SUBSCRIPTION AGREEMENT
EXHIBIT
10.23
THIS
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
is
dated as of September 10, 2007, by and among Neonode Inc. (formerly known as
SBE, Inc.), a Delaware corporation
(the
“Company”),
and
the subscribers identified on the signature page hereto (each a “Subscriber”
and
collectively “Subscribers”).
WHEREAS,
the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “1933
Act”).
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided herein,
and the Subscribers, in the aggregate, shall purchase for up to $10,000,000
in
the aggregate (the "Purchase
Price"):
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(i)
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up
to $5,000,000 (the “Principal
Amount”)
of principal amount of promissory notes of the Company (“Note”
or “Notes”),
a form of which is annexed hereto as Exhibit
A,
convertible into shares (“Conversion
Shares”)
of the Company's Common Stock, $0.001 par value (the "Common
Stock")
at a per share conversion price set forth in the Note (the “Conversion
Price”);
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(ii)
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up
to 1,666,667 shares of Common Stock (the “Shares”)
at a per share purchase price of $3.00;
and
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(iii)
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up
to 2,321,429 Common Stock purchase warrants (the “Warrants”),
in the form annexed hereto as Exhibit
B,
exercisable to purchase shares of Common Stock (the “Warrant
Shares”)
at a per share purchase price equal to the sum of (a) the market
price (as
determined under the NASDAQ Marketplace Rules) of the Common Stock
on the
date prior to the Closing Date and (b) $.01 (the “Exercise
Price”).
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The
Notes, Conversion Shares, the Shares, the Warrants and the Warrant Shares are
collectively referred to herein as the "Securities";
WHEREAS,
the
aggregate proceeds of the sale of the Notes, Shares, and Warrants contemplated
hereby shall be held in escrow pursuant to the terms of a Funds Escrow Agreement
to be executed by the parties substantially in the form attached hereto as
Exhibit
C
(the
“Escrow
Agreement”);
WHEREAS,
the
Company has outstanding $3,250,000 in principal amount of 8% senior promissory
notes, due December 31, 2007 (the “Bridge
Notes”)
and an
option to purchase $750,000 of Bridge Notes, and the Bridge Notes, including
all
accrued interest, are convertible into the Securities; and
WHEREAS,
the
Company will seek to arrange for private sales of approximately 400,000 shares
of Common Stock and warrants to purchase 200,000 shares of Common Stock (such
shares and the shares underlying such warrants, the “Key
Person Securities”)
by
certain key personnel simultaneously with closing under the 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:
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1. Closing
Date.
The
“Closing
Date”
shall
be the date that the 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. 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, Units (as defined below) at a price
per
Unit of $3,000.
2. Units.
The
Notes, Shares and Warrants will be sold in units (“Units”).
Each
Unit purchased for $3,000 will entitle the Subscriber to receive a Note in
the
Principal Amount of $1,500, 500 Shares at an allocated Purchase Price of $3.00
per Share, and 696.5 Warrants.
3. Warrants.
The
Exercise Price to acquire a Warrant Share upon exercise of a Warrant shall
be
determined at close of business on the date immediately prior to the Closing
Date. The Warrants shall be exercisable commencing six months after the Closing
Date and until five years after the Closing Date of the Warrants. The other
terms of the Warrants are set forth in the form of Warrant annexed hereto as
Exhibit
B.
4. Subscriber
Representations and Warranties.
Each
Subscriber hereby represents and warrants to and agrees with the Company only
as
to such Subscriber that:
(a) Organization
and Standing of the Subscribers.
If such
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.
(b) Authorization
and Power.
Such
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and the other Transaction Documents and to purchase the Notes and
Warrants being sold to it hereunder. The execution, delivery and performance
of
this Agreement and the other Transaction Documents by such Subscriber and the
consummation by it of the transactions contemplated hereby and thereby have
been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or its Board of Directors,
stockholders, partners, members, as the case may be, is required. This Agreement
and the other Transaction Documents have been duly authorized, executed and
delivered by such Subscriber and constitutes, or shall constitute when executed
and delivered, a valid and binding obligation of such Subscriber enforceable
against such Subscriber in accordance with the terms thereof.
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the other Transaction
Documents and the consummation by such Subscriber of the transactions
contemplated hereby and thereby or relating hereto do not and will not (i)
result in a violation of such Subscriber’s charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Subscriber is a party or by which its properties or assets are bound,
or
result in a violation of any law, rule, or regulation, or any order, judgment
or
decree of any court or governmental agency applicable to such Subscriber or
its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber). Such Subscriber is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement and the other Transaction Documents or to
purchase the Securities 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.
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(d) Information
on Company.
Such
Subscriber has been furnished with or has had access at the XXXXX Website of
the
Commission to the Company's Form 10-K filed on January 29, 2007 for the fiscal
year ended October 31, 2006, and the financial statements included therein
for
the year ended October 31, 2006, together with all subsequent filings made
with
the Commission available at the XXXXX website including the filings relating
to
the meeting of the Company’s stockholders held on August 10, 2007 (hereinafter
referred to collectively as the "Reports").
In
addition, such
Subscriber may have received in writing from the Company such other information
concerning its operations, financial condition and other matters as such
Subscriber has requested in writing, identified thereon as OTHER WRITTEN
INFORMATION (such other information is collectively, the "Other
Written Information"),
and
considered all factors such
Subscriber deems material in deciding on the advisability of investing in the
Securities.
(e) Information
on Subscriber.
Such
Subscriber is, and will be at the time of the conversion of the Notes and
exercise of the Warrants, an "accredited
investor",
as
such term is defined in Regulation D promulgated by the Commission under the
1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with
its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable such
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.
Such
Subscriber has the authority and is duly and legally qualified to purchase
and
own the Securities. Such
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 such
Subscriber is accurate.
(f) Purchase
of Notes and Warrants.
On the
Closing Date, such
Subscriber will purchase the Notes, Shares 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 Securities Laws.
Such
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
such
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration.
Such
Subscriber will comply with all applicable rules and regulations in connection
with the sales of the Securities including laws relating to short
sales.
(h) Shares
Legend.
The
Shares, Conversion Shares and the Warrant Shares shall bear the following or
similar legend:
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"THE
ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
NOR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF
1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
BE
SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
RULE 144 OR
RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."
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(i) Warrants
Legend.
The
Warrants shall bear the following or
similar legend:
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"NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
BE
SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR
RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."
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(j) Note
Legend.
The
Note shall bear the following legend:
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"NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
BE
SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR
RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
"
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(k) Communication
of Offer.
The
offer to sell the Securities was directly communicated to such Subscriber by
the
Company. At no time was such 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.
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(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 such
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 such Subscriber has full 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 such Subscriber relating
hereto.
(m) Restricted
Securities.
Such
Subscriber understands that the Securities have not been registered under the
1933 Act and such Subscriber will not sell, offer to sell, assign, pledge,
hypothecate or otherwise transfer any of the Securities unless pursuant to
an
effective registration statement under the 1933 Act, or unless an exemption
from
registration is available. Notwithstanding anything to the contrary contained
in
this Agreement, such Subscriber may transfer (without restriction and without
the need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an “accredited investor” under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an “Affiliate”
of
any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with
such
person or entity. Affiliate includes each Subsidiary of the Company. For
purposes of this definition, “control”
means
the power to direct the management and policies of such person or firm, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
(n) No
Governmental Review.
Such
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) Correctness
of Representations.
Such
Subscriber represents as to such Subscriber that the foregoing representations
and warranties are true and correct as of the date hereof and, unless such
Subscriber otherwise notifies the Company prior to the Closing Date shall be
true and correct as of the Closing Date.
(p) Survival.
The
foregoing representations and warranties shall survive the Closing
Date.
5. Company
Representations and Warranties.
The
Company represents and warrants to and agrees with each Subscriber
that:
(a) Due
Incorporation.
The
Company is a corporation 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
properties and to carry on its business as presently
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 purposes of this Agreement, a “Material
Adverse Effect”
shall
mean a material adverse effect on the financial condition, results of
operations, prospects, properties or business of the Company and its
Subsidiaries 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. The Subsidiaries as of the Closing Date are set forth on Schedule
5(a).
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(b) Outstanding
Stock.
All
issued and outstanding shares of capital stock of the Company and Subsidiary
have been duly authorized and validly issued and are fully paid and
non-assessable.
(c) Authority;
Enforceability.
This
Agreement, the Note, the Shares, the Warrants, Escrow Agreement, Lockup
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 of the Company enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity. The Company
has
full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations thereunder.
(d) Capitalization
and Additional Issuances.
The
authorized and outstanding capital stock of the Company and Subsidiaries as
of
the date of this Agreement and the Closing Date (not including the Securities)
are set forth on Schedule
5(d).
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 Subsidiaries or other equity interest in
the
Company except as described on Schedule
5(d).
The
Common Stock, options, warrants, agreements and other rights to acquire equity
of the Company and any Subsidiary outstanding as of the last Business Day
preceding the Closing Date is set forth on Schedule
5(d).
The
only
officer, director, employee and consultant stock option or stock incentive
plan
in effect or contemplated by the Company as of the Closing Date is 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 Nasdaq Capital Market (the “NCM”)
or 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 unanimously approved by
the
Company’s Board of 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 the Transaction Documents by the
Company will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (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 over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option
or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to
which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
or
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(ii) result
in
the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except
as described herein; or
(iii) except
as
described in Schedule
5(d),
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) will
result in the triggering of any piggy-back registration rights of any person
or
entity holding securities of the Company or having the right to receive
securities of the Company.
(g) The
Securities.
The
Securities upon issuance:
(i) are,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and
any
applicable state securities laws;
(ii) have
been, or will be, duly and validly authorized and on the date of issuance of
the
Shares, Conversion Shares and Warrant Shares, such Shares, Conversion Shares
and
Warrant Shares will be duly and validly issued, fully paid and non-assessable
and if registered pursuant to the 1933 Act and resold pursuant to an effective
registration statement will be free trading and unrestricted;
(iii) will
not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders; and
(v) assuming
the representations and warranties of the Subscribers as set forth in Section
4
hereof are true and correct, 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.
(i) No
Market Manipulation.
The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock to
facilitate the sale or resale of the Securities or affect the price at which
the
Securities may be issued or resold.
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(j) Information
Concerning Company.
The
Reports including the exhibits and financial statements included therewith,
and
Other Written Information 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 dates of the
most recent 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 Event relating to the Company's business, financial condition
or affairs not disclosed in the Reports. The Reports including the exhibits
and
financial statements included therewith, and Other Written Information 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,
taken
as a whole, not misleading in light of the circumstances when made.
(k) Stop
Transfer.
The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Securities, except as may be required by any
applicable federal or state securities laws and unless contemporaneous notice
of
such instruction is given to the Subscriber.
(l) Defaults.
The
Company 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,
(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) not in violation of any statute, rule
or regulation of any governmental authority which violation would have a
Material Adverse Effect.
(m) No
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the NCM which would impair the exemptions relied upon in
this
Offering or the Company’s ability to timely comply with its obligations
hereunder. Neither the Company nor any of its Affiliates will take any action
or
steps that would cause the offer or issuance of the Securities to be integrated
with other offerings which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities that would impair the exemptions relied upon in this Offering or
the
Company’s ability to timely comply with its obligations hereunder.
(n) No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 0000 Xxx)
in
connection with the offer or sale of the Securities.
(o) No
Undisclosed Liabilities.
The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, other than those incurred in the ordinary course of the Company
businesses since the date of the most recent audited financial statements of
the
Company contained in the Reports, and which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect,
except
as disclosed in the Reports or on Schedule
5(o).
(p) No
Undisclosed Events or Circumstances.
Since
the date of the most recent audited financial statements of the Company
contained in the Reports, 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.
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(q) Dilution.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment
that
the issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Conversion
Shares upon conversion of the Notes, and the Warrant Shares upon exercise of
the
Warrants, is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of
the
Company or parties entitled to receive equity of the Company.
(r) 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 presently employed by the Company, including but not limited to disputes
or conflicts over payment owed to such accountants and lawyers, nor have there
been any such disagreements during the two years prior to the Closing
Date.
(s) Investment
Company.
Neither
the Company nor any Affiliate of the Company is an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.
(t) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(u) 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 Stock registered pursuant to Section 12(g) of the 1934
Act. Pursuant to the provisions of the 1934 Act, the Company has timely filed
all reports and other materials required to be filed thereunder with the
Commission during the preceding twelve months.
(v) Listing.
The
Company's Common Stock is quoted on the NCM under the symbol SBEI. Except as
disclosed on a current report on Form 8-K filed with the Commission on March
23,
2007, the Company has not received any oral or written notice that its Common
Stock is not eligible nor will become ineligible for listing on the NCM nor
that
its Common Stock does not meet all requirements for the continuation of such
listing. The Company satisfies all the requirements for the continued listing
of
its Common Stock on the NCM.
(w) DTC
Status.
The
Company’s transfer agent is a participant in, and the Common Stock is eligible
for transfer pursuant to, the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax number, contact
person and email address of the Company transfer agent is set forth on
Schedule
5(w)
hereto.
(x) 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 Notes
and Shares, (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).
9
(y) Company
Predecessor and Subsidiaries.
The
Company makes each of the representations contained in Sections 5(a), (b),
(c),
(d), (e), (f), (h), (j), (l), (o), (p), (r), (s), (u), and (x) of this
Agreement, as same relate to the Subsidiary of the Company. All representations
made by or relating to the Company of a historical or prospective nature and
all
undertakings described in Sections 9(g) through 9(l) shall relate, apply and
refer to the Company and its predecessors. The Company represents that it owns
100% of the outstanding equity of the Subsidiaries and rights to receive equity
of the Subsidiaries free and clear of all liens, encumbrances and claims, except
as set forth on Schedule 5(d). No person or entity other than the Company has
the right to own and receive any equity interest in the
Subsidiaries.
(z) Correctness
of Representations.
The
Company represents that the foregoing representations and warranties are true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to the Closing Date, shall
be
true and correct in all material respects as of the Closing Date; provided,
that, if such representation or warranty is made as of a different date in
which
case such representation or warranty shall be true as of such date.
(AA) Survival.
The
foregoing representations and warranties shall survive the Closing
Date.
6. Regulation
D Offering/Legal Opinion.
The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder. On the Closing Date, the Company will provide an opinion
reasonably acceptable to the Subscribers from the Company's legal counsel
opining on the availability of an exemption from registration under the 1933
Act
as it relates to the offer and issuance of the Securities and other matters
reasonably requested by Subscribers. A form of the legal opinion is annexed
hereto as Exhibit
D.
The
Company will provide, at the Company's expense, such other legal opinions,
if
any, as are reasonably necessary in each Subscriber’s opinion for the issuance
and resale of the Common Stock issuable upon conversion of the Notes and
exercise of the Warrants pursuant to an effective registration statement, Rule
144 under the 1933 Act or an exemption from registration.
7.1. Conversion
of Note.
(a) Upon
the
conversion of a Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue
stock
certificates in the name of Subscriber (or its permitted nominee) or such other
persons as designated by Subscriber and in such denominations to be specified
at
conversion representing the number of shares of Common Stock issuable upon
such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company's
Common Stock and that the certificates representing such shares shall contain
no
legend other than the usual 1933 Act restriction from transfer legend. If and
when a Subscriber sells the Conversion Shares, assuming (i) the Registration
Statement (as defined below) is effective and the prospectus, as supplemented
or
amended, contained therein is current and (ii) such Subscriber or its agent
confirms in writing to the transfer agent that such Subscriber has complied
with
the prospectus delivery requirements, the Company will reissue the Conversion
Shares without restrictive legend and the Conversion Shares will be
free-trading, and freely transferable. In the event that the Conversion Shares
are sold in a manner that complies with an exemption from registration, the
Company will promptly instruct its counsel to issue to the transfer agent an
opinion permitting removal of the legend (indefinitely, if pursuant to Rule
144(k) of the 1933 Act, provided that Subscriber delivers all reasonably
requested representations in support of such opinion).
10
(b) A
Subscriber will give notice of its decision to exercise its right to convert
the
Note, interest, or part thereof by telecopying, or otherwise delivering a
completed Notice of Conversion (a form of which is annexed as Exhibit
A
to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement. Such Subscriber will not be
required to surrender the Note
until
the Note has been fully converted or satisfied. Each date on which a Notice
of
Conversion is telecopied to the Company in accordance with the provisions hereof
by 6 PM Eastern Time (“ET”) (or if received by the Company after 6 PM ET then
the next business day) shall be deemed a “Conversion
Date.”
The
Company will itself or cause the Company’s transfer agent to transmit the
Company's Common Stock certificates representing the Conversion Shares to such
Subscriber via express courier for receipt by such Subscriber within three
(3)
business days after receipt by the Company of the Notice of Conversion (such
third day being the "Delivery
Date").
In
the event the Conversion Shares are electronically transferable, then delivery
of the Conversion Shares must
be made
by electronic transfer provided request for such electronic transfer has been
made by the Subscriber.
A Note representing the balance of the Note not so converted will be provided
by
the Company to such Subscriber if requested by Subscriber, provided such
Subscriber delivers the
original Note to the Company. In the event that a Subscriber elects not to
surrender a Note for reissuance upon partial payment or conversion of a Note,
such Subscriber hereby indemnifies the Company against any and all loss or
damage attributable to a third-party claim in an amount in excess of the actual
amount then due under the Note.
(c) The
Company understands that a delay in the delivery of the Conversion Shares in
the
form required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
described in Section 7.2 hereof, respectively later than the Delivery Date
or
the Mandatory Redemption Payment Date (as hereinafter defined) could result
in
economic loss to the Subscriber. As compensation to a Subscriber for such loss,
the Company agrees to pay (as liquidated damages and not as a penalty) to such
Subscriber for late issuance of Conversion Shares in the form required pursuant
to Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
business day after the Delivery Date for each $10,000 of Note principal amount
(and proportionately for other amounts) being converted of the corresponding
Conversion Shares which are not timely delivered. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the
Subscriber, in the event that the Company fails for any reason to effect
delivery of the Conversion Shares within seven (7) business days after the
Delivery Date or make payment within seven (7) business days after the Mandatory
Redemption Payment Date (as defined in Section 7.2 below), such Subscriber
will
be entitled to revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery of a
notice to such effect to the Company whereupon the Company and such Subscriber
shall each be restored to their respective positions immediately prior to the
delivery of such notice, except that the liquidated damages described above
shall be payable through the date notice of revocation or rescission is given
to
the Company.
(d) The
Company agrees and acknowledges that despite the pendency of a not yet effective
Registration Statement which includes for registration the Registrable
Securities (as defined in Section 11.1(iv)), a Subscriber is permitted to and
the Company will issue to such Subscriber Conversion Shares and Warrant Shares
upon exercise of the Warrants. Such Conversion Shares will, if required by
law,
bear the legends described in Section 4 above and if the requirements of Rule
144 under the 1933 Act are satisfied, be resalable thereunder.
11
7.2. Mandatory
Redemption at Subscriber’s Election.
In the
event (i) the Company is prohibited from issuing Conversion Shares, (ii) upon
the occurrence of any other Event of Default (as defined in the Note or in
this
Agreement), that continues for more than twenty (20) business days, (iii) a
Change in Control (as defined below), or (iv) of the liquidation, dissolution
or
winding up of the Company, then at the Subscriber's election, the Company must
pay to each Subscriber ten (10) business days after request by each Subscriber
(“Calculation
Period”),
a sum
of money determined by multiplying up to the outstanding principal amount of
the
Note designated by each such Subscriber by 110%, plus accrued but unpaid
interest ("Mandatory
Redemption Payment").
The
Mandatory Redemption Payment must be received by each Subscriber on the same
date as the Conversion Shares otherwise deliverable or within ten (10) business
days after request, whichever is sooner ("Mandatory
Redemption Payment Date").
Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
for
the ten day period prior to the actual receipt of the Mandatory Redemption
Payment by a Subscriber shall be credited against the Mandatory Redemption
Payment. For purposes of this Section 7.2, “Change
in Control”
shall
mean (i) the Company no longer having a class of shares publicly traded or
listed on a Principal Market (as defined in Section 9(b)), (ii) the Company
becoming a Subsidiary of another entity (other than a corporation formed by
the
Company for purposes of reincorporation in another U.S. jurisdiction), (iii)
a
majority of the board of directors of the Company as of the Closing Date no
longer serving as directors of the Company except due to natural causes (which
shall include, termination of such directors by the holders of more than 50%
of
the equity outstanding as of the Closing Date), and (iv) the sale, lease or
transfer of substantially all the assets of the Company or its
Subsidiaries.
7.3. Maximum
Conversion.
No
Subscriber shall be entitled to convert on a Conversion Date that amount of
the
Note in connection with that number of shares of Common Stock which would be
in
excess of the sum of (i) the number of shares of Common Stock beneficially
owned
by such Subscriber and its Affiliates on a Conversion Date, and (ii) the number
of shares of Common Stock issuable upon the conversion of the Note with respect
to which the determination of this provision is being made on a Conversion
Date,
which would result in beneficial ownership by such Subscriber and its Affiliates
of more than 4.99% of the outstanding shares of Common Stock of the Company
on
such Conversion Date. For the purposes of the provision to the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with
Section 13(d) of the 1934 Act, and Rule 13d-3 thereunder. Subject to the
foregoing, the Subscriber shall not be limited to aggregate conversions of
only
4.99% and aggregate conversions by the Subscriber may exceed 4.99%. The
Subscriber may increase the permitted beneficial ownership amount up to 9.99%
upon and effective after 61 days’ prior written notice to the Company. Such
Subscriber may allocate which of the equity of the Company deemed beneficially
owned by such Subscriber shall be included in the 4.99% amount described above
and which shall be allocated to the excess above 4.99%.
7.4. Injunction
Posting of Bond.
In the
event a Subscriber shall elect to convert a Note or part thereof, the Company
may not refuse conversion or exercise based on any claim that such Subscriber
or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction from a court,
on notice, restraining and or enjoining conversion of all or part of such Note
shall have been sought and obtained by the Company or at the Company’s request
or with the Company’s assistance, and
the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the outstanding principal and interest of the Note, or
aggregate purchase price of the Conversion Shares which are sought to be subject
to the injunction, which bond shall remain in effect until the final
unappealable disposition of the litigation and the proceeds of which shall
be
payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber’s favor.
12
7.5. Buy-In.
In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver Conversion Shares to a Subscriber by the Delivery Date and if after
seven (7) business days after the Delivery Date such Subscriber or a broker
on
such Subscriber’s behalf purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Subscriber
of the Common Stock which such Subscriber was entitled to receive upon such
conversion (a "Buy-In"),
then
the Company shall pay in cash to such Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) such
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored together
with interest thereon at a rate of 15% per annum, accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty. For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of note principal and/or interest, the Company shall
be
required to pay such Subscriber $1,000 plus interest. Such Subscriber shall
provide the Company written notice and evidence indicating the amounts payable
to such Subscriber in respect of the Buy-In.
7.6 Redemption.
The
Notes shall not be redeemable or callable by the Company except as described
in
the Note.
(a) Broker’s
Commission.
The
Company on the one hand, and each Subscriber (for himself or itself only) on
the
other hand, agrees to indemnify the other against and hold the other harmless
from any and all liabilities to any persons claiming brokerage commissions
or
similar fees other than Empire Asset Management, Inc. (the “Broker”)
on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party’s actions. Anything in this
Agreement to the contrary notwithstanding, each Subscriber is providing
indemnification only for such Subscriber’s own actions and not for any action of
any other Subscriber. Each Subscriber’s liability hereunder is several and not
joint. The Company agrees that it will pay the Broker an aggregate cash fee
equal to 7.5% of the Purchase Price on the Closing Date directly out of the
funds held pursuant to the Escrow Agreement (“Broker’s
Fees”).
The
Company represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the offering described
in
this Agreement except the Broker. On the Closing Date, the Company will issue
to
the Broker, five year warrants to purchase Units (the
“Broker’s
Warrants”)
in
an
amount equal to 7.5% of the Units issued hereunder. The Broker may designate
itself, employees or other persons (the “Broker
Holders”)
to
receive all or a portion of the Broker’s Warrants at Closing. All the
representations, covenants, warranties, undertakings, remedies, liquidated
damages, indemnification, and other rights including but not limited to
reservation and registration rights made or granted to or for the benefit of
the
Subscribers are hereby also made by the Company and granted to the Broker
Holders.
(b) Subscriber’s
Legal Fees.
The
Company shall pay to Grushko & Xxxxxxx, P.C., a fee of $50,000
(“Subscriber’s
Legal Fees”)
(of
which $10,000 has been paid) 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”).
The
Subscriber’s Legal Fees and expenses will be payable out of funds held pursuant
to the Escrow Agreement. Grushko & Xxxxxxx, P.C. will be reimbursed at
Closing for all lien searches, filing fees, and printing and shipping costs
for
the closing statements to be delivered to Subscribers and for background checks
on the senior management of the Company and Subsidiaries conducted on behalf
of
Subscribers.
9. Covenants
of the Company.
The
Company covenants and agrees with the Subscribers as follows:
(a) Stop
Orders.
The
Company will advise the Subscribers, within twenty-four hours after it receives
notice of issuance by the Commission, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale
in
any jurisdiction, or the initiation of any proceeding for any such
purpose.
13
(b) Listing/Quotation.
The
Company shall promptly secure the quotation or listing of the Shares, Conversion
Shares and 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, NCM, Nasdaq Global Market,
Nasdaq Global Select Market, OTC 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 NCM is and will be the Principal Market.
(c) Market
Regulations.
The
Company shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to the Subscribers.
(d) Filing
Requirements.
From
the
date of this Agreement and until the last to occur of (i) two (2) years after
the Closing Date, or (ii) until all the Shares, Conversion Shares and Warrant
Shares have been resold or transferred by all the Subscribers pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitations (the date of occurrence of the last such event being the
“End
Date”),
the
Company will (A) cause its Common Stock to be registered under Section 12(b)
or
12(g) of the 1934 Act, (B) comply in all respects with its reporting and filing
obligations under the 1934 Act, (C) voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act, if Company is not subject to such
reporting requirements, and (D) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its 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 continue the listing or quotation of the Common Stock on a Principal Market
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. 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.
The
proceeds of the Offering will be employed by the Company as described on
Schedule
9(e).
Except
as set forth on Schedule
9(e),
the
Purchase Price may not and will not be used for accrued and unpaid officer
and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company nor non-trade obligations outstanding
on a Closing Date. For so long as any Notes are outstanding, the Company will
not prepay any financing related debt obligations nor redeem any equity
instruments of the Company.
(f) Reservation.
Prior
to the Closing Date, and at all times thereafter, the Company shall have
reserved, pro rata,
on
behalf of each holder of a Note or Warrant, from its authorized but unissued
Common Stock, a number of common shares equal to 150%
of
the amount of Common Stock necessary to allow each holder of a Note to be able
to convert all such outstanding Notes and interest (if any) and reserve the
amount of Warrant Shares issuable upon exercise of the Warrants.
(g)
DTC
Program.
At all
times that Notes or Warrants are outstanding, the Company will employ as the
transfer agent for the Common Stock, Shares, Conversion Shares and Warrant
Shares a participant in the Depository Trust Company Automated Securities
Transfer Program.
14
(h) 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
therefore.
(i) 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 less reasonable deductible amounts; and the Company will
maintain, with financially sound and reputable insurers, insurance against
other
hazards and risks and liability to persons and property to the extent and in
the
manner customary for companies in similar businesses similarly situated and
to
the extent available on commercially reasonable terms.
(j) 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.
(k) 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.
(l) 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, unless
it
is sold for value.
(m) 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.
(n) 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 and the registration statement or statements
regarding the Subscribers’ securities or in correspondence with the SEC
regarding same, it will not disclose publicly or privately the identity of
the
Subscribers unless expressly agreed to in writing by a Subscriber or only to
the
extent required by law and then only upon five days prior notice to Subscriber.
In any event and subject to the foregoing, the Company undertakes to file a
Form
8-K or make a public announcement describing the Offering not later than the
business day after the Closing Date. Prior to filing or announcement, such
Form
8-K or public announcement will be provided to Subscribers for their review
and
approval. In the Form 8-K or public announcement, the Company will specifically
disclose the amount of Common Stock outstanding immediately after the Closing.
Upon delivery by the Company to the Subscribers after the Closing
Date of any notice or information, in writing, electronically or otherwise,
and
while a Note, Conversion Shares, Warrants, or Warrant Shares are held by such
Subscribers, 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 to a Subscriber contains material, nonpublic
information, relating to the Company or Subsidiaries, the Company shall so
indicate to such Subscriber contemporaneously with delivery of such notice
or
information. In the absence of any such indication, such 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 its Subsidiaries.
15
(o) Non-Public
Information.
The
Company covenants and agrees that except for the Reports, Other Written
Information and schedules and exhibits to this Agreement, which information
the
Company undertakes to publicly disclose not later than the sooner of the
required or actual filing date of the Form 8-K described in Section 9(n) above,
neither it nor any other person acting on its behalf will at any time 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 keep such information in confidence.
The Company understands and confirms that each Subscriber shall be relying
on
the foregoing representations in effecting transactions in securities of the
Company.
(p) Negative
Covenants.
So long
as a Note is outstanding, without the consent of the Subscribers, except as
described on Schedule
9(p),
the
Company will not and will not permit any of its Subsidiaries to directly or
indirectly:
(i) create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”)
upon
any of its property, whether now owned or hereafter acquired except for: (A)
the
Excepted Issuances (as defined in Section 12 hereof), and (B) (a) Liens imposed
by law for taxes that are not yet due or are being contested in good faith
and
for which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
material men’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business
in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing
of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed
by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property; and (g) Liens created with respect to bona fide
financings secured by the Company’s accounts receivable or inventory (each of
(a) through (g), a “Permitted
Lien”);
(ii) amend
its
certificate of incorporation, bylaws or its charter documents so as to
materially and 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.
16
(iv) engage
in
any transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $100,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company, and (iii)
for
other employee benefits, including stock option agreements under any stock
option plan of the Company; or
(v) prepay
or
redeem any financing related debt or past due obligations outstanding as of
the
Closing Date.
(q) Further
Registration Statements.
Except
for a registration statement filed on behalf of the Subscribers pursuant to
Section 11 of this Agreement, and as set forth on Schedule
11.1
hereto,
the Company will not, without the consent of the Subscribers, file with the
Commission or with state regulatory authorities any registration statements
or
amend any already filed registration statement to increase the amount of Common
Stock registered therein, or reduce the price of which such Common Stock is
registered therein, (including but not limited to Forms S-8), until the
expiration of the “Exclusion
Period,”
which
shall be defined as the sooner of (i) the Registration Statement having been
current and available for use in connection with the resale of all of the
Registrable Securities (as defined in Section 11.1(i)) for a period of sixty
(60) days, or (ii) until all the Conversion Shares have been resold or
transferred by the Subscribers pursuant to the Registration Statement or Rule
144, without regard to volume limitations. The Exclusion Period will be tolled
or reinstated, as the case may be, during the pendency of an Event of Default
as
defined in the Note.
(r) Blackout.
The
Company undertakes and covenants that, until the end of the Exclusion Period,
the Company will not enter into any acquisition, merger, exchange or sale or
other transaction or fail to take any action that could have the effect of
delaying the effectiveness of any pending Registration Statement or causing
an
already effective Registration Statement to no longer be effective or current
for a period of forty-five or more days in the aggregate during any three
hundred and sixty-five day period.
(s) Offering
Restrictions.
Until
the expiration of the Exclusion Period and/or during the pendency of an Event
of
Default, except for the Excepted Issuances and as described on Schedule
9(s),
the
Company will not enter into an agreement to issue nor issue any equity,
convertible debt or other securities convertible into Common Stock or equity
of
the Company nor modify any of the foregoing which may be outstanding at anytime,
without the prior written consent of the Subscribers, which consent may be
withheld for any reason. For a period of one hundred eighty (180) days after
the
Actual Effective Date (as defined below), the Company will not call or redeem
any of its outstanding warrants. For so long as the Notes are outstanding,
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
(collectively, the “Variable
Rate Restrictions”).
For
purposes hereof, “Equity
Line of Credit”
shall
include any transaction involving a written agreement between the Company and
an
investor or underwriter whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of time and
at
an agreed price or price formula, and “Variable
Priced Equity Linked Instruments”
shall
include: (A) any debt or equity securities which are convertible into,
exercisable or exchangeable for, or carry the right to receive additional shares
of Common Stock either (1) at any conversion, exercise or exchange rate or
other
price that is based upon and/or varies with the trading prices of or quotations
for Common Stock at any time after the initial issuance of such debt or equity
security, or (2) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date at any time after the initial
issuance of such debt or equity security due to a change in the market price
of
the Company’s Common Stock since date of initial issuance, and (B) any
amortizing convertible security which amortizes prior to its maturity date,
where the Company is required or has the option to (or any investor in such
transaction has the option to require the Company to) make such amortization
payments in shares of Common Stock which are valued at a price that is based
upon and/or varies with the trading prices of or quotations for Common Stock
at
any time after the initial issuance of such debt or equity security (whether
or
not such payments in stock are subject to certain equity
conditions).
17
(t) Lockup
Agreement.
The
Company will deliver to the Subscribers on or before the Closing Date and
enforce the provisions of an irrevocable lockup agreement (“Lockup
Agreement”)
in the
form annexed hereto as Exhibit
E,
with
the persons identified on Schedule
9(t).
(u) Seniority.
Except
for Permitted Liens and as otherwise provided for herein, until the Notes are
fully satisfied or converted, 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,
equal or superior to any right or potential of the holder of a Note in or to
such assets.
(v) Notices.
For so
long as the Subscribers hold any Securities, the Company will maintain as United
States address and United States fax number for notices purposes under the
Transaction Documents.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, members,
managers, 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 representation or warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant
or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.
(b) The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Section 10(a).
11.1. Registration
Rights.
The
Company hereby grants the following registration rights to holders of the
Securities.
(i) On
one
occasion, for a period commencing one hundred and twenty-one (121) days after
the Closing Date, but not later than two years after the Closing Date, upon
a
written request therefor from any record holder or holders of more than 50%
of
the Shares, Conversion Shares issued and issuable upon conversion of the
outstanding Notes and outstanding Warrant Shares, the Company shall prepare
and
file with the Commission a registration statement under the 1933 Act registering
the Registrable Securities, as defined in Section 11.1(iv) hereof, which are
the
subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall
not
include Securities which are (A) registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act or (D) which
may be resold under Rule 144(k) or Rule 144 without volume limitations. Upon
the
receipt of such request, the Company shall promptly give written notice to
all
other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
days after the Company gives such written notice. Such other requesting record
holders shall be deemed to have exercised their demand registration right under
this Section 11.1(i).
18
(ii) If
the
Company at any time proposes to register any of its securities under the 1933
Act for sale to the public, whether for its own account or for the account
of
other security holders or both, except with respect to registration statements
on Forms X-0, X-0 or another form not available for registering the Registrable
Securities for sale to the public, provided the Registrable Securities are
not
otherwise registered for resale by the Subscribers or Holder pursuant to an
effective registration statement, each such time it will give at least ten
(10)
days' prior written notice to the record holder of the Registrable Securities
of
its intention so to do. Upon the written request of the holder, received by
the
Company within ten (10) days after the giving of any such notice by the Company,
to register any of the Registrable Securities not previously registered, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by
the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the “Seller”
or
“Sellers”).
In
the event that any registration pursuant to this Section 11.1(ii) shall be,
in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.
(iii) If,
at
the time any written request for registration is received by the Company
pursuant to Section 11.1(i), the Company has determined to proceed with the
actual preparation and filing of a registration statement under the 1933 Act
in
connection with the proposed offer and sale for cash of any of its securities
for the Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of
the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv) The
Company shall file with the Commission a Form S-3 registration statement (the
“Registration
Statement”)
(or
such other form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act within fifty (50)
calendar days after the Closing Date (the
“Filing
Date”),
and
cause the Registration Statement to be declared effective not
later
than one hundred and twenty (120) calendar days after the Closing Date
(the
“Effective
Date”).
The
Company will register not less than a number of shares of common stock in the
aforedescribed registration statement that is equal to 150%
of
the Shares, Conversion Shares issued and issuable upon conversion of the Notes,
100% of the Warrant Shares issuable upon exercise of the Warrants, 125% of
the
Common Stock issuable upon exercise of the Broker’s Warrants directly or
indirectly (upon exercise of Warrants or Notes issuable upon such exercise)
and
100% of the Key Person Securities (collectively the “Registrable
Securities”).
The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber, Broker Holder and purchaser of Key Person
Securities, pro rata,
and not
issued, employed or reserved for anyone other than each such person. The
Registration Statement will immediately be amended or additional registration
statements will be immediately filed by the Company as necessary to register
additional shares of Common Stock to allow the public resale of all Common
Stock
included in and issuable by virtue of the Registrable Securities. Except with
the written consent of the Subscribers, no securities of the Company other
than
the Registrable Securities or the securities described on Schedule
11.1,
will be
included in the Registration Statement. It shall be deemed a Non-Registration
Event if at any time after the date the Registration Statement is declared
effective by the Commission (“Actual
Effective Date”)
the
Company has registered for unrestricted resale on behalf of the Subscribers
less
than all of the Registrable Securities required to be registered as described
in
this Agreement (“Shortfall”).
The
Company shall cause to be registered a sufficient amount of shares of Common
stock in order to eliminate the Shortfall within 60 days after the date the
Shortfall occurs. Failure to eliminate the Shortfall within such 60 day period
shall be a Non-Registration Event. Except for Common Stock described on
Schedule
11.1,
no
other securities of the Company will be included in the Registration Statement
other than the Registrable Securities.
19
(v) The
amount of Registrable Securities required to be included in the Registration
Statement as described in Section 11.1(iv) (“Initial
Registrable Securities”)
shall
be limited to not less than 100% of the maximum amount (“Rule
415 Amount”)
of
Common Stock which may be included in a single Registration Statement without
exceeding registration limitations imposed by the Commission pursuant to Rule
415 of the 1933 Act but in any event not less than 3,100,000 shares of Common
Stock. In the event that less than all of the Initial Registrable Securities
are
included in the Registration Statement as a result of the limitation described
in this Section 11.1(v), then the Company will file additional Registration
Statements each registering the Rule 415 Amount (each such Registration
Statement a “Subsequent
Registration Statement”),
seriatim,
until
all of the Initial Registrable Securities have been registered. The Filing
Date
and Effective Date of each such additional Registration Statement shall be,
respectively, fourteen (14) and forty-five (45) days after the first day such
Subsequent Registration Statement may be filed without objection by the
Commission based on Rule 415 of the 1933 Act.
(vi) Unless
otherwise instructed in writing by a holder of Registrable Securities and only
if the initial Registration Statement does not include all of the Registrable
Securities, the Registrable Securities will be registered on behalf of each
such
holder in the Registration Statements based in the following order and
priority:
(A) Shares.
(B) Conversion
Shares issued and issuable upon conversion of the Notes (based on the multiple
set forth above).
(C) Issued
Warrants Shares.
(D) Warrant
Shares issuable upon not yet exercised Warrants.
(vii) The
foregoing notwithstanding, Registrable Securities shall be allocated and
registered pro rata among the Subscribers based upon their initial investments
in the Offering.
(viii) Each
Seller shall answer the questions set forth in Selling Shareholder Questionnaire
(“Shareholder
Questionnaire”)
in the
form attached as Exhibit
F
and
deliver such completed questionnaire to the Company prior to the Company’s
filing of any Registration Statement. Seller represents that the information
provided by such Seller shall be true and correct as of the Closing Date and
the
date such Shareholder Questionnaire is delivered to the Company. Seller will
notify the Company promptly of any material change of any such information
until
such time as the Seller has sold all of its Shares or Warrant Shares or until
the Company is no longer required to keep the Registration Statement
effective.
(ix) The
Company agrees that if it is eligible to file a Registration Statement pursuant
to Sections 11.1(i) or 11.1(iv) on Form S-3 (or a successor form) in connection
with the Registrable Securities, then such Registration Statement will be filed
on Form S-3 (or a successor form).
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Sections 11.1(i), 11.1(ii)
or 11.1(iv) to effect the registration of any Registrable Securities under
the
1933 Act, the Company will, as expeditiously as possible:
20
(a) subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect to
such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of
the
Registrable Securities copies of all filings and Commission letters of comment
and notify the Subscribers (by telecopier and by e-mail addresses provided
by
the Subscribers) and Grushko & Xxxxxxx, P.C. (by telecopier and by email to
Xxxxxxxxx@xxx.xxx)
on or
before the second business day thereafter that the Company receives notice
that
(i) the Commission has no comments or no further comments on the Registration
Statement, and (ii) the registration statement has been declared effective
(failure to timely provide notice as required by this Section 11.2(a) shall
be a
material breach of the Company’s obligation and an Event of Default as defined
in the Notes
and
a Non-Registration Event as defined in Section 11.4 of this Agreement);
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years after the date of
this Agreement, and comply with the provisions of the 1933 Act with respect
to
the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the Sellers’ intended method of
disposition set forth in such registration statement for such period;
(c) furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;
(d) use
its
reasonable
best efforts to register or qualify the Registrable Securities covered by such
registration statement under the securities or “blue sky” laws of New York and
such jurisdictions as the Sellers shall request in writing, provided, however,
that the Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where it
is
not so qualified or to consent to general service of process in any such
jurisdiction;
(e) if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) notify
the Subscribers within twenty-four hours of the Company’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act,
of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the Registrable
Securities;
(g) provided
same would not be in violation of the provision of Regulation FD under the
1934
Act, make available for inspection by the Sellers during reasonable business
hours, 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
at such
requesting Seller’s expense;
and
21
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto
five
business days prior to the filing thereof with the Commission. Any Subscriber’s
failure to comment on any Registration Statement or other document provided
to a
Subscriber or its counsel shall not be construed to constitute approval thereof
nor the accuracy thereof.
11.3. Provision
of Documents.
In
connection with each registration described in this Section 11, each Seller
will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
11.4. Non-Registration
Events.
The
Company agrees that the Sellers will suffer damages if the Registration
Statement is not filed by the Filing Date and not declared effective by the
Commission by the Effective Date, and any registration statement required under
Section 11.1(i) or 11.1(ii) is not filed within 60 days after written request
and declared effective by the Commission within 90 days after such request,
and
maintained in the manner and within the time periods contemplated by Section
11
hereof, and it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, if (A) the Registration Statement is not filed
on
or before the Filing Date, (B) the Registration Statement is not declared
effective on or before the required Effective Date, (C) due to the action or
inaction of the Company the Registration Statement is not declared effective
within three (3) business days after receipt by the Company or its attorneys
of
a written or oral communication from the Commission that the Registration
Statement will not be reviewed or that the Commission has no further comments,
(D) if the registration statement described in Sections 11.1(i) or 11.1(ii)
is
not filed within 60 days after such written request, or is not declared
effective within 90 days after such written request, or (E) any registration
statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and
declared effective but shall thereafter cease to be effective without being
succeeded within twenty-five (25) business days by an effective replacement
or
amended registration statement or for a period of time which shall exceed forty
(45) days in the aggregate per year (defined as every rolling period of 365
consecutive days commencing on the Actual Effective Date (each such event
referred to in clauses A through E of this Section 11.4 is referred to herein
as
a "Non-Registration
Event"),
then
the Company shall deliver to the holder of Registrable Securities, as
Liquidated
Damages,
an
amount equal to one and one-half percent (1.5%) for each thirty (30) days (or
such lesser pro-rata amount for any period of less than thirty (30) days) of
the
principal amount of the outstanding Notes, purchase price of the Shares,
and
purchase price of Conversion Shares and Warrant Shares issued upon conversion
of
Notes and exercise of Warrants held by Subscriber which are subject to such
Non-Registration Event (collectively “Aggregate
Purchase Price”).
The
maximum Liquidated Damages payable to each Subscriber pursuant to this Section
11.4 shall not exceed eighteen percent (18%) of each such Subscriber’s Aggregate
Purchase Price. The Company must pay the Liquidated Damages in cash. The
Liquidated Damages must be paid within ten (10) days after the end of each
thirty (30) day period or shorter part thereof for which Liquidated Damages
are
payable. In the event a Registration Statement is filed by the Filing Date
but
is withdrawn prior to being declared effective by the Commission, then such
Registration Statement will be deemed to have not been filed and Liquidated
Damages will be calculated accordingly. All
oral
or written comments received from the Commission relating to the Registration
Statement must be satisfactorily responded to within
ten (10) business days after receipt of comments from the Commission.
Failure
to
timely respond to Commission comments is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders
of
Registrable Securities at the same rate and amounts set forth above calculated
from the date the response was required to have been made.
11.5. Expenses.
All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses (if
required), fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including reasonable counsel fees) incurred
in connection with complying with state securities or “blue sky” laws, fees of
the NASD, transfer taxes, and fees of transfer agents and registrars, are called
“Registration
Expenses.”
All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities are called "Selling
Expenses."
The
Company will pay all Registration Expenses in connection with the registration
statement under Section 11. Selling Expenses in connection with each
registration statement under Section 11 shall be borne by the Seller and may
be
apportioned among the Sellers in proportion to the number of shares sold by
the
Seller relative to the number of shares sold under such registration statement
or as all Sellers thereunder may agree.
22
11.6. Indemnification
and Contribution.
(a) In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officers, directors, agents,
Affiliates, members, managers, control persons, and principal shareholders
of
the Seller, each underwriter of such Registrable Securities thereunder and
each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint
or
several, to which the Seller, or such underwriter or controlling person may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the 1933 Act pursuant to Section 11, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission
to
state therein a material fact required to be stated therein or necessary to
make
the statements therein not misleading in light of the circumstances when made,
and will subject to the provisions of Section 11.6(c) reimburse the Seller,
each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable to the Seller to the extent that any such
damages arise out of or are based upon an untrue statement or omission made
in
any preliminary prospectus if (i) the Seller failed to send or deliver a copy
of
the final prospectus delivered by the Company to the Seller with or prior to
the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller 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 pursuant to such registration
statement.
23
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 11.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake
the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.6(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnifying party shall
have reasonably concluded that there may be reasonable defenses available to
indemnified party 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, reasonably satisfactory to the indemnified and indemnifying party,
and
to assume such legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of such separate counsel
and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
11.6 but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may
be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6;
then, and in each such case, the Company and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will not
be
required to contribute any amount in excess of the public offering price of
all
such securities sold by it pursuant to such registration statement; and (z)
no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the 0000 Xxx) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation 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 pursuant to such Registration Statement.
11.7. Delivery
of Unlegended Conversion Shares.
(a) Within
three (3) business days (such third business day being the “Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a notice that Shares,
Conversion Shares or Warrant Shares or any other Common Stock held by a
Subscriber have been sold pursuant to the Registration Statement or Rule 144
under the 1933 Act, (ii) a representation that the prospectus delivery
requirements, or the requirements of Rule 144, as applicable and if required,
have been satisfied, and (iii) the original share certificates representing
the
shares of Common Stock that have been sold, and (iv) in the case of sales under
Rule 144, customary representation letters of the Subscriber and/or a
Subscriber’s broker regarding compliance with the requirements of Rule 144, the
Company at its expense, (y) shall deliver, and shall cause legal counsel
selected by the Company to deliver to its transfer agent (with copies to
Subscriber) an appropriate instruction and opinion of such counsel, directing
the delivery of shares of Common Stock without any legends including the legend
set forth in Section 4(i)
above
(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 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.
24
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, upon
request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in
such
DWAC system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(c) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof later than two business days after the Unlegended
Shares Delivery Date could result in economic loss to a Subscriber. As
compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber
for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company
fails
to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities subject
to such default may, at its option, require the Company to redeem all or any
portion of the Conversion Shares and Warrant Shares subject to such default
at a
price per share equal to the greater of (i) 120% of the purchase price of such
shares, or (ii) a fraction in which the numerator is the highest closing price
of the Common Stock during the aforedescribed thirty day period and the
denominator of which is the lowest Note Conversion Price during such thirty
day
period, multiplied by the purchase price of such shares and Exercise Price
of
such Warrant Shares (“Unlegended
Redemption Amount”).
The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
(d)
In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate purchase
price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together
with interest thereon at a rate of 15% per annum accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber
$1,000,
plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
25
(e) In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 11.7 or Warrant Shares upon exercise of Warrants and the Company is
required to deliver such Unlegended Shares pursuant to Section 11.7 or the
Warrant Shares pursuant to the Warrants, the Company may not refuse to deliver
Unlegended Shares or Warrant Shares based on any claim that such Subscriber
or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or enjoining delivery
of such Unlegended Shares or exercise of all or part of said Warrant shall
have
been sought and obtained by the Company or at the Company’s request or with the
Company’s assistance,
and the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the amount of the aggregate purchase price of the Shares
and
Warrant Shares which are subject to the injunction or temporary restraining
order, which bond shall remain in effect until the final unappealable
disposition of the litigation of the dispute and the proceeds of which shall
be
payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber’s favor.
12. (a) Favored
Nations Provision.
Until
the sooner of eighteen months after the Actual Effective Date or the date upon
which less than $2,000,000 of Principal Amount of Notes remains outstanding
(the
earlier of such dates, the “Dilution
Termination Date”),
except
in
connection with (i) full or partial consideration in connection with a strategic
merger, acquisition, consolidation or purchase of substantially all of the
securities
or assets of corporation or other entity which holders of such securities or
debt are not at any time granted registration rights, (ii)
the
Company’s issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital and which holders of such securities or debt are
not
at any time granted registration rights, (iii) the Company’s issuance of Common
Stock or the issuances or grants of options to purchase Common Stock to
employees, directors, and consultants, pursuant to plans described on
Schedule
5(d),
(iv) as
a result of the exercise of Warrants or conversion of Notes which are granted
or
issued pursuant to this Agreement on the terms described in the Transaction
Documents as of the Closing Date, and (v) as described on Schedule
12(a)
(collectively the foregoing are “Excepted
Issuances”),
the
Company shall agree to or issue (the “Lower
Price Issuance”),
respectively, any Common Stock, Convertible Security or Common Stock Purchase
Right as defined below (or modify any of the foregoing which may be outstanding)
to any person or entity (w) at a price per share (in the case of Common Stock)
which shall be less than the purchase price of the Shares (the “Lower
Share Price”),
(x)
at a price per share (in the case of Common Stock) which shall be less than
the
Conversion Price of Conversion Shares then outstanding (the “Lower
Conversion Share Price”),
(y)
convertible or exchangeable at a conversion price (in the case of Convertible
Securities) which shall be less than the Conversion Price of the Notes then
outstanding (the “Lower
Conversion Price”),
or
(z) exercisable at an exercise price (in the case of Common Stock Purchase
Rights) which shall be less than the Exercise Price of the Warrants (the
“Lower
Exercise Price”),
without the consent of the Subscribers, then, for each such occasion, (ww)
in
the case of clause (w) above, the Company shall issue additional shares of
Common Stock to each Subscriber respecting the Shares so that the average price
paid by such Subscriber for the Shares shall be equal to the Lower Share Price,
(xx) in the case of clause (x) above, the Company shall issue additional shares
of Common Stock to each Subscriber respecting any Conversion Shares received
on
conversion of Notes prior to such occasion so that the average price paid by
such Subscriber for the Conversion Shares shall be equal to the Lower Conversion
Share Price, (yy) in the case of clause (y) above, the Company shall lower
the
Conversion Price of Notes that are outstanding at the time of such occasion
to
the Lower Conversion Price and (zz) in the case of clause (z) above, the Company
shall lower the Exercise Price of Warrants that are outstanding at the time
of
such occasion to the Lower Exercise Price. The delivery to a 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. For example, the issuance of securities similar to the Units
(and
the Shares, Notes and Warrants included therein) at similar prices, including
without limitation upon conversion of Bridge Notes, would not require any
adjustment under this Agreement. Each Subscriber is granted the registration
rights described in Section 11 hereof in relation to such additional shares
of
Common Stock. The rights of each Subscriber set forth in this Section 12 are
in
addition to any other rights the Subscriber has pursuant to this Agreement,
the
Note, any Transaction Document, and any other agreement referred to or entered
into in connection herewith or to which such Subscriber and Company are parties.
Each Subscriber is also given the right to elect to substitute any term or
terms
of any other offering in connection with which such Subscriber has rights as
described in Section 12(a), for any term or terms of the Offering in connection
with Securities owned by such Subscriber as of the date the notice described
in
Section 12(a) is required to be given to such Subscriber. The Company will
not
engage in a Lower Price Issuance if the Company’s compliance with this Section
12(a) could result in a violation of the Nasdaq Marketplace Rules. “Convertible
Securities”
means
any securities of the Company or the Subsidiaries, including without limitation
any debt or preferred stock, which would entitle the holder thereof directly
or
indirectly to acquire at any time Common Stock without payment of additional
consideration. “Common
Stock Purchase Rights”
means
any securities of the Company or the Subsidiaries (other than Convertible
Securities), including without limitation rights, options, warrants or other
instruments that are at any time directly or indirectly exercisable to purchase
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
26
(b) Maximum
Exercise of Rights.
In the
event the exercise of the rights described in Section 12(a) would
or
could result in the issuance of an amount of Common Stock of the Company that
would exceed the maximum amount that may be issued to a Subscriber calculated
in
the manner described in Section 7.3 of this Agreement, then the issuance of
such
additional shares of Common Stock of the Company to such Subscriber will be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such Common Stock without exceeding the applicable maximum
amount set forth calculated in the manner described in Section 7.3 of this
Agreement. The determination of when such Common Stock may be issued shall
be
made by each Subscriber as to only such Subscriber.
13. 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: Neonode Inc., 0000 Xxxxxxxxx
Xxxxxxx, Xxxxx 000, Xxx Xxxxx, XX 00000, Attn: CFO, telecopier:
(000) 000-0000, and Xxxxxxxxxxxxxxx 00, X000 00 Xxxxxxxxx, Xxxxxx, Attn:
President, telecopier: 01146 8678 1851, with a copy by telecopier only to:
Xxxx
& Hessen LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, Attn: Xxxxx Xxxxxx,
Esq., telecopier: (000) 000-0000, (ii) if to the Subscriber, to: the one or
more
addresses and telecopier numbers indicated on the signature pages hereto, with
an additional copy by telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier: (000) 000-0000, and
(iii) if to the Broker, to: Empire Asset Management, Inc., 0 Xxxxxx Xxxxxx,
00xx
Xxxxx, Xxx Xxxx, XX 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 the Company and the
affected Subscriber and as described in Section 13(h). 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.
27
(c) Counterparts/Execution.
This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d) Law
Governing this Agreement.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of
New
York or in the federal courts located in the state and county of New York.
The
parties to this Agreement hereby irrevocably waive any objection to jurisdiction
and venue of any action instituted hereunder and shall not assert any defense
based on lack of jurisdiction or venue or based upon forum
non conveniens.
The
parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith on behalf of the Company agree to submit to
the
in personam jurisdiction of such courts and hereby irrevocably 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.
Each party hereby irrevocably waives personal service of process and consents
to
process being served in any suit, action or proceeding in connection with this
Agreement or any other Transaction Document by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in
any way any right to serve process in any other manner permitted by
law.
(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 seek 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, the Company hereby irrevocably 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.
28
(f) Independent
Nature of Subscribers.
The
Company acknowledges that the obligations of each Subscriber under the
Transaction Documents are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The
Company acknowledges that each Subscriber has represented that the decision
of
each Subscriber to purchase Securities has been made by such Subscriber
independently of any other Subscriber and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company which may have been made or given by
any
other Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The
Company acknowledges that nothing contained in any Transaction Document, and
no
action taken by any Subscriber pursuant hereto or thereto (including, but not
limited to, the (i) inclusion of a Subscriber in the Registration Statement
and
(ii) review by, and consent to, such Registration Statement by a Subscriber)
shall be deemed to constitute the Subscribers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to
such
obligations or the transactions contemplated by the Transaction Documents.
The Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for
any other Subscriber to be joined as an additional party in any proceeding
for
such purpose. The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience
of
the Company and not because Company was required or requested to do so by the
Subscribers. The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
(g) Damages.
In the
event the Subscriber is entitled to receive any liquidated damages pursuant
to
the Transactions, the Subscriber may elect to receive the greater of actual
damages or such liquidated damages.
(h) Consent.
As used
in the Agreement, “consent of the Subscribers” or similar language means the
consent of holders (the “Required
Holders”)
of not
less than 60% of the total of the Shares, Conversion Shares issued and issuable
upon conversion of outstanding Notes held by Subscribers on the date consent
is
requested.
(i) Equal
Treatment.
No
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of the Transaction Documents unless
the
same consideration is also offered and paid to all the Subscribers and their
permitted successors and assigns.
(j) 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.
(k) 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. Any deadline that falls on
a
non-business day in any of the Transaction Documents shall be automatically
extended to the next business day and interest, if any, shall be calculated
and
payable through such extended period.
(l) Captions:
Certain Definitions.
The
captions of the various sections and paragraphs of this Agreement have been
inserted only for the purposes of convenience; such captions are not a part
of
this Agreement and shall not be deemed in any manner to modify, explain, enlarge
or restrict any of the provisions of this Agreement. As used in this Agreement
the term “person”
shall
mean and include an individual, a partnership, a joint venture, a corporation,
a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.
29
(m) Severability.
In the
event that any term or provision of this Agreement shall be finally determined
to be superseded, invalid, illegal or otherwise unenforceable pursuant to
applicable law by an authority having jurisdiction and venue, that determination
shall not impair or otherwise affect the validity, legality or enforceability:
(i) by or before that authority of the remaining terms and provisions of this
Agreement, which shall be enforced as if the unenforceable term or provision
were deleted, or (ii) by or before any other authority of any of the terms
and
provisions of this Agreement.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
30
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.
| NEONODE INC. | |
| a Delaware corporation | |
| By: | |
|
Name:
|
|
|
Title:
|
|
| Dated: September 10, 2007 | |
|
SUBSCRIBER
|
AGGREGATE
PURCHASE
PRICE (CASH)
|
PRINCIPAL
AMOUNT OF
NOTE
|
SHARES
|
WARRANTS
|
|||
|
Name
of Subscriber:
_________________________________________
Address:
_________________________________________
_________________________________________
Fax
No.: _________________________________________
Email
address (not to - notice):
__________________________________
Social
Security Number or Taxpayer ID# (if applicable):
_______________________________
Jurisdiction
of organization (for entities):
__________________________________
_____________________________________________
(Signature)
By:
_____________________________________________
Name:
_____________________________________________
Title:
_____________________________________________
|
31
LIST
OF EXHIBITS AND SCHEDULES
|
Exhibit
A
|
Form
of Note
|
|
Exhibit
B
|
Form
of Warrant
|
|
Exhibit
C
|
Escrow
Agreement
|
|
Exhibit
D
|
Form
of Legal Opinions
|
|
Exhibit
E
|
Form
of Lockup Agreement
|
|
Exhibit
F
|
Subscriber
Questionnaire
|
|
Schedule
5(a)
|
Subsidiaries
|
|
Schedule
5(d)
|
Additional
Issuances / Capitalization / Reset Rights
|
|
Schedule
5(o)
|
Undisclosed
Liabilities
|
|
Schedule
5(o)-1
|
Form
of Amendment to Senior Secured Notes
|
|
Schedule
5(w)
|
Transfer
Agent
|
|
Schedule
9(e)
|
Use
of Proceeds
|
|
Schedule
9(p)
|
Permitted
Liens
|
|
Schedule
9(s)
|
Permitted
Issuances
|
|
Schedule
9(t)
|
Lockup
Agreement Providers
|
|
Other
Registrable Shares
|
|
|
Schedule
12(a)
|
Additional
Excepted Issuances
|
32
EXHIBIT
E
LOCKUP
AGREEMENT
This
AGREEMENT (the "Agreement") is made as of the ____ day of September, 2007,
by
_________________ ("Holder"), maintaining an address at c/o Neonode
Inc., 0000 Xxxxxxxxx Xxxxxxx, Xxxxx 000, Xxx Xxxxx, XX 00000, telecopier:
(000) 000-0000,
in
connection with his or its ownership of shares of Neonode Inc.,
a
Delaware corporation
(the "Company").
1. Background.
a.
Holder
is
the beneficial owner of the amount of shares of the Common Stock, $.001 par
value, of the Company (“Common Stock”) designated on the signature page
hereto.
x. Xxxxxx
acknowledges that the Company has entered into or will enter into at or about
the date hereof agreements with subscribers to the Company’s Notes, convertible
into Common Stock and Warrants (the “Subscribers”). Holder understands that, as
a condition to proceeding with the Offering, the Subscribers have required,
and
the Company has agreed to obtain on behalf of the Subscribers an agreement
from
the Holder to refrain from selling any securities of the Company from the date
of the Subscription Agreement until one year after the Closing Date (as defined
in the Subscription Agreement). The Holder has entered into this Agreement
in
order to induce the Subscribers to enter into the Subscription Agreement. This
Agreement is effective as of the Closing Date.
2. Sale
Restriction.
a. Holder
hereby agrees that during the Restriction Period without the consent of the
Required Holders (as defined in the Subscription Agreement), the Holder will
not
sell, transfer or otherwise dispose of any shares of Common Stock or any
options, warrants or other rights to purchase shares of Common Stock or any
other security of the Company which Holder owns or has a right to acquire as
of
the date hereof, other than in connection with an offer made to all shareholders
of the Company in connection with merger, consolidation or similar transaction
involving the Company. Holder further agrees that the Company is authorized
to
and the Company agrees to place "stop orders" on its books to prevent any
transfer of shares of Common Stock or other securities of the Company held
by
Holder in violation of this Agreement. The Company agrees not to allow to occur
any transaction inconsistent with this Agreement.
b. Any
subsequent issuance to and/or acquisition by Holder of Common Stock or options
or instruments convertible into Common Stock (“Convertible Securities”) will be
subject to the provisions of this Agreement.
33
c. Notwithstanding
the foregoing restrictions on transfer, the Holder may, at any time and from
time to time during the Restriction Period, transfer all or a portion of the
shares of Common Stock or Convertible Securities (i) as bona fide gifts or
transfers by will or intestacy, (ii) to any trust for the direct or indirect
benefit of the undersigned or the immediate family of the Holder, provided
that
any such transfer shall not involve a disposition for value, (iii) to a
partnership which is the general partner of a partnership of which the Holder
is
a general partner, (iv) private sales, provided the Common Stock or Convertible
Securities (other than Key Person Securities (as
defined in the Subscription Agreement), which
shall not be subject to restrictions) are subject to transfer restrictions
under
the Securities Act of 1933, as amended, subsequent to such transfer, (v) each
ninety (90) days up to ten percent (10%) of the Common Stock owned by the Holder
on the Closing Date, in market transactions at not less than $3.25 per share
of
Common Stock, (vi) each ninety (90) days up to twenty-five percent (25%) of
the
Common Stock owned by the Holder on the Closing Date, in market transactions
at
not less than $6.50 per share of Common Stock, (vii) each ninety (90) days
up to
fifty percent (50%) of the Common Stock owned by the Holder on the Closing
Date,
in market transactions at not less than $8.00 per share of Common Stock, (viii)
all of the Common Stock owned by the Holder on the Closing Date, in market
transactions at not less than $9.00 per share of Common Stock and (ix) purchased
upon exercise of warrants called by the Company and registered under applicable
securities law; provided, that, in the case of any gift or transfer described
in
clauses (i), (ii), (iii) and (iv), each donee or transferee agrees in writing
to
be bound by the terms and conditions contained herein in the same manner as
such
terms and conditions apply to the undersigned. For purposes of clauses (v),
(vi)
and (vii) the Holder should be deemed to include any and all transferees of
such
Holder pursuant to clauses (i), (ii), (iii) and (iv). For purposes hereof,
"immediate family" means any relationship by blood, marriage or adoption, not
more remote than first cousin. In no event may sales pursuant to clauses (v),
(vi) and (vii) during any ninety (90) day period exceed twenty-five percent
(25%) of the average weekly volume of Common Stock trading for the month
preceding such sales.
3. Miscellaneous.
a. At
any
time, and from time to time, after the signing of this Agreement Holder will
execute such additional instruments and take such action as may be reasonably
requested by the Subscribers to carry out the intent and purposes of this
Agreement.
b. This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of
New
York or in the federal courts located in the state of New York. The parties
to
this Agreement hereby irrevocably waive any objection to jurisdiction and venue
of any action instituted hereunder and shall not assert any defense based on
lack of jurisdiction or venue or based upon forum
non conveniens.
The
parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith agree to submit to the in personam jurisdiction
of such courts and hereby irrevocably 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.
Notices hereunder shall be given in the same manner as set forth in the
Subscription Agreement. Each party hereby irrevocably waives personal service
of
process and consents to process being served in any suit, action or proceeding
in connection with this Agreement or any other Transaction Document by mailing
a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to
it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall
be deemed to limit in any way any right to serve process in any other manner
permitted by law. Holder irrevocably appoints Neonode Inc. its true and lawful
agent for service of process upon whom all processes of law and notices may
be
served and given in the manner described above; and such service and notice
shall be deemed valid personal service and notice upon Holder with the same
force and validity as if served upon Holder.
34
c. The
restrictions on transfer described in this Agreement are in addition to and
cumulative with any other restrictions on transfer otherwise agreed to by the
Holder or to which the Holder is subject to by applicable law.
d. This
Agreement shall be binding upon Holder, its legal representatives, successors
and assigns.
e. This
Agreement may be signed and delivered by facsimile and such facsimile signed
and
delivered shall be enforceable.
f. The
Company agrees not to take any action or allow any act to be taken which would
be inconsistent with this Agreement.
g. The
Holder acknowledges that this Lockup Agreement is being entered into for the
benefit of the Subscribers identified in the Subscription Agreement dated on
or
about September 10, 2007 among the Company and the Subscribers, may be enforced
by the Subscribers and may not be amended without the consent of the Subscriber,
which may be withheld for any reason.
|
(Signature
of Holder)
|
|
|
(Print
Name of Holder)
|
|
|
Number
of Shares of Common Stock Beneficially Owned
|
|
|
COMPANY:
|
|
|
NEONODE
INC.
|
|
|
By:
|
|
35