Contract
Exhibit
4.6
THIS
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
dated
as of August 25, 2005, by and among Innovative Food Holdings, Inc., a Florida
corporation (the “Company”),
and
the subscribers identified on the signature page hereto (each a “Subscriber”
and
collectively “Subscribers”).
WHEREAS,
the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “1933
Act”).
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided
herein,
and the Subscribers, in the aggregate, shall purchase up to $60,000 (the
"Purchase
Price")
of
principal amount of promissory notes of the Company (“Note”
or
“Notes”)
convertible into shares of the Company's common stock, $.00001 par value
(the
"Common
Stock"),
and
share purchase warrants (the “Warrants”),
in
the form attached hereto as Exhibits
A1, A2 and A3,
to
purchase shares of Common Stock (the “Warrant
Shares”)
(the
“Offering”).
The
Notes, shares of Common Stock issuable upon conversion of the Notes (the
“Shares”),
the
Warrants and the Warrant Shares are collectively referred to herein as the
"Securities";
and
WHEREAS,
the
aggregate proceeds of the sale of the Notes and the Warrants contemplated
hereby
shall be held in escrow pursuant to the terms of a Funds Escrow Agreement
to be
executed by the parties substantially in the form attached hereto as
Exhibit
B
(the
"Escrow
Agreement").
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:
1. Closing.
Subject
to the satisfaction or waiver of the terms and conditions of this Agreement,
on
the Closing Date, each Subscriber shall purchase and the Company shall sell
to
each Subscriber a Note in the principal amount designated on the signature
page
hereto. The aggregate amount of the Notes to be purchased by the Subscribers
on
the Closing Date shall, in the aggregate, be equal to the Purchase Price.
The
“Closing
Date”
shall
be the date that subscriber funds representing the net amount due the Company
from the Purchase Price of the Offering is transmitted by wire transfer or
otherwise to or for the benefit of the Company.
2. Security
Interest.
The
Subscribers will be granted a security interest in all the assets of the
Company
including ownership of the Subsidiaries (as defined in Section 5(a) of this
Agreement) as memorialized in a “Security
and Pledge Agreement”,
entered into by the Company and investors on February 24, 2005 in connection
with an investment in securities of the Company (“Prior
Offering”).
The
Subscribers will also be granted a security interest in all the assets of
Food
Innovations Inc., a Florida corporation and wholly-owned subsidiary of the
Company (“Guarantor”)
to be
memorialized in an amendment to a security and pledge agreement substantially
similar to the Security and Pledge Agreement. Amendment to the Security and
Pledge Agreements will be entered into by the parties thereto. Guarantor
will
also provide to the Subscribers the “Guaranty
Agreement”
entered
into in connection with the Prior Offering. The Company will execute such
other
agreements, documents and financing statements to be filed at the Company’s
expense with such jurisdictions, states and counties designated by the
Subscribers. The
Company will also execute all such documents reasonably necessary in the
opinion
of Subscriber to memorialize and further protect the security interest described
herein. The Subscribers will appoint a Collateral Agent to represent them
collectively in connection with the security interest to be granted in the
assets of the Company. The appointment will be pursuant to the “Collateral
Agent Agreement”,
entered into in connection with the Prior Offering.
3. Warrants.
(a) Class
A Warrants.
On the
Closing Date, the Company will issue and deliver Class A Warrants to the
Subscribers. One Class A Warrant will be issued for each Share which would
be
issued on the Closing Date assuming the complete conversion of the Notes
issued
on the Closing Date at the Conversion Price in effect on the Closing Date.
The
per Warrant Share exercise price to acquire a Warrant Share upon exercise
of a
Class A Warrant shall be equal to $0.0115. The Class A Warrants shall be
exercisable until five (5) years after the Closing Date.
(b) Class
B Warrants.
On the
Closing Date, the Company will issue and deliver Class B Warrants to the
Subscribers. One Class B Warrant will be issued for each four Shares which
would
be issued on the Closing Date assuming the complete conversion of the Notes
issued on the Closing Date at the Conversion Price in effect on the Closing
Date. The per Warrant Share exercise price to acquire a Warrant Share upon
exercise of a Class B Warrant shall be equal to $0.011. The Class B Warrants
shall be exercisable from the Closing Date until the Registration Statement
(as
defined in Section 11.1(iv) of this Agreement) has been effective for the
public
unrestricted resale of the Registrable Securities (as defined in Section
11.1(i)
of this Agreement) for one hundred and eighty (180) days.
(c) Class
C Warrants.
On the
Closing Date, the Company will issue and deliver Class C Warrants to the
Subscribers. Four Class C Warrants will be issued for each ten Shares which
would be issued on the Closing Date assuming the complete conversion of the
Notes issued on the Closing Date at the Conversion Price in effect on the
Closing Date. The per Warrant Share exercise price to acquire a Warrant Share
upon exercise of a Class C Warrant shall be $0.005. The Class C Warrants
shall
be exercisable from the Closing Date until the Registration Statement has
been
effective for the public unrestricted resale of the Registrable Securities
for
five months.
(d) Collectively,
the Class A, Class B and Class C Warrants are referred to herein as
Warrants.
4. Subscriber's
Representations and Warranties.
Each
Subscriber hereby represents and warrants to and agrees with the Company
only as
to such Subscriber that:
(a) Information
on Company.
The
Subscriber has been furnished with or has had access to the Company's unaudited
financial statements for the years ended December 31, 2003 and December 31,
2004
(hereinafter referred to collectively as the "Reports").
In
addition, the Subscriber has received in writing from the Company such other
information concerning its operations, financial condition and other matters
as
the Subscriber has requested in writing (such other information is collectively,
the "Other
Written Information"),
and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(b) Information
on Subscriber.
The
Subscriber is, and will be at the time of the conversion of the Notes and
exercise of any of the Warrants, an "accredited
investor",
as
such term is defined in Regulation D promulgated by the Commission under
the
1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with
its
representatives, has such knowledge and experience in financial, tax and
other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make
an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and
is
duly and legally qualified to purchase and own the Securities. The Subscriber
is
able to bear the risk of such investment for an indefinite period and to
afford
a complete loss thereof. The information set forth on the signature page
hereto
regarding the Subscriber is accurate.
(c) Purchase
of Notes and Warrants.
On the
Closing Date, the Subscriber will purchase the Notes and Warrants as principal
for its own account for investment only and not with a view toward, or for
resale in connection with, the public sale or any distribution
thereof.
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(d) Compliance
with Securities Act.
The
Subscriber understands and agrees that the Securities have not been registered
under the 1933 Act or any applicable state securities laws, by reason of
their
issuance in a transaction that does not require registration under the 1933
Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration. In
any
event, and subject to compliance with applicable securities laws, the Subscriber
may enter into only lawful hedging transactions with third parties, which
may in
turn engage in lawful short sales of the Securities in the course of hedging
the
position they assume and the Subscriber may also enter into only lawful short
positions or other derivative transactions relating to the Securities, or
interests in the Securities, and deliver the Securities, or interests in
the
Securities, to close out their short or other positions or otherwise settle
short sales or other transactions, or loan or pledge the Securities, or
interests in the Securities, to third parties that in turn may dispose of
these
Securities.
(e) Shares
Legend.
The
Shares and the Warrant Shares shall bear the following or similar
legend:
"THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED
FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW
OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO INNOVATIVE FOOD HOLDINGS, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(f) Warrants
Legend.
The
Warrants shall bear the following
or
similar legend:
"THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE
STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO INNOVATIVE
FOOD HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Note
Legend.
The
Note shall bear the following legend:
"THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO INNOVATIVE FOOD HOLDINGS, INC. THAT SUCH REGISTRATION IS
NOT
REQUIRED."
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(h) Communication
of Offer.
The
offer to sell the Securities was directly communicated to the Subscriber
by the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(i) Authority;
Enforceability.
This
Agreement and other agreements delivered together with this Agreement or
in
connection herewith have been duly authorized, executed and delivered by
the
Subscriber and are valid and binding agreements enforceable in accordance
with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights generally and to general principles of equity;
and Subscriber has full corporate power and authority necessary to enter
into
this Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Subscriber relating
hereto.
(j) Restricted
Securities.
Subscriber understands that the Securities have not been registered under
the
1933 Act and such Subscriber will not sell, offer to sell, assign, pledge,
hypothecate or otherwise transfer any of the Securities unless pursuant to
an
effective registration statement under the 1933 Act or an exemption from
registration for such transfer is available. Notwithstanding anything to
the
contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities
to
its Affiliates (as defined below) provided that each such Affiliate is an
“accredited
investor”
under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an “Affiliate”
of any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with
such
person or entity. For purposes of this definition, “control” means the power to
direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract
or
otherwise.
(k) No
Governmental Review.
Each
Subscriber understands that no United States federal or state agency or any
other governmental or state agency has passed on or made recommendations
or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the
offering of the Securities.
(l) Correctness
of Representations.
Each
Subscriber represents as to such Subscriber that the foregoing representations
and warranties are true and correct as of the date hereof and, unless a
Subscriber otherwise notifies the Company prior to the Closing Date shall
be
true and correct as of the Closing Date.
(m) Survival.
The
foregoing representations and warranties shall survive the Closing Date for
a
period of two years.
5. Company
Representations and Warranties.
The
Company represents and warrants to and agrees with each Subscriber
that:
(a) Due
Incorporation.
Except
as set forth in the attached Schedule 5(a), the Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry
on
their business as now being conducted. Except as set forth in the attached
Schedule 5(a), the Company and each of its Subsidiaries is duly qualified
as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes
such
qualification necessary, other than those jurisdictions in which the failure
to
so qualify would not have a Material Adverse Effect. For purpose of this
Agreement, a “material
adverse effect”
shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken as a whole. For purposes
of this Agreement, “Subsidiary”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited
liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by
such
entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
5(a)
hereto.
All representations made by or relating to the Company of a historical or
prospective nature and all undertakings described in Sections 9(g) through
9(l)
shall relate and refer to the Company and the Subsidiaries.
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(b) Outstanding
Stock.
All
issued and outstanding shares of capital stock of the Company and each of
its
Subsidiaries have been duly authorized and validly issued and are fully paid
and
nonassessable.
(c) Authority;
Enforceability.
This
Agreement, the Note, the Warrants, Security Agreement (described in Section
2 of
this Agreement), Collateral Agent Agreement (described in Section 2 of this
Agreement), the Escrow Agreement and any other agreements delivered together
with this Agreement or in connection herewith (collectively “Transaction
Documents”)
have
been duly authorized, executed and delivered by the Company and are valid
and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
(d) Additional
Issuances.
There
are no outstanding agreements or preemptive or similar rights affecting the
Company's common stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale, issuance or registration of any
shares of common stock or equity of the Company or other equity interest
in any
of the Subsidiaries of the Company except as described on Schedule
5(d).
(e) Consents.
No
consent, approval, authorization or order of any court, governmental agency
or
body or arbitrator having jurisdiction over the Company, or any of its
Affiliates, the Pink Sheets Electronic Quotation Service (“Pink
Sheets”)
nor
the Company's shareholders is required for the execution by the Company of
the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation,
the
issuance and sale of the Securities.
(f) No
Violation or Conflict.
Assuming the representations and warranties of the Subscribers in Section
4 are
true and correct, neither the issuance and sale of the Securities nor the
performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the articles or certificate of
incorporation, charter or bylaws of the Company or Subsidiaries, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company or any Subsidiary of any court,
governmental agency or body, or arbitrator having jurisdiction over the Company
or any Subsidiary or over the properties or assets of the Company or any
Subsidiary, (C) the terms of any bond, debenture, note or any other evidence
of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or
any
Subsidiary is a party, by which the Company or any Subsidiary is bound, or
to
which any of the properties of the Company or any Subsidiary is subject,
or (D)
the terms of any "lock-up"
or
similar provision of any underwriting or similar agreement to which the Company,
or any Subsidiary is a party except the violation, conflict, breach, or default
of which would not have a Material Adverse Effect on the Company;
or
5
(ii) result
in
the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company, Subsidiaries or any of its
Affiliates; or
(iii) result
in
the activation of any anti-dilution rights or a reset or repricing of any
debt
or security instrument of any other creditor or equity holder of the Company,
or
Subsidiary nor result in the acceleration of the due date of any obligation
of
the Company or Subsidiary; or
(iv) result
in
the activation of any piggy-back registration rights of any person or entity
holding securities of the Company or having the right to receive securities
of
the Company.
(g) The
Securities.
The
Securities upon issuance:
(i) are,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and
any
applicable state securities laws;
(ii) have
been, or will be, duly and validly authorized and on the date of conversion
of
the Notes and upon exercise of the Warrants, the Shares and Warrant Shares
will
be duly and validly issued, fully paid and nonassessable (and if registered
pursuant to the 1933 Act, and resold pursuant to an effective registration
statement will be free trading and unrestricted, provided that each Subscriber
complies with the prospectus delivery requirements of the 1933
Act);
(iii) will
not
have been issued or sold in violation of any preemptive or other similar
rights
of the holders of any securities of the Company;
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders; and
(v) will
not
result in a Section 5 violation under the 1933 Act.
(h) Litigation.
There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates
or
Subsidiaries that would affect the execution by the Company or the performance
by the Company of its obligations under the Transaction Documents. Except
as
disclosed in the Reports, there is no pending or, to the best knowledge of
the
Company, basis for or threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its Affiliates or Subsidiaries which litigation
if
adversely determined would have a Material Adverse Effect on the
Company.
(i) No
Market Manipulation.
The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected
to,
cause or result in stabilization or manipulation of the price of the Common
Stock of the Company to facilitate the sale or resale of the Securities or
affect the price at which the Securities may be issued or resold.
(j) Information
Concerning Company.
The
Reports contain all information relating to the Company and its operations
and
financial condition as of their respective dates which information is required
to be disclosed therein. Since the date of the financial statements included
in
the Reports, and except as modified in the Other Written Information or in
the
Schedules hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to
state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when
made.
6
(k) Stop
Transfer.
The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Securities, except as may be required by
any
applicable federal or state securities laws and unless contemporaneous notice
of
such instruction is given to the Subscriber.
(l) Defaults.
The
Company and each Subsidiary is not in violation of its articles of
incorporation, bylaws or formation documents. The Company and each Subsidiary
is
(i) not in default under or in violation of any other material agreement
or
instrument to which it is a party or by which it or any of its properties
are
bound or affected, which default or violation would have a Material Adverse
Effect on the Company, (ii) not in default with respect to any order of any
court, arbitrator or governmental body or subject to or party to any order
of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to its
knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect
on
the Company.
(m) No
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the
rules
and regulations of the Pink Sheets. Nor will the Company or any of its
Affiliates or Subsidiaries take any action or steps that would cause the
offer
of the Securities to be integrated with other offerings. The Company will
not
conduct any offering other than the transactions contemplated hereby that
will
be integrated with the offer or issuance of the Securities.
(n) No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person
acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 0000 Xxx)
in
connection with the offer or sale of the Securities.
(o) Listing.
The
Company's common stock is quoted on the Pink Sheets. The Company has not
received any oral or written notice that its common stock is not eligible
nor
will become ineligible for quotation on the Pink Sheets nor that its common
stock does not meet all requirements for the continuation of such quotation
and
the Company satisfies all the requirements for the continued quotation of
its
common stock on the Pink Sheets.
(p) No
Undisclosed Liabilities.
The
Company and each Subsidiary has no liabilities or obligations which are
material, individually or in the aggregate, which are not disclosed in the
Reports and Other Written Information, other than those incurred in the ordinary
course of their businesses since December 31, 2004 and which, individually
or in
the aggregate, would reasonably be expected to have a Material Adverse Effect
other than as set forth in Schedule
5(p).
(q) No
Undisclosed Events or Circumstances.
Since
December 31, 2004, no event or circumstance has occurred or exists with respect
to the Company and each Subsidiary or their businesses, properties, operations
or financial condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company
but
which has not been so publicly announced or disclosed in the
Reports.
(r) Capitalization.
The
authorized and outstanding capital stock of the Company as of the date of
this
Agreement and the Closing Date are set forth on Schedule
5(d).
Except
as set forth in the Reports and Other Written Information and Schedule
5(d),
there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company or Subsidiaries.
All of
the outstanding shares of Common Stock of the Company and Subsidiaries have
been
duly and validly authorized and issued and are fully paid and
nonassessable.
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(s) Dilution.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment,
that the issuance of the Securities is in the best interests of the Company.
The
Company specifically acknowledges that its obligation to issue the Shares
upon
conversion of the Notes, and the Warrant Shares upon exercise of the Warrants
is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company or parties entitled to receive equity of the Company.
(t) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited
to
disputes or conflicts over payment owed to such accountants and
lawyers.
(u) Investment
Company.
The
Company is not an Affiliate of an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.
(v) Correctness
of Representations.
The
Company represents that the foregoing representations and warranties are
true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to the Closing Date, shall
be
true and correct in all material respects as of the Closing Date.
(w) Survival.
The
foregoing representations and warranties shall survive the Closing Date for
a
period of two years.
6. Regulation
D Offering.
The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder. On the Closing Date, the Company will provide an
opinion
reasonably acceptable to Subscriber from the Company's legal counsel opining
on
the availability of an exemption from registration under the 1933 Act as
it
relates to the offer and issuance of the Securities and other matters reasonably
requested by Subscribers. A form of the legal opinion is annexed hereto as
Exhibit
C.
The
Company will provide, at the Company's expense, such other legal opinions
in the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and exercise of the
Warrants.
7.1. Conversion
of Note.
(a) Upon
the
conversion of a Note or part thereof, the Company shall, at its own cost
and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue
stock
certificates in the name of Subscriber (or its nominee) or such other persons
as
designated by Subscriber and in such denominations to be specified at conversion
representing the number of shares of common stock issuable upon such conversion.
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common Stock
and
that, unless waived by the Subscriber, the Shares will be free-trading, and
freely transferable, and will not contain a legend restricting the resale
or
transferability of the Shares provided the Shares are being sold pursuant
to an
effective registration statement covering the Shares or are otherwise exempt
from registration.
(b) Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, any sum due to the Subscriber arising under the Transaction Documents
including Liquidated Damages, or part thereof by delivering via telecopier
an
executed and completed Notice of Conversion (a form of which is annexed as
Exhibit
A
to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement. The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied.
Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion
Date.
The
Company will itself or cause the Company’s transfer agent to transmit the
Company's Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt
by such
Subscriber within three (3) business days after receipt by the Company of
the
Notice of Conversion (such third day being the "Delivery
Date").
In
the event the Shares are electronically transferable, then delivery of the
Shares must
be made
by electronic transfer provided request for such electronic transfer has
been
made by the Subscriber. A Note representing the balance of the Note not so
converted will be provided by the Company to the Subscriber if requested
by
Subscriber, provided the Subscriber delivers an original Note to the Company.
To
the extent that a Subscriber elects not to surrender a Note for reissuance
upon
partial payment or conversion, the Subscriber hereby indemnifies the Company
against any and all loss or damage attributable to a third-party claim in
an
amount in excess of the actual amount then due under the Note.
8
(c) The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
described in Section 7.2 hereof, later than two business days after the Delivery
Date or later than the Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Subscriber. As compensation
to the
Subscriber for such loss, the Company agrees to pay (as liquidated damages
and
not as a penalty) to the Subscriber for late issuance of Shares in the form
required pursuant to Section 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each $10,000
of Note
principal amount being converted, of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under this
Section
in immediately available funds upon demand. Furthermore, in addition to any
other remedies which may be available to the Subscriber, in the event that
the
Company fails for any reason to effect delivery of the Shares by the Delivery
Date or make payment by the Mandatory Redemption Payment Date, the Subscriber
will be entitled to revoke all or part of the relevant Notice of Conversion
or
rescind all or part of the notice of Mandatory Redemption by delivery of
a
notice to such effect to the Company whereupon the Company and the Subscriber
shall each be restored to their respective positions immediately prior to
the
delivery of such notice, except that the liquidated damages described above
shall be payable through the date notice of revocation or rescission is given
to
the Company.
(d) Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed
by the
Company to the Subscriber and thus refunded to the Company.
7.2. Mandatory
Redemption at Subscriber’s Election.
In the
event the Company is prohibited from issuing Shares, or fails to timely deliver
Shares on a Delivery Date, or upon the occurrence of any other Event of Default
(as defined in the Note or in this Agreement), then at the Subscriber's
election, the Company must pay to the Subscriber ten (10) business days after
request by the Subscriber, at the Subscriber’s election, a sum of money
determined by (i) multiplying up to the outstanding principal amount of the
Note
designated by the Subscriber by 120%, or (ii) multiplying the number of Shares
otherwise deliverable upon conversion of an amount of Note principal and/or
interest designated by the Subscriber (with the date of giving of such
designation being a “Deemed
Conversion Date”)
at the
then Conversion Price that would be in effect on the Deemed Conversion Date
by
the highest closing price of the Common Stock on the principal market for
the
period commencing on the Deemed Conversion Date until the day prior to the
receipt of the Mandatory Redemption Payment, whichever is greater, together
with
accrued but unpaid interest thereon and any other sums arising and outstanding
under the Transaction Documents ("Mandatory
Redemption Payment").
The
Mandatory Redemption Payment must be received by the Subscriber on the same
date
as the Company Shares otherwise deliverable or within ten (10) business days
after request, whichever is sooner ("Mandatory
Redemption Payment Date").
Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
for
the twenty day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment calculated pursuant to subsections (i) and (ii) above of this Section
7.2. In the event of a “Change
in Control”
(as
defined below), the Subscriber may demand, and the Company shall pay, a
Mandatory Redemption Payment equal to 105% of the outstanding principal amount
of the Note designated by the Subscriber together with accrued but unpaid
interest thereon and any other sums arising and outstanding under the
Transaction Documents. For purposes of this Section 7.2, “Change
in Control”
shall
mean (i) the Company no longer having a class of shares publicly tradable
and
listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
entity, (iii) a majority of the board of directors of the Company as of the
Closing Date no longer serving as directors of the Company, or (iv) if the
holders of the Company’s Common Stock as of the Closing Date beneficially own at
any time after the Closing Date less than fifty percent of the Common stock
owned by them on the Closing Date.
9
7.3. Maximum
Conversion.
The
Subscriber shall not be entitled to convert on a Conversion Date that amount
of
the Note in connection with that number of shares of Common Stock which would
be
in excess of the sum of (i) the number of shares of common stock beneficially
owned by the Subscriber and its Affiliates on a Conversion Date, and (ii)
the
number of shares of Common Stock issuable upon the conversion of the Note
with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Subscriber
and its Affiliates of more than 4.99% of the outstanding shares of common
stock
of the Company on such Conversion Date. For the purposes of the provision
to the
immediately preceding sentence, beneficial ownership shall be determined
in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 4.99% and
aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber
may
waive the conversion limitation described in this Section 7.3, in whole or
in
part, upon and effective after 61 days prior written notice to the Company.
The
Subscriber may allocate which of the equity of the Company deemed beneficially
owned by the Subscriber shall be included in the 4.99% amount described above
and which shall be allocated to the excess above 4.99%.
7.4. Injunction
- Posting of Bond.
In the
event a Subscriber shall elect to convert a Note or part thereof or exercise
the
Warrant in whole or in part, the Company may not refuse conversion or exercise
based on any claim that such Subscriber or any one associated or affiliated
with
such Subscriber has been engaged in any violation of law, or for any other
reason, unless, an injunction from a court, on prior notice to Subscriber,
restraining and or enjoining conversion of all or part of said Note or exercise
of all or part of said Warrant shall have been sought and obtained by the
Company and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 130% of the amount of the Note, or aggregate
purchase price of the Warrant Shares which are subject to the injunction,
which
bond shall remain in effect until the completion of arbitration/litigation
of
the dispute and the proceeds of which shall be payable to such Subscriber
to the
extent Subscriber obtains judgment.
7.5. Buy-In.
In
addition to any other rights available to the Subscriber, if the Company
fails
to deliver to the Subscriber such shares issuable upon conversion of a Note
by
the Delivery Date and if seven (7) business days after the Delivery Date
the
Subscriber purchases (in an open market transaction or otherwise) shares
of
Common Stock to deliver in satisfaction of a sale by such Subscriber of the
Common Stock which the Subscriber was entitled to receive upon such conversion
(a "Buy-In"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which
amount
shall be paid as liquidated damages and not as a penalty). For example, if
the
Subscriber purchases shares of Common Stock having a total purchase price
of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000
of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect
of
the Buy-In.
7.6 Adjustments.
The
Conversion Price, Warrant exercise price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be equitably adjusted
to offset the effect of stock splits, stock dividends, pro rata distributions
of
property or equity interests to the Company’s shareholders.
10
7.7. Optional
Redemption.
Provided an Event of Default (as defined in this Agreement and the Note)
has not
occurred, whether or not such Event of Default has been cured, the Company
will
have the option of prepaying the outstanding principal amount of the Note
("Optional
Redemption"),
in
whole or in part, together with the interest accrued thereon, by paying to
the
Subscriber a sum of money equal to one hundred twenty percent (120%) of the
Principal Amount to be redeemed, together with accrued but unpaid interest
thereon and interest that will accrue until the actual repayment date and
any
and all other sums due, accrued or payable to the Subscriber arising under
the
Note, the Subscription Agreement or any Transaction Document (the "Redemption
Amount")
on the
day written notice of redemption (the "Notice
of Redemption")
is
given to the Subscriber. The Notice of Redemption shall specify the date
for
such Optional Redemption (the "Redemption
Payment Date"),
which
date shall be not less than ten (10) business days after the date of the
Notice
of Redemption (the "Redemption
Period").
A
Notice of Redemption shall not be effective with respect to any portion of
the
Note for which the Subscriber has a pending election to convert, or for
Conversion notices given by the Subscriber prior to the Redemption Payment
Date.
On the Redemption Payment Date, the Redemption Amount shall be paid in good
funds to the Subscriber. In the event the Company fails to pay the Redemption
Amount on the Redemption Payment Date as set forth herein, then (i) such
Notice
of Redemption will be null and void, (ii) Company will have no further right
to
deliver another Notice of Redemption, and (iii) Company’s failure may be deemed
by Subscriber to be a non-curable Event of Default.
8. Reserved.
9. Covenants
of the Company.
The
Company covenants and agrees with the Subscribers as follows:
(a) Stop
Orders.
The
Company will advise the Subscribers, promptly after it receives notice of
issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in
any
jurisdiction, or the initiation of any proceeding for any such
purpose.
(b) Listing.
The
Company shall promptly secure the listing of the shares of Common Stock and
the
Warrant Shares upon each national securities exchange, or electronic or
automated quotation system upon which they are or become eligible for listing
(subject to official notice of issuance) and shall maintain such listing
so long
as any Warrants are outstanding. The Company will maintain the listing of
its
Common Stock on the Pink Sheets, American Stock Exchange, Nasdaq SmallCap
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the “Principal
Market”),
and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common
Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Pink Sheets is and will be the Principal Market.
(c) Market
Regulations.
The
Company shall notify the Commission, the Principal Market and applicable
state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action
and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to Subscriber.
(d) Reporting
Requirements.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitation, the Company will
use
its best efforts to (v) cause its Common Stock to be registered under Section
12(b) or 12(g) of the 1934 Act, (x) comply in all respects with its reporting
and filing obligations under the 1934 Act, (y) comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(b) or 12(g) of the 1934 Act, as applicable, and (z)
comply with all requirements related to any registration statement filed
pursuant to this Agreement. The Company will use its best efforts not to
take
any action or file any document (whether or not permitted by the 1933 Act
or the
1934 Act or the rules thereunder) to terminate or suspend such registration
or
to terminate or suspend its reporting and filing obligations under said acts
until two (2) years after the Closing Date. Until the earlier of the resale
of
the Common Stock and the Warrant Shares by each Subscriber or two (2) years
after the Warrants have been exercised, the Company will use its best efforts
to
continue the listing or quotation of the Common Stock on the Principal Market
or
other market with the reasonable consent of Subscribers holding a majority
of
the Shares and Warrant Shares, and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of
the Principal Market. The Company agrees to timely file a Form D with respect
to
the Securities if required under Regulation D and to provide a copy thereof
to
each Subscriber promptly after such filing.
11
(e) Use
of
Proceeds.
The
proceeds of the Offering will be employed by the Company for the purposes
set
forth on Schedule
9(e)
hereto.
A deviation of more than 5% of any single stated use of proceeds or a deviation
in the aggregate of more than 10% will be an Event of Default under the Note.
Except as set forth on Schedule
9(e),
the
Purchase Price may not and will not be used for accrued and unpaid officer
and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company nor non-trade obligations outstanding
on a Closing Date. The proceeds will be retained in escrow pursuant to the
Escrow Agreement and disbursed over time in compliance with the purposes
set
forth on Schedule
9(e).
(f) Reservation.
Prior
to the Closing Date, the Company undertakes to reserve, pro rata,
on
behalf of each holder of a Note or Warrant, from its authorized but unissued
common stock, a number of common shares equal to 150% of the amount of Common
Stock necessary to allow each holder of a Note to be able to convert all
such
outstanding Notes and interest and reserve the amount of Warrant Shares issuable
upon exercise of the Warrants. Failure to have sufficient shares reserved
pursuant to this Section 9(f) for three (3) consecutive business days or
ten
(10) days in the aggregate shall be a material default of the Company’s
obligations under this Agreement and an Event of Default under the
Note.
(g) Taxes.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
promptly pay and discharge, or cause to be paid and discharged, when due
and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid if
the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will
pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefore.
(h) Insurance.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep its assets which are of an insurable character insured by financially
sound
and reputable insurers against loss or damage by fire, explosion and other
risks
customarily insured against by companies in the Company’s line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and
not in
any event less than one hundred percent (100%) of the insurable value of
the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability
to
persons and property to the extent and in the manner customary for companies
in
similar businesses similarly situated and to the extent available on
commercially reasonable terms.
(i) Books
and Records.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep true records and books of account in which full, true and correct entries
will be made of all dealings or transactions in relation to its business
and
affairs in accordance with generally accepted accounting principles applied
on a
consistent basis.
12
(j) Governmental
Authorities.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company shall
duly observe and conform in all material respects to all valid requirements
of
governmental authorities relating to the conduct of its business or to its
properties or assets.
(k) Intellectual
Property.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business.
(l) Properties.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitation, the Company will
keep
its properties in good repair, working order and condition, reasonable wear
and
tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company
will
at all times comply with each provision of all leases to which it is a party
or
under which it occupies property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.
(m) Confidentiality/Public
Announcement.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company agrees
that except in connection with a Form 8-K or the Registration Statement,
it will
not disclose publicly or privately the identity of the Subscribers unless
expressly agreed to in writing by a Subscriber or only to the extent required
by
law and then only upon five days prior notice to Subscriber. In any event
and
subject to the foregoing, the Company undertakes to file a Form 8-K or make
a
public announcement describing the Offering on the Closing Date. In the Form
8-K
or public announcement, the Company will specifically disclose the amount
of
common stock outstanding immediately after each Closing. A form of the proposed
Form 8-K or public announcement to be employed in connection with the Closing
Date is annexed hereto as Exhibit
D.
(n) Further
Registration Statements.
Except
for a registration statement filed on behalf of the Subscribers pursuant
to
Section 11 of this Agreement or in connection with the securities identified
on
Schedule
11.1
hereto,
the Company will not file any registration statements or amend any already
filed
registration statement with the Commission or with state regulatory authorities
without the consent of the Subscriber until the sooner of (i) the Registration
Statement shall have been current and available for use in connection with
the
unrestricted public resale of the Shares and Warrant Shares for 270 days,
(ii)
until all the Shares have been resold or transferred by the Subscribers pursuant
to the Registration Statement or Rule 144, without regard to volume limitations,
or (iii) the date the Note has been fully paid (“Exclusion
Period”).
(o) Non-Public
Information.
The
Company covenants and agrees that neither it nor any other Person acting
on its
behalf will provide any Subscriber or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber shall
be
relying on the foregoing representations in effecting transactions in securities
of the Company.
13
(p) Reporting
Company.
The
Company is a publicly-held company and will use its best efforts to become
subject to the reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934
Act")
and
will have a class of common shares registered pursuant to Section 12(g) of
the
1934 Act. Pursuant to the provisions of the 1934 Act, the Company will timely
filed all reports and other materials required to be filed thereunder with
the
Commission.
(q) The
Company undertakes to use its best efforts to be listed on the OTC Bulletin
Board within ninety-five (95) days of the Closing Date.
10. Covenants
of the Company and Subscriber Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation
by
Company or breach of any warranty by Company in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into by
the
Company and Subscriber relating hereto.
(b) Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, Affiliates, control
persons against any claim, cost, expense, liability, obligation, loss or
damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the
Company or any such person which results, arises out of or is based upon
(i) any
material misrepresentation by such Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by such Subscriber of any covenant or undertaking
to be
performed by such Subscriber hereunder, or any other agreement entered into
by
the Company and Subscribers, relating hereto.
(c) In
no
event shall the liability of any Subscriber or permitted successor hereunder
or
under any other agreement delivered in connection herewith be greater in
amount
than the dollar amount of the net proceeds actually received by such Subscriber
upon the sale of Registrable Securities (as defined herein).
(d) The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Sections 10(a) and 10(b) above.
11.1. Registration
Rights.
The
Company hereby grants the following registration rights to holders of the
Securities.
(i) On
one
occasion, for a period commencing one hundred and ninety-one (191) days after
the Closing Date, but not later than two (2) years after the Closing Date
(“Request
Date”),
upon
a written request therefor from any record holder or holders of more than
50% of
the Shares issued and issuable upon conversion of the Notes and Warrant Shares
actually issued upon exercise of the Warrants, the Company shall prepare
and
file with the Commission a registration statement under the 1933 Act registering
the Shares, and Warrant Shares (which shall include the Warrant Shares issuable
to the Subscribers and Placement Agent) (collectively “Registrable
Securities”)
which
are the subject of such request for unrestricted public resale by the holder
thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities
shall not include Securities which are (A) registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, or (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon receipt
of such request, the Company shall promptly give written notice to all other
record holders of the Registrable Securities that such registration statement
is
to be filed and shall include in such registration statement Registrable
Securities for which it has received written requests within ten (10) days
after
the Company gives such written notice. Such other requesting record holders
shall be deemed to have exercised their demand registration right under this
Section 11.1(i).
14
(ii) If
the
Company at any time proposes to register any of its securities under the
1933
Act for sale to the public, whether for its own account or for the account
of
other security holders or both, except with respect to registration statements
on Forms X-0, X-0 or another form not available for registering the Registrable
Securities for sale to the public, provided the Registrable Securities are
not
otherwise registered for resale by the Subscribers or Holder pursuant to
an
effective registration statement, each such time it will give at least fifteen
(15) days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within ten (10) days after the giving of any such
notice
by the Company, to register any of the Registrable Securities not previously
registered, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities
to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the “Seller”
or
“Sellers”).
In
the event that any registration pursuant to this Section 11.1(ii) shall be,
in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in
such
an underwriting may be reduced by the managing underwriter if and to the
extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to
be sold
by the Company therein; provided, however, that the Company shall notify
the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or
suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.
(iii) If,
at
the time any written request for registration is received by the Company
pursuant to Section 11.1(i), the Company has determined to proceed with the
actual preparation and filing of a registration statement under the 1933
Act in
connection with the proposed offer and sale for cash of any of its securities
for the Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been
given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights
of the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv) The
Company shall file with the Commission not later than the sooner of eighty
(80)
calendar days after the Closing Date (the “Filing
Date”),
and
cause to be declared effective within one hundred and ninety-five (195) days
after the Closing Date (the “Effective
Date”),
a
Form SB-2 registration statement (the “Registration
Statement”)
(or
such other form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act. The Company will
register not less than a number of shares of common stock in the aforedescribed
registration statement that is equal to 150% of the Shares issuable upon
conversion of the Notes and all of the Warrant Shares issuable pursuant to
this
Agreement. The Registrable Securities shall be reserved and set aside
exclusively for the benefit of each Subscriber and Warrant holder, pro rata,
and not
issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder. The Registration Statement will immediately be amended or
additional registration statements will be immediately filed by the Company
as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Without the written consent of the Subscriber, no securities
of the
Company other than the Registrable Securities will be included in the
Registration Statement except as disclosed on Schedule
11.1.
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 11.1(i), 11.1(ii),
or (iv) to effect the registration of any Registrable Securities under the
1933
Act, the Company will, as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect
to such
securities and use its best efforts to cause such registration statement
to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), and promptly provide to the holders
of
the Registrable Securities copies of all filings and Commission letters of
comment and notify Subscribers and Grushko & Xxxxxxx, P.C. (by telecopier
and by email to Xxxxxxxxx@xxx.xxx)
within
one (1) business day after (i) notice that the Commission has no comments
or no
further comments on the Registration Statement, and (ii) the declaration
of
effectiveness of the registration statement, (failure to timely provide notice
as required by this Section 11.2(a) shall be a material breach of the Company’s
obligation and an Event of Default as defined in the Notes);
15
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with
the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
(c) furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered
by
such registration statement;
(d) use
its
best efforts to register or qualify the Sellers’ Registrable Securities covered
by such registration statement under the securities or “blue sky” laws of New
York, and such other jurisdictions as the Sellers shall request in writing,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service
of
process in any such jurisdiction;
(e) if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately
notify the Sellers when a prospectus relating thereto is required to be
delivered under the 1933 Act, of the happening of any event of which the
Company
has knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material
fact or
omits to state a material fact required to be stated therein or necessary
to
make the statements therein not misleading in light of the circumstances
then
existing; and
(g) provided
same would not be in violation of the provision of Regulation FD under the
1934
Act, make available for inspection by the Sellers, and any attorney, accountant
or other agent retained by the Seller or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents
and
properties of the Company, and cause the Company's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the seller, attorney, accountant or agent in connection
with such registration statement.
11.3. Provision
of Documents.
In
connection with each registration described in this Section 11, each Seller
will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably
shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
16
11.4. Non-Registration
Events.
The
Company and the Subscribers agree that the Sellers will suffer damages if
the
Registration Statement is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any registration
statement required under Section 11.1(i) or 11.1(ii) is not filed within
60 days
after written request and declared effective by the Commission within 120
days
after such request, and maintained in the manner and within the time periods
contemplated by Section 11 hereof, and it would not be feasible to ascertain
the
extent of such damages with precision. Accordingly, if (A) the Registration
Statement is not filed on or before the Filing Date, (B) is not declared
effective on or before the Effective Date, (C) if the Registration Statement
is
not declared effective within five (5) business days after receipt by the
Company of a written or oral communication from the Commission that the
Registration Statement will not be reviewed or that the Commission has no
further comments, (D) if the registration statement described in Sections
11.1(i) or 11.1(ii) is not filed within 60 days after such written request,
or
is not declared effective within 120 days after such written request, or
(E) any
registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
is
filed and declared effective but shall thereafter cease to be effective (without
being succeeded within fifteen (15) business days by an effective replacement
or
amended registration statement) for a period of time which shall exceed 30
days
in the aggregate per year (defined as a period of 365 days commencing on
the
date the Registration Statement is declared effective) or more than 20
consecutive days (each such event referred to in clauses (A) through (E)
of this
Section 11.4 is referred to herein as a "Non-Registration
Event"),
then
the Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to two percent (2%) for each thirty (30) days or
part
thereof, of the Purchase Price of the Notes remaining unconverted and purchase
price of Shares issued upon conversion of the Notes owned of record by such
holder which are subject to such Non-Registration Event. The
Company must pay the Liquidated Damages in cash or an amount equal to two
hundred percent of such cash Liquidated Damages if paid in additional shares
of
registered unlegended free-trading shares of Common Stock. Such Common Stock
shall be valued at the Conversion Price in effect on each 30th
day or
shorter period for which Liquidated Damages are payable. The Liquidated Damages
must be paid within ten (10) days after the end of each thirty (30) day period
or shorter part thereof for which Liquidated Damages are payable.
The
Company must pay the Liquidated Damages in cash within ten (10) days after
the
end of each thirty (30) day period or shorter part for which Liquidated Damages
are payable. In the event a Registration Statement is filed by the Filing
Date
but is withdrawn prior to being declared effective by the Commission, then
such
Registration Statement will be deemed to have not been filed. It shall be
deemed
a Non-Registration Event if at any time after the Actual Effective Date the
Company has registered for unrestricted resale on behalf of the Subscriber
fewer
than 125% of the amount of Common Shares issuable upon full conversion of
all
sums due under the Notes and 100% of the Warrant Shares issuable upon exercise
of the Warrants. All oral or written comments received from the Commission
relating to the Registration Statement must be satisfactorily responded to
within ten (10) business days after receipt of the comments from the Commission.
Failure to timely respond is a Non-Registration Event for which Liquidated
Damages shall accrue and be payable by the Company to the holders of Registrable
Securities at the same rate set forth above. Notwithstanding the foregoing,
the
Company shall not be liable to the Subscriber under this Section 11.4 for
any
events or delays occurring as a consequence of the acts or omissions of the
Subscribers contrary to the obligations undertaken by Subscribers in this
Agreement. Liquidated Damages will not accrue or be payable pursuant to this
Section 11.4 nor will a Non-Registration Event be deemed to have occurred
for
times during which Registrable Securities are transferable by the holder
of
Registrable Securities pursuant to Rule 144(k) under the 1933 Act.
11.5. Expenses.
All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses,
fees
and disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky” laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer
agents
and registrars, costs of insurance and fee of one counsel for all Sellers
are
called “Registration Expenses.” All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, including any
fees
and disbursements of any additional counsel to the Seller, are called
"Selling
Expenses."
The
Company will pay all Registration Expenses in connection with the registration
statement under Section 11. Selling Expenses in connection with each
registration statement under Section 11 shall be borne by the Seller and
may be
apportioned among the Sellers in proportion to the number of shares sold
by the
Seller relative to the number of shares sold under such registration statement
or as all Sellers thereunder may agree.
11.6. Indemnification
and Contribution.
17
(a) In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions
of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
to
the Seller to the extent that any such damages arise out of or are based
upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered
by the
Company to the Seller with or prior to the delivery of written confirmation
of
the sale by the Seller to the person asserting the claim from which such
damages
arise, (ii) the final prospectus would have corrected such untrue statement
or
alleged untrue statement or such omission or alleged omission, or (iii) to
the
extent that any such loss, claim, damage or liability arises out of or is
based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller,
or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In
the
event of a registration of any of the Registrable Securities under the 1933
Act
pursuant to Section 11, each Seller severally but not jointly will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and
controlling person for any legal or other expenses reasonably incurred by
them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage
or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished
in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability
of
the Seller hereunder shall be limited to the net proceeds actually received
by
the Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party
other
than under this Section 11.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent
it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake
the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.6(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available
to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
18
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
11.6 but it is judicially determined (by the entry of a final judgment or
decree
by a court of competent jurisdiction and the expiration of time to appeal
or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act
may be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6;
then, and in each such case, the Company and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will
not be
required to contribute any amount in excess of the public offering price
of all
such securities sold by it pursuant to such registration statement; and (z)
no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the 0000 Xxx) will be entitled to contribution from any
person
or entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery
of Unlegended Shares.
(a) Within
three (3) business days (such third (3rd)
business day being the “Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a notice that Registrable
Securities have been sold either pursuant to the Registration Statement or
Rule
144 under the 1933 Act, (ii) a representation that the prospectus delivery
requirements, or the requirements of Rule 144, as applicable, have been
satisfied, and (iii) the original share certificates representing the shares
of
Common Stock that have been sold, and (iv) in the case of sales under Rule
144,
customary representation letters of the Subscriber and/or Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver, to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery
of
shares of Common Stock without any legends including the legend set forth
in
Section 4(e) above, issuable pursuant to any effective and current Registration
Statement described in Section 11 of this Agreement or pursuant to Rule 144
under the 1933 Act (the “Unlegended
Shares”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
unsold shares of Common Stock, if any, to the Subscriber at the address
specified in the notice of sale, via express courier, by electronic transfer
or
otherwise on or before the Unlegended Shares Delivery Date. Transfer fees
shall
be the responsibility of the Seller.
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, if
the
Company’s transfer agent is participating in the Depository Trust Company
(“DTC”)
Fast
Automated Securities Transfer program, upon request of a Subscriber, so long
as
the certificates therefor do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the
Company shall cause its transfer agent to electronically transmit the Unlegended
Shares by crediting the account of Subscriber’s prime Broker with DTC through
its Deposit Withdrawal Agent Commission system. Such delivery must be made
on or
before the Unlegended Shares Delivery Date.
(c) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof later than two business days after the Unlegended
Shares Delivery Date could result in economic loss to a Subscriber. As
compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber
for
late delivery of Unlegended Shares in the amount of $100 per business day
after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company
fails
to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities
subject
to such default may, at its option, require the Company to redeem all or
any
portion of the Shares and Warrant Shares subject to such default at a price
per
share equal to 120% of the Purchase Price of such Common Stock and Warrant
Shares. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand.
19
(d) In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber purchases (in an open market transaction or otherwise)
shares of common stock to deliver in satisfaction of a sale by such Subscriber
of the shares of Common Stock which the Subscriber was entitled to receive
from
the Company (a "Buy-In"), then the Company shall pay in cash to the Subscriber
(in addition to any remedies available to or elected by the Subscriber) the
amount by which (A) the Subscriber's total purchase price (including brokerage
commissions, if any) for the shares of common stock so purchased exceeds
(B) the
aggregate purchase price of the shares of Common Stock delivered to the Company
for reissuance as Unlegended Shares, together with interest thereon at a
rate of
15% per annum, accruing until such amount and any accrued interest thereon
is
paid in full (which amount shall be paid as liquidated damages and not as
a
penalty). For example, if a Subscriber purchases shares of Common Stock having
a
total purchase price of $11,000 to cover a Buy-In with respect to $10,000
of
purchase price of shares of Common Stock delivered to the Company for reissuance
as Unlegended Shares, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the
Buy-In.
(e) In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 11.7 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law,
or for
any other reason, unless, an injunction or temporary restraining order from
a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares or exercise of all or part of said Warrant shall have been sought
and
obtained and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 130% of the amount of the aggregate purchase
price
of the Common Stock and Warrant Shares which are subject to the injunction
or
temporary restraining order, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment
in
Subscriber’s favor.
12. (a) Right
of First Refusal.
Until
the Registration Statement has been effective for the unrestricted public
resale
of the Shares and Warrant Shares for 365 days (which period shall be tolled
during the pendency of an Event of Default), the Subscribers shall be given
not
less than seven (7) business days prior written notice of any proposed sale
by
the Company of its common stock or other securities or debt obligations,
except
in connection with (i) as full or partial consideration in connection with
merger, consolidation or purchase of substantially all of the securities
or
assets of any corporation or other entity, and (ii) as has been described
in the
Reports or Other Written Information filed with the Commission delivered
to the
Subscribers prior to the Closing Date (collectively “Excepted
Issuances”).
The
Subscribers who exercise their rights pursuant to this Section 12(a) shall
have
the right during the seven (7) business days following receipt of the notice
to
purchase such offered common stock, debt or other securities in accordance
with
the terms and conditions set forth in the notice of sale in the same proportion
to each other as their purchase of Notes in the Offering in an amount equal
to
up to 40% of the principal dollar amount to be sold by the Company. In the
event
such terms and conditions are modified during the notice period, the Subscribers
shall be given prompt notice of such modification and shall have the right
during the original notice period or for a period of seven (7) business days
following the notice of modification, whichever is longer, to exercise such
right.
20
(b) Offering
Restrictions.
From
the date of this Agreement and until the Effective Date of the Registration
Statement or during the pendency of an Event of Default or when any liquidated
damages described in this Agreement are accruing or outstanding, except in
connection with the Excepted Issuances, the Company will not enter into any
agreement to, nor issue any equity, convertible debt or other securities
convertible into Common Stock without the prior written consent of the
Subscribers, which consent may be withheld for any reason.
(c) Favored
Nations Provision.
Other
than the Excepted Issuances, if at any time Notes or Warrants are outstanding
the Company shall offer, issue or agree to issue any common stock or securities
convertible into or exercisable for shares of common stock (or modify any
of the
foregoing which may be outstanding) to any person or entity at a price per
share
or conversion or exercise price per share which shall be less than the
Conversion Price described in Section 2.1(b)(i) or Section 2.1(b)(ii) of
the
Note in respect of the Shares, or if less than the Warrant exercise price
in
respect of the Warrant Shares, without the consent of each Subscriber holding
Notes, Shares and/or Warrants, or Warrant Shares, then the Company shall
issue,
for each such occasion, additional shares of Common Stock to each Subscriber
so
that the average per share purchase price of the shares of Common Stock issued
to the Subscriber (of only the Common Stock or Warrant Shares still owned
by the
Subscriber) is equal to such other lower price per share and the Conversion
Price and Warrant Exercise Price shall automatically be reduced to such other
lower price per share. The average Purchase Price of the Shares and average
exercise price in relation to the Warrant Shares shall be calculated separately
for the Shares and Warrant Shares. The foregoing calculation and issuance
shall
be made separately for Shares received upon conversion of Notes and separately
for Warrant Shares. The delivery to the Subscriber of the additional shares
of
Common Stock shall be not later than the closing date of the transaction
giving
rise to the requirement to issue additional shares of Common Stock. The
Subscriber is granted the registration rights described in Section 11 hereof
in
relation to such additional shares of Common Stock except that the Filing
Date
and Effective Date vis-à-vis such additional common shares shall be,
respectively, the sixtieth (60th)
and one
hundred and twentieth (120th)
date
after the closing date giving rise to the requirement to issue the additional
shares of Common Stock. For purposes of the issuance and adjustment described
in
this paragraph, the issuance of any security of the Company carrying the
right
to convert such security into shares of Common Stock or of any warrant, right
or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the sooner of the agreement to or actual issuance
of
such convertible security, warrant, right or option and again at any time
upon
any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price or Warrant exercise price in effect upon such issuance.
The
rights of the Subscriber set forth in this Section 12 are in addition to
any
other rights the Subscriber has pursuant to this Agreement, the Note, any
Transaction Document, and any other agreement referred to or entered into
in
connection herewith.
(d) Maximum
Exercise of Rights.
In the
event the exercise of the rights described in Sections 12(a) and 12(c) 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 a Subscriber calculated in
the
manner described in Section 7.3 of this Agreement, then the issuance of such
additional shares of common stock of the Company to such Subscriber will
be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such common stock without exceeding the maximum amount set
forth calculated in the manner described in Section 7.3 of this Agreement.
The
determination of when such common stock may be issued shall be made by each
Subscriber as to only such Subscriber.
13. Miscellaneous.
(a) Notices.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or
the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: Innovative Food Holdings,
Inc., 0000 Xxxxx Xxxxxx Xxx, Xxxxx #0, Xxxxxx, XX 00000, Attn: Xxx Xxxxxxxx,
CEO
& President, telecopier number: (000) 000-0000, with an additional copy by
telecopier only to: Xxxxxx Xxxxxxxxx, Esq., Feder, Kaszovitz, Isaacson, Weber,
Xxxxx, Bass & Rhine LLP, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000-0000,
telecopier number: (000) 000-0000, and (ii) if to the Subscribers, to: the
one
or more addresses and telecopier numbers indicated on the signature pages
hereto, with an additional copy by telecopier only to: Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier
number:
(000) 000-0000.
21
(b) Entire
Agreement; Assignment.
This
Agreement and other documents delivered in connection herewith represent
the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No
right
or obligation of either party shall be assigned by that party without prior
notice to and the written consent of the other party.
(c)
Counterparts/Execution.
This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d) Law
Governing this Agreement.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of New York without regard to principles of conflicts of laws. Any
action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts
of New
York or in the federal courts located in the state of New York. The
parties and the individuals executing this Agreement and other agreements
referred to herein or delivered in connection herewith on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by
jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of
this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith
and
shall be deemed modified to conform with such statute or rule of law. Any
such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
(e) Specific
Enforcement, Consent to Jurisdiction.
The
Company and Subscriber acknowledge and agree that irreparable damage would
occur
in the event that any of the provisions of this Agreement were not performed
in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 13(d) hereof, each of the Company, Subscriber and any
signator hereto in his personal capacity hereby waives, and agrees not to
assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction in New York of such court, that the suit, action
or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or
limit
any right to serve process in any other manner permitted by law.
22
(f) Independent
Nature of Subscribers.
The Company acknowledges that the obligations of each Subscriber under the
Transaction Documents are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that the decision of each Subscriber
to purchase Securities has been made by such Subscriber independently of
any
other Subscriber and independently of any information, materials, statements
or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to
any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges
that nothing contained in any Transaction Document, and no action taken by
any
Subscriber pursuant hereto or thereto (including, but not limited to, the
(i)
inclusion of a Subscriber in the SB-2 Registration Statement and (ii) review
by,
and consent to, such Registration Statement by a Subscriber) shall be deemed
to
constitute the Subscribers as a partnership, an association, a joint venture
or
any other kind of entity, or create a presumption that the Subscribers are
in
any way acting in concert or as a group with respect to such obligations
or the
transactions contemplated by the Transaction Documents. The Company
acknowledges that each Subscriber shall be entitled to independently protect
and
enforce its rights, including without limitation, the rights arising out
of the Transaction Documents, and it shall not be necessary
for any
other Subscriber to be joined as an additional party in any proceeding for
such
purpose. The Company acknowledges that it has elected to provide
all
Subscribers with the same terms and Transaction Documents for the convenience
of
the Company and not because Company was required or requested to do so by
the
Subscribers. The Company acknowledges that such procedure with respect
to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
23
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (A)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
INNOVATIVE
FOOD HOLDINGS, INC.
a
Florida corporation
|
||
| |
|
|
| By: | ||
|
Name: Xxxxxxxx Xxxxxxxx |
||
|
Title:
President
|
||
|
Dated:
August _____, 2005
|
||
|
SUBSCRIBER
|
PURCHASE
PRICE
|
|
XXXXX
BRAND
00
Xxxxxxx Xxxx
Xxxxxx,
Xxx Xxxx 00000
Fax:
(000) 000-0000
______________________________________________
(Signature)
|
$25,000.00
|
24
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (B)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
INNOVATIVE
FOOD HOLDINGS, INC.
a
Florida corporation
|
||
| |
|
|
| Date: | By: | |
|
Name:
Xxxxxxxx Xxxxxxxx
|
||
|
Title:
President
|
||
|
Dated:
August _____, 2005
|
||
|
SUBSCRIBER
|
PURCHASE
PRICE
|
|
MOMONA
CAPITAL
0
Xxxxxx Xxxx
Xxxxxx,
Xxx Xxxx 00000
Fax:
(000) 000-0000
______________________________________________
(Signature)
|
$25,000.00
|
25
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (C)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
INNOVATIVE
FOOD HOLDINGS, INC.
a
Florida corporation
|
||
| |
|
|
| Date: | By: | |
|
Name:
Xxxxxxxx Xxxxxxxx
|
||
|
Title:
President
|
||
|
Dated:
August _____, 2005
|
||
|
SUBSCRIBER
|
PURCHASE
PRICE
|
|
LANE
VENTURES, INC.
000
Xxxx Xxxxxx
Xxxxxxxx,
Xxx Xxxx 00000
Fax:
(000) 000-0000
______________________________________________
(Signature)
By:
|
$10,000.00
|
26
LIST
OF EXHIBITS AND SCHEDULES
|
Exhibit
A1
|
|
Form
of Class A Warrant
|
|
|
Exhibit
A2
|
|
Form
of Class B Warrant
|
|
|
Exhibit
A3
|
|
Form
of Class C Warrant
|
|
|
Exhibit
B
|
|
Escrow
Agreement
|
|
|
Exhibit
C
|
|
Form
of Legal Opinion
|
|
|
Exhibit
D
|
|
Form
of Public Announcement or Form 8-K
|
|
|
Schedule
5(d)
|
|
Additional
Issuances / Capitalization
|
|
|
Schedule
5(p)
|
|
Undisclosed
Liabilities
|
|
|
Schedule
9(e)
|
|
Use
of Proceeds
|
|
|
Schedule
9(p)
|
|
Providers
of Limited Standstill Agreement
|
|
|
Schedule
11.1
|
|
Other
Securities to be Registered
|
|
27
