massachusetts, and
shall
be binding upon the undersigned, the undersigned's heirs, estate and legal
representatives and shall inure to the benefit of the Company and its
successors. If any provision of this Subscription Agreement is invalid or
unenforceable under any applicable statue or rule of law, then such provisions
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof that may prove invalid or unenforceable under any law shall
not
affect the validity or enforceability of any other provision
hereof.
f. This
Subscription Agreement shall not be assignable.
f. This
Subscription Agreement, together with Exhibit
A
through
Exhibit
E
and the
Schedules attached hereto and made a part of this Subscription Agreement by
this
reference, constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and may be amended only by a writing
executed by both parties hereto.
g. This
Subscription Agreement may be executed in two or more counterparts, all of
which
taken together shall constitute one instrument. Execution and delivery of this
Subscription Agreement by exchange of facsimile copies bearing the facsimile
signature of a party shall constitute a valid and binding execution and delivery
of this Subscription Agreement by such party. Such facsimile copies shall
constitute enforceable original documents.
23
h.
When
in
this Agreement or the Transaction Documents, reference is made to any party,
such reference shall be deemed to include the successors, assigns, heirs and
legal representatives of such party. No party hereto may transfer any rights
under this Agreement or the Transaction Documents, unless the transferee agrees
to be bound by, and comply with all of the terms and provision of this Agreement
and the Transaction Documents, as if an original signatory hereto on the date
hereof.
i. The
Company hereby represent and warrants to the Holder that: (i) it has voluntarily
entered into this Subscription Agreement of its own freewill, (ii) it is not
entering into this Subscription Agreement under economic duress, (iii) the
terms
of this Subscription Agreement are reasonable and fair to the Company, and
(iv)
the Company has had independent legal counsel of its own choosing review this
Subscription Agreement, advise the Company with respect to this Subscription
Agreement, and represent the Company in connection with its entering into this
Subscription Agreement.
j. Notwithstanding
anything in this Subscription Agreement to the contrary, the parties hereto
hereby acknowledge and agree to the following: (i) the
Company shall, within 4 business days following the date hereof, file a current
report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and in the other Transaction Documents; (ii) [the Company
has not] and shall not provide material non-public information to the Holder
unless prior thereto the Holder shall have executed a written agreement
regarding the confidentiality and use of such information; and (iii) the Company
understands and confirms that the Holder will be relying on the acknowledgements
set forth in clauses (i) through (ii) above if the Holder effects any
transactions in the securities of the Company.
10. Intentionally
Omitted.
11. Waiver.
The
Holder's delay or failure at any time or times hereafter to require strict
performance by Company of any undertakings, agreements or covenants shall not
waiver, affect, or diminish any right of the Holder under this Agreement to
demand strict compliance and performance herewith. Any waiver by the Holder
of
any Event of Default shall not waive or affect any other Event of Default,
whether such Event of Default is prior or subsequent thereto and whether of
the
same or a different type. None of the undertakings, agreements and covenants
of
the Company contained in this Agreement, and no Event of Default, shall be
deemed to have been waived by the Holder, nor may this Agreement be amended,
changed or modified, unless such waiver, amendment, change or modification
is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Holder.
12. Governmental
Changes.
In
the
event that any rules, regulations, oral or written interpretations or Comments
(as defined in the Debenture Registration Rights Agreement) from the SEC, NASD,
NYSE, NASDAQ or other governing or regulatory body, prohibit or
hinder any operation of this Subscription Agreement or the other Transaction
Documents, the parties hereto hereby agree that those specific terms and
conditions shall be negotiated in good faith on similar terms within five
(5) business days, and shall not alter, diminish or affect any other rights,
duties, obligations or covenants in Transaction Documents and that all
terms and conditions will remain in full force and effect except as is necessary
to make those specific terms and conditions comply with applicable rule,
regulation, interpretation or Comment. Failure for the Company to agree to
on
such new terms as necessary to achieve the intent of the original documents
shall constitute and Event of Default as outlined in Article 6 in the Debenture
and accordingly the Holder may elect to take actions as outlined in the
Debenture and the other Transaction Documents.
24
13. No
Oral Agreements.
This
Subscription Agreement and the other Transaction Documents represent the final
definitive agreements between the Company and the Holder and may not be
contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties; there are no unwritten oral agreements among the
parties.
14. No
Shorting.
The
Holder, and its affiliates represent and warrant that they have not directly
or
indirectly, nor has any person acting on behalf of or pursuant to any
understanding with the Holder or its affiliates, engaged in any transactions
in
the securities of the Issuer (including, without limitations, any short sales
involving the Issuer’s securities) since the time the Holder was first contacted
by the Issuer or any other person regarding an investment in the Issuer. The
Holder and its affiliates covenant that neither they nor any person acting
on
their behalf or pursuant to any direct instructions from the Holder will engage
in any transactions in the securities of the Company from the date of the
execution of this term sheet until the end of the Debenture is paid in
full.
[BALANCE
OF PAGE INTENTIONALLY LEFT BLANK)
25
INVESTOR
QUESTIONNAIRE
The
information contained in this Investor Questionnaire (this “Questionnaire”)
is
being furnished in order to determine whether the undersigned’s subscription to
purchase the Debentures described in the accompanying Subscription Agreement
may
be accepted.
ALL
INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED CONFIDENTIALLY.
The
undersigned understands, however, that the Company may present this
Questionnaire to such parties as it deems appropriate if called upon to
establish that the proposed offer and sale of the securities is exempt from
registration under the Securities Act of 1933, as amended (the “Securities
Act”).
Further, the undersigned understands that the offering is required to be
reported to the United States Securities and Exchange Commission (the
“SEC”
or
the
“Commission”),
and
to various state securities and “blue sky” regulators.
IN
ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY MARMION INDUSTRIES
CORP., A NEVADA CORPORATION (THE “COMPANY”),
THE
UNDERSIGNED MUST COMPLETE FORM W-9.
I. PLEASE
CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES.
o
1. The
undersigned: (a) has total assets in excess of $5,000,000; (b) was not formed
for the specific purpose of acquiring the securities; and (c) has its principal
place of business in ___________.
o
2. The
undersigned is a natural person whose individual net worth* or joint net worth
with his or her spouse exceeds $1,000,000.
o 3. The
undersigned is a natural person who had an individual income* in excess of
$200,000 in each of the two most recent years and who reasonably expects an
individual income in excess of $200,000 in the current year. Such income is
solely that of the undersigned and excludes the income of the undersigned’s
spouse.
o 4. The
undersigned is a natural person who, together with his or her spouse, has had
a
joint income* in excess of $300,000 in each of the two most recent years and
who
reasonably expects a joint income in excess of $300,000 in the current
year.
* For
purposes of this Questionnaire, the term “net
worth”
means
the excess of total assets over total liabilities. In determining “income”,
an
investor should add to his or her adjusted gross income any amounts attributable
to tax-exempt income received, losses claimed as a limited partner in any
limited partnership, deductions claimed for depletion, contributions to XXX
or
Xxxxx retirement plan, alimony payments and any amount by which income from
long-term capital gains has been reduced in arriving at adjusted gross
income.
26
5. The
undersigned is:
o (a) a
bank as
defined in Section 3(a)(2) of the Securities Act; or
o (b) a
savings
and loan association or other institution as defined in Section 3(a)(5)(A)
of
the Securities Act whether acting in its individual or fiduciary capacity;
or
o (c) a
broker
or dealer registered pursuant to Section 15 of the Securities Exchange Act
of
1934, as amended (the “Exchange
Act”);
or
o (d) an
insurance company as defined in Section 2(13) of the Securities Act;
or
o (e) An
investment company registered under the Investment Company Act of 1940 (the
“ICA”),
as
amended, or a business development company as defined in Section 2(a)(48) of
the
ICA; or
o (f) a
small
business investment company licensed by the U.S. Small Business Administration
under Section 301 (c) or (d) of the Small Business Investment Act of 1958;
or
x
6. The
undersigned is an entity in which all of the equity owners are accredited
investors.
27
II. HOLDER
INFORMATION.
Name
of
Entity: Dutchess
Private Equities Fund, LTD
Person’s
Name: Xxxxxxx
Xxxxxxxx, Managing Member
State
of
Organization: Cayman
Islands
Principal
Business Address: 00
Xxxxxxxxxxxx Xxx., Xxxxx 0
Xxxx,
Xxxxx, Xxx Code: Xxxxxx,
XX 00000
Taxpayer
Identification Number: ___________
Phone:
000-000-0000
Fax:
000-000-0000
Send
Correspondence to: Same
as above
28
SIGNATURE
PAGE
Your
signature on this Signature Page evidences your agreement to be bound by the
accompanying Questionnaire and the Transaction Documents (as such term is
defined in the accompanying Subscription Agreement).
1. The
undersigned hereby represents that (a) the information contained in the
Questionnaire is complete and accurate and (b) the undersigned will notify
the Company
immediately if any material change in any of the information occurs prior to
the
acceptance of the undersigned’s subscription and will promptly send the Company
written confirmation of such change.
2. The
undersigned signatory hereby certifies that he/she has read and understands
the
Transaction Documents, including the Subscription Agreement and Questionnaire,
and the representations made by the undersigned in said documents are true
and
accurate.
|
$3,000,000
|
March
22, 2007
|
|
|
Amount
of Debentures being
purchased
|
Date
|
DUTCHESS
PRIVATE EQUITIES FUND, LTD,
By: /s/
Xxxxxxx X. Xxxxxxxx
Name:
Xxxxxxx X. Xxxxxxxx
Title:
Director
29
COMPANY
ACCEPTANCE PAGE
This
Subscription Agreement accepted and agreed to this 22nd day of March, 2007,
by
Marmion Industries Corp. and duly authorized to sign on behalf of the
Company.
MARMION
INDUSTRIES CORP.
By
/s/ Xxxxxxx Xxxxxxx
Name: Xxxxxxx
Xxxxxxx
Title: Chief
Executive Officer
By
/s/ Xxxxx Xxxxx
Name:
Xxxxx Xxxxx
Title:
Treasurer
30
