SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
dated
as of June 15, 2007, by and among Hi-Tech
Wealth Inc.,
a
Nevada 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) 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, and the
Subscribers, in the aggregate, shall purchase Ten Million Dollars ($10,000,000)
(the "Purchase
Price")
of
principal amount of 10% promissory notes of the Company (“Note”
or
“Notes”),
a
form of which is annexed hereto as Exhibit
A;
and
share purchase warrants (collectively the “Warrants”),
in
the form attached hereto as Exhibit
B,
to
purchase shares of the Company’s $.001 par value common stock (“Common
Stock”)
(the
“Warrant
Shares”).
The
Notes, 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
may 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
C
(the
"Escrow
Agreement").
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:
1. (a). Closing
Date.
The
“Closing Date” shall be the date that the Initial Purchase Price is transmitted
by wire transfer or otherwise credited to or for the benefit of the Company.
The
consummation of the transactions contemplated herein shall take place at the
offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx,
Xxx Xxxx 00000, upon the satisfaction or waiver of all conditions to closing
set
forth in this Agreement.
(b) 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 (“Closing
Notes”),
and
Warrants as described in Section 3 of this Agreement (“Warrants”).
The
Principal Amount of the Notes to be purchased by the Subscribers on the Closing
Date shall equal Five Million Dollars ($5,000,000) (the “Closing
Purchase Price”).
(c) Subsequent
Issuance.
The
issuance of one or more Notes aggregating an additional Five Million Dollars
($5,000,000) (the “Subsequent
Issuance Purchase Price”
and,
together with the Closing Purchase Price, the “Purchase
Price”)
shall
be on or before the fifth business day after the compliance with the Subsequent
Issuance Condition as defined in Section 1(d) (the “Subsequent
Issuance Date”).
Subject to the satisfaction or waiver of the conditions to Closing, on the
Subsequent Issuance 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 (“Subsequent
Issuance Notes”).
The
Subsequent Issuance Notes shall have the same maturity date as the Closing
Notes.
(d) Conditions
to Subsequent Issuance.
The
occurrence of the Subsequent Issuance is expressly contingent on (i) the
accuracy on the Subsequent Issuance Date of the representations and warranties
of the Company and Subscriber contained in this Agreement, except for any
inaccuracies arising from facts that do not constitute a Material Adverse Effect
(as defined in Section 5(a)), (ii) the non-occurrence of any Event of Default
(as defined in the Note), and (iii) the perfection of Subscribers’ security
interest in the Collateral consisting of intellectual property rights in the
People’s Republic of China, evidenced by delivery from the Company to the
Subscribers of an original or certified copy of a certificate issued by a
Chinese government agency, evidencing the effectiveness of the granting to
the
Subscribers of a security interest in and to such Collateral, accompanied by
a
legal opinion from Beijing
MingTai Lawyer LLC in
the form attached hereto as Exhibit
1(d)
on or before the 150th
day following the Closing Date (the condition described in this clause (iii),
the “Subsequent
Issuance Condition”).
(e) Subsequent
Issuance Deliveries.
On the
Subsequent Issuance Date, the Company will deliver a certificate (“Subsequent
Issuance Certificate”)
signed
by its chief executive officer or chief financial officer (i) representing
the
accuracy of all the representations and warranties made by the Company contained
in this Agreement as of Subsequent Issuance Date, as if such representations
and
warranties were made and given on the Subsequent Issuance Date, except for
any
inaccuracies arising from facts that do not constitute a Material Adverse Effect
and (ii) representing compliance by the Company with the Subsequent Issuance
Condition. A legal opinion nearly identical to the legal opinion referred to
in
Section 6 of this Agreement shall be delivered to each Subscriber at the
Subsequent Issuance in relation to the Company, and Subsequent Issuance Notes
(“Subsequent
Issuance Legal Opinion”).
2. Security
Interest.
The Subscribers will be granted a security interest in certain of the assets
of
the Company and Subsidiaries (as defined in Section 5(a) of this Agreement),
including ownership of Magical Insight Investments Ltd (“Magical”),
to be memorialized in “Security
Agreements”,
a form of which is annexed hereto as Exhibit
D.
The Company’s subsidiary, Beihai Hi-Tech Wealth Technology Developments Co., Ltd
(“HTW”) will
execute and deliver to the Subscribers a form of “Guaranty”
annexed hereto as Exhibit
E.
The Company will execute such other agreements, documents and financing
statements reasonably requested by Subscribers, which will 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 Subscribers to memorialize and further protect the security interest
described herein. The Subscribers will appoint a collateral agent (the
“Collateral
Agent”)
to represent them collectively in connection with the security interest to
be
granted to the Subscribers. The appointment will be pursuant to a “Collateral
Agent Agreement”,
a form of which is annexed hereto as Exhibit
F.
3. Warrants.
On the
Closing Date, the Company will issue and deliver an aggregate of 1,500,000
Warrants to the Subscribers at the rate of one and one half Warrants for every
ten dollars of Purchase Price to be invested by each such Subscriber. The
exercise price to acquire a Warrant Share upon exercise of a Warrant shall
be
$2.50. The Warrants shall be exercisable until five (5) years after the issue
date of the Warrants. The holder of the Warrants is granted the registration
rights set forth in this Agreement. The Warrant exercise price and amount of
Shares issuable upon 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, and as otherwise
described in the Warrant.
4. Subscriber's
Representations and Warranties.
Each
Subscriber as of each of the Closing Date and the Subsequent Issuance Date
hereby represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) Organization
and Standing of the Subscribers.
If the
Subscriber is an entity, such Subscriber is a corporation, partnership or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and
has
the requisite corporate power to own its assets and to carry on its
business.
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(b) Authorization
and Power.
Each
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and to purchase the Notes and Warrants being sold to it hereunder.
The
execution, delivery and performance of this Agreement by such Subscriber and
the
consummation of it of the transactions contemplated hereby and thereby have
been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or its Board of Directors,
stockholders, partners, members, as the case may be, is required. This Agreement
has been duly authorized, executed and delivered by such Subscriber and
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Subscriber enforceable against the Subscriber in
accordance with the terms hereof.
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
such Subscriber of the transactions contemplated hereby or relating hereto
do
not and will not (i) result in a violation of such Subscriber’s charter
documents or bylaws or other organizational documents or (ii) conflict with,
or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights or termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Subscriber is a party or by which its
properties or assets are bound, or result in a violation of any law, rule,
or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Subscriber or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have
a
Material Adverse Effect, as defined in Section 5(a) herein, on such Subscriber).
Such Subscriber is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
in
order for it to execute, deliver or perform any of its obligations under this
Agreement or to purchase the Notes or acquire the Warrants in accordance with
the terms hereof, provided that for purposes of the representation made in
this
sentence, such Subscriber is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Information
on Company.
The
Subscriber has been furnished with or has had access at the XXXXX Website of
the
Commission to the Company's Form 10-KSB for the year ended December 31, 2006
as
filed with the Commission, together with all subsequently filed Forms 10-QSB,
8-K, and filings made with the Commission available at the XXXXX website
(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.
(e) Information
on Subscriber.
The
Subscriber is, and will be at the time of exercise of any of the Warrants,
an
institutional "accredited
investor",
as
such term is defined in Rule 501(a)(1)(2)(3) or (7) of Regulation D promulgated
by the Commission under the 1933 Act, owning at least $25 million in securities
of issuers (other than issuers that are affiliated with such Subscriber), 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.
3
(f) Purchase
of Notes and Warrants.
On the
Closing Date, the Subscriber will purchase the Notes and Warrants as principal
for its own account for investment only and not with a view toward, or for
resale in connection with, the public sale or any distribution
thereof.
(g) Compliance
with 1933 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 and any
applicable state securities laws or is exempt from such
registration.
(h) Warrant
Shares Legend.
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 HI-TECH WEALTH INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(i) Warrants
Legend.
The
Warrants shall bear the following
or
similar legend:
"THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE
STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HI-TECH
WEALTH INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(j) Note
Legend.
The
Note shall bear the following legend:
"THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
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 HI-TECH WEALTH INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
4
(k) Communication
of Offer.
The
offer to sell the Securities was directly communicated to the Subscriber by
the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(l) Authority;
Enforceability.
This
Agreement and other agreements delivered together with this Agreement or in
connection herewith have been duly authorized, executed and delivered by the
Subscriber and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights generally and to general principles of equity;
and Subscriber (if an entity) has full corporate power and authority necessary
to enter into this Agreement and such other agreements and to perform its
obligations hereunder and under all other agreements entered into by the
Subscriber relating hereto.
(m) 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 (i) pursuant
to
an effective registration statement under the 1933 Act or (ii) such Subscriber
provides the Company with an opinion of counsel, in a form reasonably acceptable
to the Company, to the effect that a sale, assignment or transfer of the
Securities may be made without registration under the 1933 Act, or (iii)
Subscriber provides the Company with reasonable assurances (in the form of
seller and broker representation letters) that the Warrant Shares may be sold
pursuant to (A) Rule 144 promulgated under the 1933 Act, or (B) Rule 144(k)
promulgated under the 1933 Act, in each case following the applicable holding
period set forth therein. 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 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.
(n) No
Governmental Review.
Each
Subscriber understands that no United States federal or state agency or any
other governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the
offering of the Securities.
(o) Short
Sales Prior to the Date Hereof.
Subscriber has not directly or indirectly, nor has any person acting on behalf
of or pursuant to any understanding with such Subscriber, executed any
disposition, including Short Sales (but not including the location and/or
reservation of borrowable shares of Common Stock), in the securities of the
Company during the period commencing from the time that such Subscriber first
received a term sheet from the Company or any other person setting forth the
material terms of the transactions contemplated hereunder until the date hereof
(“Discussion
Time”).
Notwithstanding the foregoing, in the case of a Subscriber that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Subscriber’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Subscriber’s assets, the representation set
forth above shall only apply with respect to the portion of assets managed
by
the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement. For purposes of this Agreement, the term
“Short
Sales”
shall
include all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act.
5
(p) 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 or the
Subsequent Issuance Date, shall be true and correct as of the Closing Date
or
the Subsequent Issuance Date, as the case may be.
(q) Survival.
The
foregoing representations and warranties shall survive the Subsequent Issuance
Date for a period of three years.
5. Company
Representations and Warranties.
Except
as set forth in the Reports or the Other Written Information and as otherwise
qualified in the Transaction Documents, the Company represents and warrants
to
and agrees with each Subscriber that:
(a) Due
Incorporation.
The
Company 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. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure
to
so qualify would not have a Material Adverse Effect. For purpose of this
Agreement, a “Material
Adverse Effect”
shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken 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 30% 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. As of the Closing Date, the Company’s only
Subsidiaries are Magical Insight Investments Ltd., a British Virgin Islands
corporation and Beihai Hi-Tech Wealth Technology Development Co., Ltd., a
a
company
organized under the laws of the People’s Republic of China,
Euro
Asia
Arbitrage Investment Limited, a Hong Kong company, Beijing Hi-Tech Wealth
Software Technology Ltd. a company organized under the laws of the People’s
Republic of China.
(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 Notes, the Warrants, the Funds Escrow Agreement, Security
Agreements, Guaranty, Collateral Agent 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.
6
(d) Additional
Issuances.
There
are no outstanding agreements or preemptive or similar rights affecting the
Company's common stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company except as described on Schedule
5(d).
(e) Consents.
No
consent, approval, authorization or order of any court, governmental agency
or
body or arbitrator having jurisdiction over the Company, or any of its
Affiliates, the OTC Bulletin Board (the “Bulletin
Board”)
nor
the Company's shareholders is required for the execution by the Company of
the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation,
the
issuance and sale of the Securities. The Transaction Documents and the Company’s
performance of its obligations thereunder has been approved unanimously by
the
Company’s directors.
(f) No
Violation or Conflict.
Assuming the representations and warranties of the Subscribers in Section 4
are
true and correct, neither the issuance and sale of the Securities nor the
performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the articles of incorporation, or
bylaws of the Company, (B) to the Company's knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company
of any court, governmental agency or body, or arbitrator having jurisdiction
over the Company or any of its subsidiaries or over the properties or assets
of
the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note
or any other evidence of indebtedness, or any agreement, stock option or other
similar plan, indenture, lease, mortgage, deed of trust or other instrument
to
which the Company or any of its Affiliates or subsidiaries is a party, by which
the Company or any of its Affiliates or subsidiaries is bound, or to which
any
of the properties of the Company or any of its Affiliates or subsidiaries is
subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company, or any of its Affiliates
or subsidiaries is a party except the violation, conflict, breach, or default
of
which would not have a Material Adverse Effect on the Company; or
(ii) result
in
the creation or imposition of any Lien (as defined herein), charge or
encumbrance upon the Securities or any of the assets of the Company, its
subsidiaries or any of its Affiliates other than Permitted Liens;
or
(iii) result
in
the activation of any anti-dilution rights or a reset or repricing of any debt
or security instrument of any other creditor or equity holder of the Company,
nor result in the acceleration of the due date of any obligation of the Company;
or
(iv) result
in
the activation of any piggy-back registration rights of any person or entity
holding securities of the Company or having the right to receive securities
of
the Company.
(g) The
Securities.
The
Securities upon issuance:
7
(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 exercise of
the
Warrants and issuance of the 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 except to the extent of any restrictions pursuant to the 1933
Act
or the Exchange Act that may be applicable to any Subscriber due to such
Subscriber’s affiliate or insider status with respect to the Company or such
Subscriber’s possession of material non-public information with respect to the
Company;
(iii) will
not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders provided Subscriber’s representations herein are true and accurate and
Subscribers take no actions or fail to take any actions required to be taken
by
the Subscribers pursuant to this Agreement for their purchase of the Securities
to be in compliance with all applicable laws and regulations; and
(v) assuming
the representations warranties of the Subscribers as set forth in Section 4
hereof are true and correct and Subscribers take no actions or fail to take
any
actions required to
be
taken by the Subscribers pursuant to this Agreement
for their purchase of the Securities to be in compliance with all applicable
laws and regulations, will not result in a violation of Section 5 under the
1933
Act.
(h) Litigation.
There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or the performance by the Company
of
its obligations under the Transaction Documents. Except as disclosed in the
Reports, there is no pending or, to the best knowledge of the Company, basis
for
or threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have
a
Material Adverse Effect on the Company.
(i) Reporting
Company.
The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13 of the Securities Exchange Act of 1934, as amended (the "1934
Act")
and
has a class of common equity registered pursuant to Section 12(g) of the 1934
Act.
(j) No
Market Manipulation.
The
Company has 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.
(k) Information
Concerning Company.
The
Reports contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein. 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.
8
(l) Stop
Transfer.
The
Securities, when issued, will be restricted securities. The Company will not
issue any stop transfer order or other order impeding the sale, resale or
delivery of any of the Securities, except as may be required by any applicable
federal or state securities laws and unless contemporaneous notice of such
instruction is given to the Subscriber.
(m) Defaults.
The
Company is not in violation of its articles of incorporation or bylaws. The
Company is (i) not in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect 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.
(n) Not
an
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the Bulletin Board. Nor will the Company or any of its
Affiliates or subsidiaries take any action or steps that would cause the offer
or issuance 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.
(o) No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 0000 Xxx)
in
connection with the offer or sale of the Securities.
(p) Listing.
The
Company's common stock is quoted on the Bulletin Board under the symbol:
GCPN.OB. The Company has not received any oral or written notice that its common
stock is not eligible nor will become ineligible for quotation on the Bulletin
Board nor that its common stock does not meet all requirements for the
continuation of such quotation. The Company satisfies all the requirements
for
the continued quotation of its common stock on the Bulletin Board.
(q) No
Undisclosed Liabilities.
The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company’s
businesses since December 31, 2006 and which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect except as set
forth in Schedule
5(q).
On the
Closing Date, the Company will have liabilities of not more than $25,627,676
(excluding permitted liens).
(r) No
Undisclosed Events or Circumstances.
Since
December 31, 2005, no event or circumstance has occurred or exists with respect
to the Company or its businesses, properties, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure
or
announcement prior to the date hereof by the Company but which has not been
so
publicly announced or disclosed in the Reports.
9
(s) 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 on Schedule
5(d),
there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized
and
issued and are fully paid and nonassessable.
(t) Dilution.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has unanimously 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
Warrant Shares upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company or parties entitled to receive
equity of the Company.
(u) No
Disagreements with Accountants and Lawyers.
There
are no material disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants
and
lawyers formerly or presently employed by the Company, including but not limited
to disputes or conflicts over payment owed to such accountants and
lawyers.
(v) DTC
Status.
The Company’s transfer agent is not a participant in and the Common Stock is not
eligible for transfer pursuant to the Depository Trust Company Automated
Securities Transfer Program. The name, address, telephone number, fax number,
contact person and email address of the Company transfer agent is set forth
on
Schedule
5(v)
hereto.
(w) Investment
Company.
The Company is not an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.
(x) Subsidiary
Representations.
The Company makes each of the representations contained in Sections 5(a), (b),
(d), (f), (h), (k), (m), (q), (r) and (u) of this Agreement, as same relate
to
each Subsidiary of the Company.
(y) Foreign
Corrupt Practices.
Neither
the Company nor, to the knowledge of the Company, any director, officer, agent,
employee, or stockholder acting on behalf of the Company has taken any action,
directly or indirectly, that would result in a violation by such persons of
the
Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder (the “FCPA”)
or of
comparable PRC law, including, without limitation, making use of the mails
or
any means or instrumentality of interstate commerce corruptly in furtherance
of
an offer, payment, promise to pay or authorization of the payment of any money,
or other property, gift, promise to give, or authorization of the giving of
anything of value to any “foreign official” (as such term is defined in the
FCPA) or any foreign political party or official thereof or any candidate for
foreign political office, in contravention of the FCPA or of comparable PRC
law
and the Company has conducted its business in compliance with the FCPA and
comparable PRC law.
(z) Solvency.
Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such amounts
are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).
10
(AA) 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.
(BB) Survival.
The
foregoing representations and warranties shall survive the Subsequent Issuance
Date for a period of three 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) of the 1933 Act and/or Rule 506 of Regulation D promulgated
thereunder. On each 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
G.
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 Warrant
Shares.
7.1. 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 the Securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such
purpose.
(b) Listing/Quotation.
The
Company shall promptly secure the quotation or listing of the Warrant Shares
upon each national securities exchange, or automated quotation system upon
which
they are or become eligible for quotation or listing (subject to official notice
of issuance) and shall maintain same so long as any Warrants are outstanding.
The Company will maintain the quotation or listing of its Common Stock on the
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 Bulletin Board is the Principal Market.
(c) Market
Regulations.
The
Company shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to Subscriber.
11
(d) Reporting
Requirements.
From
the date of this Agreement and until the last to occur of (i) two (2) years
after the Subsequent Issuance Date, or (ii) until all the Warrant Shares have
been resold or transferred by all the Subscribers pursuant to a registration
statement or pursuant to Rule 144, without regard to volume limitation, or
(iii)
the Notes are no longer outstanding (the date of occurrence of the first such
event being the “End
Date”),
the
Company will (v) cause the Common Stock to continue 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 the End Date. Until the End Date, 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
each of the Warrants 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.
(e) Use
of
Proceeds.
Except
as described on Schedule
7(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 the Closing Date.
(f) Reservation.
Prior
to the Closing Date, the Company undertakes to reserve, pro rata,
on
behalf of each Subscriber, from its authorized but unissued common stock, a
number of common shares equal to the amount of Warrant Shares issuable upon
exercise of the Warrants. Failure to have sufficient shares reserved pursuant
to
this Section 7.1(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.
(g) Taxes.
From
the date of this Agreement and until the End Date, the Company will promptly
pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided, however, that
any such tax, assessment, charge or levy need not be paid if the validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor.
(h) Insurance.
From
the date of this Agreement and until the End Date, the Company will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and not
in
any event less than one hundred percent (100%) of the insurable value of the
property insured; 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.
12
(i) Books
and Records.
From the
date of this Agreement and until the End Date, the Company will keep true
records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs
in
accordance with generally accepted accounting principles applied on a consistent
basis.
(j) Governmental
Authorities.
From the
date of this Agreement and until the End Date, the Company shall duly observe
and conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its properties or
assets.
(k) Intellectual
Property.
From
the date of this Agreement and until the End Date, the Company shall maintain
in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights to use intellectual property owned or possessed by
it
and reasonably deemed to be necessary to the conduct of its
business.
(l) Properties.
From the
date of this Agreement and until the End Date, the Company will keep its
properties in good repair, working order and condition, reasonable wear and
tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably
be
expected to have a Material Adverse Effect.
(m) Confidentiality/Public
Announcement.
From the
date of this Agreement and until the End Date, the Company agrees that except
in
connection with a Form 8-K or pursuant to a 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
the event that the Company believes that a
notice or communication contains material, nonpublic information, relating
to the Company or Subsidiaries, the Company shall so indicate to the Subscriber
contemporaneously with delivery of such notice or information. In the absence
of
any such indication, the Subscriber shall be allowed to presume that all
matters relating to such notice and information do not constitute material,
nonpublic information relating to the Company or Subsidiaries.
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 not later than the first
business day after the Closing Date. In the Form 8-K or public announcement,
the
Company will specifically disclose the amount of common stock outstanding
immediately after the Closing.
(n) Non-Public
Information.
The
Company covenants and agrees that neither it nor any other Person acting on
its
behalf will provide any Subscriber or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber shall
be
relying on the foregoing representations in effecting transactions in securities
of the Company.
(o) Seniority.
Except
for Permitted Liens and as otherwise provided for herein, until the Notes are
fully satisfied, the Company shall not grant nor allow any security interest
to
be taken in the assets of the Company or any Subsidiary, nor issue any debt,
equity or other instrument which would give the holder thereof directly or
indirectly, a right in any assets of the Company or any Subsidiary, superior
to
any right of the Note holder in or to such assets without the prior written
consent of holders of seventy-five percent (75%) of the aggregate principal
amount of the Notes.
13
(p) Negative
Covenants.
So long
as a Note is outstanding, without the consent of the Subscriber, the Company
will not and will not permit any of Magical Insight or HTW to directly or
indirectly:
(i) create,
incur, assume any pledge, hypothecation, assignment, deposit arrangement, lien,
charge, claim, security interest, security title, mortgage, security deed or
deed of trust, easement or encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Uniform Commercial Code or comparable law of any jurisdiction) (each,
a “Lien”)
upon
any of its property, whether now owned or hereafter acquired except for: (i)
the
Excepted Issuances (as defined in Section 12(a) hereof), (ii) (a) Liens existing
on the Closing Date as set forth on Schedule
7(p),
(b)
Liens on property of a person existing at the time such person is merged into
or
consolidated with the Company or any Subsidiary of the Company or becomes a
Subsidiary, provided
that
such
Liens were not created in contemplation of such merger, consolidation or
acquisition and do not extend to any assets other than those of the person
so
merged into or consolidated with the Company or such Subsidiary or acquired
by
the Company or such Subsidiary, (c) the replacement, extension or renewal of
any
Lien permitted by clauses (a) or (b) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal of the
indebtedness secured thereby; (d) Liens imposed by law for taxes that are not
yet due or are being contested in good faith and for which adequate reserves
have been established in accordance with generally accepted accounting
principles; (e) carriers’, warehousemen’s, mechanics’, material men’s,
repairmen’s and other like Liens imposed by law, arising in the ordinary course
of business and securing obligations that are not overdue by more than 30 days
or that are being contested in good faith and by appropriate proceedings; (f)
pledges and deposits made in the ordinary course of business in compliance
with
workers’ compensation, unemployment insurance and other social security laws or
regulations; (g) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; (h) Liens created with respect to the financing of the purchase of
new
property in the ordinary course of the Company’s business up to the amount of
the purchase price of such property; (i) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property, (j) up to not more than an additional one million dollars of
indebtedness above that outstanding on the Closing Date, or (h) as described
on
Schedule
7.1(p)
(each of
(a) through (j), a “Permitted
Lien”)
and
(iii) indebtedness for borrowed money which is not senior or pari passu in
right
of payment to the payment of the Notes;
(ii) amend
its certificate of incorporation, bylaws or its charter documents so as to
materially adversely affect any rights of the Subscriber;
(iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents; or
(iv) prepay
or
redeem any financing related debt or past due obligations outstanding as of
the
Closing Date.
14
7.2. Injunction
- Posting of Bond.
In the
event a Subscriber shall elect to exercise the Warrant in whole or in part,
the
Company may not refuse 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 notice, restraining and or enjoining 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 120% of the
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.
7.3. 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 exercise of a Warrant
on
or before the Delivery Date (as defined in the Warrant) 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 exercise (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 exercise
price
for which such exercise 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 exercise of $10,000 of Warrant exercise price, 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.
8. (a) Due
Diligence Fee.
The
Company will pay a due diligence fee (“Due
Diligence Fee”)
of
$15,000 as more fully described on Schedule
8(a)
hereto.
The Due Diligence Fee will be paid on the Closing Date out of funds held
pursuant to the Escrow Agreement.
(b) Broker’s
Fee.
The
Company represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the Offering except
Broadband Capital Management, LLC (“Broker”)
which
is entitled to a fee payable in cash or common stock determined by reference
to
5% of the aggregate Purchase Price.
9. Legal
Fees.
On the
Closing Date, the Company shall pay to Grushko & Xxxxxxx, P.C., a fee of
$60,000 (“Legal
Fees”)
(of
which $10,000 has been paid prior to the Closing Date) as reimbursement for
services rendered to the Subscribers in connection with this Agreement and
the
purchase and sale of the Notes and Warrants (the “Offering”)
and
acting as Escrow Agent. The Legal Fees will be payable out of funds held
pursuant to the Escrow Agreement.
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 material
breach or default in performance by the Company of any covenant or undertaking
to be performed by the Company hereunder, or any other agreement entered into
by
the Company and Subscriber relating hereto.
15
(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 material
breach or default in performance by such Subscriber of any covenant or
undertaking to be performed by such Subscriber hereunder, or any other agreement
entered into by the Company and Subscribers, relating hereto.
(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.
10A. Covenants
of Subscribers
(a) Short
Sales After the Date Hereof.
Each
Subscriber severally and not jointly with the other Subscribers covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after
the
Discussion Time and ending at the time that the transactions contemplated by
this Agreement are first publicly announced. Each Subscriber, severally and
not
jointly with the other Subscribers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company, such Subscriber will maintain, the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction). Each Subscriber understands and acknowledges,
severally and not jointly with any other Subscriber, that the SEC currently
takes the position that coverage of short sales of shares of the Common Stock
“against the box” prior to the Effective Date of the Registration Statement with
respect to the Securities is a violation of Section 5 of the 1933 Act, as set
forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, in
the
case of a Subscriber that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Subscriber’s assets and the
portfolio manager have no direct knowledge of the investment decisions made
by
the portfolio managers managing other portions of such Subscriber’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by the Agreement. Upon delivery by the Company
to Subscriber after the Closing Date of any notice or information, in writing,
electronically or otherwise, and while a Note, Warrants, or Warrant Shares
are
held by Subscriber, unless the Company has in good faith determined
that the matters relating to such notice do not
constitute material, nonpublic information relating to
the Company or Subsidiaries, the Company shall within one
business day after any such delivery publicly disclose such
material, nonpublic information on a
Report on Form 8-K or otherwise. In
the event that the Company believes that a
notice or communication contains material, nonpublic information, relating
to the Company or Subsidiaries, the Company shall so indicate to the Subscriber
contemporaneously with delivery of such notice or information. In the absence
of
any such indication, the Subscriber shall be allowed to presume that all
matters relating to such notice and information do not constitute material,
nonpublic information relating to the Company or
Subsidiaries.
16
11.1. Registration
Rights.
The
Company hereby grants the following registration rights to holders of the
Securities.
(i) 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 Warrant
Shares (collectively, 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 and provided the inclusion of the Registrable Securities
in the registration statement is permitted pursuant to the then current
interpretation of the staff of the Securities and Exchange Commission regarding
the availability of Rule 415 for continuous or delayed offerings of securities
for the account of selling security-holders (the “415
Position”),
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 which may be included pursuant
to the 415 Position, the Company will cause such Registrable Securities 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”).
Notwithstanding anything else contained herein, the registration rights granted
herein are subordinate in all respects to the registration rights granted to
the
holders of the Company’s Series B preferred stock, including with respect to the
timing of inclusion and priority in any reduction of the amount of Securities
so
registered. In the event any Registrable Securities are not included in any
such
registration statement due to the 415 Position, the Company agrees to file,
at
the earliest possible time in view of the 415 Position, a further registration
statement to register the resale of the Registrable Securities, subject to
the
priority of the Series B preferred stock described in the immediately preceding
sentence. In the event that any registration pursuant to this Section 11.1
shall
be, in whole or in part, an underwritten public offering of common stock of
the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1 without
thereby incurring any liability to the Seller due to such withdrawal or
delay.
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 11.1 to effect
the
registration of any Registrable Securities under the 1933 Act, the Company
will,
as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect to
the
Registrable 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 of (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;
17
(b) 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;
(c) use
its
best efforts to register or qualify the Registrable Securities covered by such
registration statement under the securities or “blue sky” laws of such
jurisdictions as the Sellers shall request in writing, provided, however, that
the Company shall not for any such purpose be required to qualify generally
to
transact business as a foreign corporation in any jurisdiction where it is
not
so qualified or to consent to general service of process in any such
jurisdiction or to subject itself to taxation in respect of doing business
in
any jurisdiction in which it is not otherwise so subject;
(d) 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;
(e) promptly
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
(f) 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.
11.4. 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.
18
11.5. Indemnification
and Contribution.
(a) In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities 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
in light of the circumstances when made, and will subject to the provisions
of
Section 11.5(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.
19
(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 11.5(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.5(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 11.5(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
11.5 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 11.5 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
11.5;
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.
11.6. Delivery
of Unlegended Shares.
(a) Within
three (3) business days (such third business day being the “Unlegended
Shares Delivery Date”)
after the business day on which the Company has received (i) a notice that
Warrant Shares have been sold pursuant to a registration statement or Rule
144
under the 1933 Act, (ii) a representation that the prospectus delivery
requirements, or the requirements of Rule 144, as applicable and if required,
have been satisfied, and (iii) the original share certificates representing
the
shares of Common Stock that have been sold, and (iv) in the case of sales under
Rule 144, customary representation letters of the Subscriber and/or Subscriber’s
broker regarding compliance with the requirements of Rule 144, the Company
at
its expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery
of
shares of Common Stock without any legends including the legend set forth in
Section 4
above, reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the
1933
Act (the “Unlegended
Shares”);
and (z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted Warrant Shares certificate, if any, to the Subscriber at the address
specified in the notice of sale, via express courier, by electronic transfer
or
otherwise on or before the Unlegended Shares Delivery Date.
20
(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 must 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 after the Unlegended Shares Delivery Date could
result in economic loss to Subscriber. As compensation to 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 11.6 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 Warrant Shares
subject to such default at a price per share equal to 120% of the Purchase
Price
of such Warrant Shares (“Unlegended
Redemption Amount”).
(d) In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"), then
the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of common stock so purchased exceeds (B) the aggregate purchase
price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares
together
with interest thereon at a rate of 15% per annum, accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of Purchase Price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000,
plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
(e) In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 11.6 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.6, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or
for
any other reason, unless, an injunction or temporary restraining order from
a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares or exercise of all or part of said Warrant shall have been sought and
obtained by the Company or at the Company’s request or with the Company’s
assistance, and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 120% of the amount of the Purchase Price of the
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.
21
12. (a) Favored
Nations Provision.
Until
the sale of all of the Warrant Shares, 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) full or partial consideration in connection with a strategic
merger, acquisition, consolidation or purchase of substantially all of the
securities or assets of corporation or other entity provided such issuances
are
not for the purpose of raising capital which holders of such securities or
debt
are not at any time granted registration rights, (ii)
the
Company’s issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital which holders of such securities or debt are not
at
any time granted registration rights, (iii) the Company’s issuance of Common
Stock or the issuances or grants of options to purchase Common Stock pursuant
to
stock option plans and employee stock purchase plans described on Schedule
5(d)
hereto
at prices equal to or higher than the closing price of the Common Stock on
the
issue date of any of the foregoing if applicable, otherwise at the fair market
value, (iv) underwritten public offerings and (v) purchase of up to $10,000,000
of the Company’s Securities pursuant to the terms as described on Schedule
12(a)
hereto
(collectively the foregoing are “Excepted
Issuances”),
if at
any time 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 Warrant exercise price, without the consent of
each
Subscriber holding Warrants, or Warrant Shares, then the Company shall issue,
for each such occasion, additional shares of Common Stock to each Subscriber
holding Warrant Shares that are not then the subject of an effective
Registration Statement (provided such holder shall not have failed to comply
with its obligations under Section 11 hereof with respect to such Warrant Shares
or otherwise elected not to so include such Warrant Shares in a Registration
Statement) so that the average per share purchase price of the Warrant Shares
previously issued to the Subscriber (of only the Warrant Shares still owned
by
the Subscriber) is equal to such other lower price per share. 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 piggyback
registration rights described in Section 11 hereof in relation to such
additional shares of Common Stock or at the election of the Subscriber,
registration rights, if any, granted in connection with the dilutive issuance.
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 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, any Transaction Document, and any other agreement
referred to or entered into in connection herewith.
(b) Offering
Restrictions.
For so long as the Notes are outstanding, except for the Excepted Issuances,
the
Company will not enter into any equity line of credit or similar agreement,
nor
issue nor agree to issue any floating or variable priced equity linked
instruments nor any of the foregoing or equity with price reset rights.
The
only
officer, director, employee and consultant stock option or stock incentive
plan
currently in effect or contemplated by the Company has been filed with the
Reports prior to five days before the Closing Date. Other than Excepted
Issuances, no other plan will be adopted nor may any options or equity not
included in such plan be issued to such persons for so long as any sum is
outstanding under the Note.
22
(c) Right
of Participation.
Until
one year after the Subsequent Issuance Date, the Subscribers shall be given
not
less than ten (10) business days prior written notice of any proposed sale
by
the Company of its common stock or other securities or debt obligations. The
Subscribers who exercise their rights pursuant to this Section 12(b) shall
have
the right during the ten (10) business days following receipt of the notice
to
participate in the offering to purchase up to Ten Million Dollars ($10,000,000)
of such offered common stock, debt or other securities in accordance with the
terms and conditions set forth in the notice of sale of such offer. 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 ten (10) business days
following the notice of modification, whichever is longer, to exercise such
right. Payment for such purchase by the Subscribers may be made by cash and/or
tender of the Note and all sums due under the Note. In such event, the
Subscriber will receive a credit against such other subscription purchase price
or payment equal to the amount of Note Principal applied to such payment and
a
credit equal to the accrued interest and any other amount accrued or payable
to
Subscriber pursuant to the Transaction Documents.
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: Hi-Tech Wealth Inc., Suite
1503, Sino Plaza, 000-000 Xxxxxxxxxx Xxxx, Xxxxxxxx Xxx, Xxxx Xxxx, Attn: Ma
Qing, CFO, telecopier: x000 0000 0000, with an additional copy by telecopier
only to: Loeb & Loeb, LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, XX 00000, Attn:
Xxxxxxxx X. Xxxxxxxx, Esq., telecopier: (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: (000) 000-0000.
(b) Entire
Agreement; Assignment.
This
Agreement and other documents delivered in connection herewith represent the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No right
or obligation of the Company shall be assigned without prior notice to and
the
written consent of the Subscribers.
(c)
Counterparts/Execution.
This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
23
(d) Law
Governing this Agreement.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to conflicts of laws principles that would
result in the application of the substantive laws of another jurisdiction.
Any
action brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the 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.
(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 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.
24
(g) Consent.
As used
in the Agreement, “consent of the Subscribers” or similar language means the
consent of holders of not less than 75% of the total of the Shares issued and
issuable upon conversion of outstanding Notes owned by Subscribers on the date
consent is requested.
(h) Equal
Treatment.
No
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of the Transaction Documents unless
the
same consideration is also offered and paid to all the Subscribers and their
permitted successors and assigns. Payments to the Subscribers for sums due
under
the Notes must be made by the Company in proportion to the Subscribers’ initial
Note principal amounts.
(i) Maximum
Payments.
Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed by
the
Company to the Subscriber and thus refunded to the Company.
(j) Calendar
Days.
All references to “days” in the Transaction Documents shall mean calendar days
unless otherwise stated. The terms “business days” and “trading days” shall mean
days that the New York Stock Exchange is open for trading for three or more
hours. Time periods shall be determined as if the relevant action, calculation
or time period were occurring in New York City.
25
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT
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.
|
HI-TECH
WEALTH INC.
a
Nevada corporation
|
||
| |
|
|
| By: | ||
|
Name:
Title:
|
||
| Dated: | June ____, 2007 | |
|
SUBSCRIBER
|
CLOSING
PURCHASE PRICE
|
SUBSEQUENT
ISSUANCE PURCHASE PRICE
|
|
Name
of Subscriber: ____________________________________
_____________________________________________________
Address:
_____________________________________________
____________________________________________________
Fax
No.: ____________________________________________
Taxpayer
ID# (if applicable): ____________________________
____________________________________________________
(Signature)
By:
|
26
