EXHIBIT 2.1
FORM OF SUBSCRIPTION AGREEMENT
You (the "Subscriber" or "Purchaser" or "Holder") hereby agree
to purchase, and THE RECOVERY NETWORK, INC., a Colorado corporation (the
"Company"), hereby agrees to issue and to sell to the Subscriber, the number of
shares (the "Company Shares") of the Company's Common Stock, $.01 par value per
share ("Company Stock"), and a Common Stock Purchase Warrant to purchase the
number of shares of Common Stock (the "Warrant") designated on the signature
page hereof, in the form annexed hereto as Exhibit A. (The Company Shares are
sometimes referred to herein as the "Shares" or "Common Shares"). (The Company
Shares, the Warrants and the shares of Common Stock issuable upon exercise of
the Warrants and the Additional Shares [as hereinafter defined] and Put Shares
[as hereinafter defined] are collectively referred to herein as, the
"Securities"). Upon acceptance of this Agreement on the Closing Date (as defined
herein) by the Subscriber, the Company shall issue and deliver to the Subscriber
the Company Shares and Warrants against payment, by federal funds (U.S.) wire
transfer of the amount designated on the signature page hereof pursuant to the
terms of a Funds Escrow Agreement annexed hereto as Exhibit B.
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with and has read the Company's Registration Statement on Form SB-2,
as amended (File No. 333-27787) and subsequent Forms 10-QSB and 8-K, and
Schedule 14A, each as filed with the U.S. Securities and Exchange Commission
(the "Commission") (collectively, with exhibits thereto, hereinafter referred to
as the "Reports"). In addition, the Subscriber has received from the Company
such other information concerning its operations, financial condition and other
matters as the Subscriber has requested, and considered all factors the
Subscriber deems material in deciding on the advisability of investing in the
Securities (such information in writing is collectively, the "Other Written
Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended, is experienced in
investments and business matters, has made investments of a speculative nature
and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof.
(c) Purchase of Company Shares and Warrants. On the
Closing Date, the Subscriber will purchase the Company Shares and Warrants for
its own account and not with a view to any distribution thereof.
(d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under the
Securities Act of 1933, as amended (the "1933 Act") by reason of their issuance
in a transaction that does not require registration under the 1933 Act, and that
such Securities must be held unless a subsequent disposition is registered under
the 1933 Act or is exempt from such registration. The Subscriber agrees that if,
in the future, the Subscriber should decide to dispose of any of the Securities
acquired by it pursuant to this Agreement, the Subscriber will do so only
pursuant to a registration statement or by disposition exempt from registration
requirements under the 1933 Act.
(e) Common Shares Legend. The Company Shares and the
shares of Common Stock issuable upon the exercise of the Warrants which the
Subscriber is acquiring pursuant to this Agreement shall bear the following
legend:
"THESE SHARES OF COMMON STOCK HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THESE SHARES OF COMMON STOCK MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO RECOVERY NETWORK,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants which the
Subscriber is acquiring pursuant to this Agreement shall bear the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE RECOVERY NETWORK, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(g) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing Date (as hereinafter defined), shall 9/23/98
be true and correct as of the Closing Date. The foregoing representations and
warranties shall survive the Closing Date.
2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
wholly-owned subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted. The Company and each of its wholly-owned subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the business, operations or prospects or condition (financial or otherwise) of
the Company.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company and each of its wholly-owned subsidiaries
has been duly authorized and validly issued and are fully paid and
non-assessable.
(c) Authority; Enforceability. This Agreement has
been duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its 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 the Company has full
corporate power and authority necessary to enter into this Agreement and to
perform its obligations hereunder and all other agreements entered into by the
Company relating hereto.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except (i) as described in the Reports or Other Written Information, and (ii)
for 200,000 shares of Common Stock and a warrant to purchase 200,000 shares of
Common Stock, each issued to TeleServices International Group Inc.
(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 is required for
execution of this Agreement, including, without limitation issuance and sale of
the Securities, or the performance of the Company's obligations hereunder,
except as described or otherwise referenced herein. 9/23/98
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this Agreement,
neither the issuance and sale of the Securities nor the performance of its
obligations under this Agreement 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
of the lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company, or
any of its affiliates, (B) to the Company's knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company,
or any of its affiliates of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its affiliates 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; or
(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.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Warrants are exercised according to their terms, as
the case may be, the Securities will be duly and validly issued, fully paid and
nonassessable, and if registered pursuant to the 1933 Act, 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
(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 this
Agreement, or which was not disclosed in the Reports and Other Written
Information.
(i) Reporting Company. The Company is a publicly-held
company whose common stock is (and has been for the past 90 days) registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "1934 Act") and is duly listed for trading on the NASDAQ SmallCap Market.
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 Securities
and Exchange Commission during the preceding twelve months, and, subject to
compliance with General Instruction I.A. of Form S-3, will be eligible as of
September 30, 1998 to file a Form S-3 to register the Securities.
(j) No Market Manipulation. The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate the
sale or resale of the Company Shares or affect the price at which the Securities
may be issued.
(k) Information Concerning Company. The Reports 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 date of the
financial statements set forth in the Reports, and except as modified in the
Other Written Information, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed in the Reports.
The Reports 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 not misleading.
(l) Dilution. The number of Shares issuable upon
Reset (as hereinafter defined) and exercise of the Put (as hereinafter defined)
may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines prior to a Reset or exercise of the Company of the Put.
(m) Stop Transfer. The Company has not issued, and
will not issue any stop transfer order or other order impeding the sale and
delivery of the Securities.
(n) Defaults. Neither the Company nor any of its
wholly-owned subsidiaries is in violation of its Certificate of Incorporation or
ByLaws. Except as described in the Reports and Other Written Information,
neither the Company nor any of its subsidiaries is (i) in default under or in
violation of any other material agreement or instrument to which it is a party
or by which it or any of its properties are bound or affected, which default or
violation would have a material adverse effect on the Company, (ii) in default
with respect to any order of any court, arbitrator or governmental body or
subject to or party to any order of any court or governmental authority arising
out of any action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar matters,
or (iii) to its knowledge in violation of any statute, rule or regulation of any
governmental authority material to its business.
(o) No Integrated Offering. Neither the Comany, 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 require registration of any of the Securities under the 1933 Act or cause
the offering 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 NASDAQ SmallCap Market ("NASDAQ SmallCap"), as
applicable, nor will the Company or any of its subsidiaries take any action or
steps that would require registration of the Securities under the 1933 Act or
cause the offering of the Securities to be integrated with other offerings. The
Company has not conducted and will not conduct any offering other than the
transactions contemplated hereby that will be integrated with the issuance of
the Securities solely for purposes of Rule 4460(i) of the NASDAQ Stock Market,
Inc.'s Marketplace Rules.
(p) Use of Proceeds. The proceeds of the Subscriber
funds to be released to the Company will be used for working capital, general
corporate purposes and for expenses of this offering.
(q) 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 Act) in connection with the offer
or sale of the Securities.
(r) Listing. The Company's common stock is quoted on,
and listed for trading on NASDAQ SmallCap. The Company has received no notice,
either oral or written, with respect to the continued eligibility of the common
stock for such listing, and the Company has maintained all requirements for the
continuation of such listing.
(s) 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 Subscriber prior to the Closing Date, shall be true and
correct in all material respects as of the Closing Date. The foregoing
representations and warranties shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant
to the exemption from the registration provisions of the Securities Act of 1933,
as amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit C.
4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to dispose of such Securities pursuant to Rule 144(k) under the Act, or (b) the
Securities are registered under the Act.
5. Redemption. The Company may not redeem the Securities
without the consent of the holder of the Securities, except as otherwise
described in Section 9.2 of this Subscription Agreement.
6. Legal Fees/Commissions. The Company shall pay to counsel to
the Subscriber its fee of $25,000 for services rendered to the Subscriber in
reviewing this Agreement and other subscription agreements for the aggregate
subscription amounts of up to $2,500,000. The Company will pay a cash commission
of four percent (4%) of the Purchase Price designated on the signature page
hereto to certain placement agents. The commissions and legal fees will be
payable out of funds held pursuant to a Funds Escrow Agreement and Shares Escrow
Agreement to be entered into by the Company and Subscriber. The cash commissions
will be payable proportionately as Subscriber funds are released to the Company.
Additional cash commissions of eight percent (8%) will be payable to the
placement agents in connection with gross proceeds from the Company's exercise
of the Put described in Section 11 of this Subscription Agreement. The Company
will also issue to the placement agents as additional compensation, common stock
of the Company at the time Subscriber funds are released to the Company equal in
value to four percent (4%) of the Purchase Price designated on the signature
page hereto at a per share value equal to the Issue Price (per share) designated
on the signature page hereto ("Placement Shares"). Seventy percent (70%) of
Placement Shares will be issued at the Closing and thirty percent (30%) of the
Placement Shares will be issued if and when the funds portion of the
Registration Escrow (as defined in Section 10.2(j) herein) is released to the
Company. All the representations, covenants, warranties and undertakings,
including but not limited to registration rights made or granted to or for the
benefit of the Subscriber are hereby also made and granted to the Placement
Agents in respect of the Placement Shares.
7.1. Covenants of the Company. The Company covenants and
agrees with the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange Commission,
any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending any offering of any securities of
the Company, or of the suspension of the qualification of the common stock of
the Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of
the Company Shares and Common Stock issuable upon the exercise of the Warrants
upon each national securities exchange, or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain such listing so long as any other shares of Common
Stock shall be so listed, such listing of all Common Stock from time to time
issuable upon exercise of the Put, exercise of the Warrants and upon Reset. The
Company will obtain and maintain the listing and trading of its Common Stock on
NASDAQ SmallCap, and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
The Company shall promptly provide to each Purchaser copies of any notices it
receives regarding the continued
eligibility of the Common Stock for listing on such exchanges or quotation
systems, or any other exchange or quotation system on which the Common Stock is
then listed.
(c) The Company shall notify the SEC, NASD 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
Subscriber and promptly provide copies thereof to Subscriber.
(d) Until at least three (3) years after the
effectiveness of the Registration Statement on Form S-3 or such other
Registration Statement described in Section 10.1(iv) hereof, the Company will
use its reasonable efforts (i) to cause its Common Stock to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, (ii) to comply in
all respects with its reporting and filing obligations under such Exchange Act,
and (iii) to comply with all requirements related to any registration statement
filed pursuant to this Agreement. The Company will not take any action or file
any document (whether or not permitted by the Act or the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Acts, except as
permitted herein, until the earlier of (i) three (3) years after the effective
date of the Registration Statement on Form S-3 or such other Registration
Statement described in Section 10.1(iv) hereof, or (ii) the sale by the
Subscribers and Placement Agents of all the shares of common stock issuable by
the Company pursuant to this Agreement. Until at least three (3) years after the
Warrants have been converted into Common Stock, the Company will take all action
within its power to continue the listing or trading of its Common Stock on
NASDAQ SmallCap and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and NASDAQ.
(e) The Company and Subscriber agree that until the
Company either obtains shareholder approval of the issuance of the Securities
and Placement Shares, or an exemption from NASDAQ's corporate governance rules
as they may apply to the foregoing, if such approval or exemption is required in
the reasonable opinion of the Subscriber, the Company may not exercise the Put.
The Company represents that the Section 7.1(e) Shares designated on the
signature page hereto, together with the aggregate of such amounts designated
for all investors in the $2,500,000 offering to which this Subscription
Agreement relates, and together with all Placement Shares issuable in connection
with the $2,500,000 offering, is not greater than 19.99% of the shares of
Company's common stock outstanding on the Closing Date. The Company undertakes
to obtain the approval of its shareholders required pursuant to the NASDAQ's
corporate governance rules to allow issuance of all the Securities and Placement
Shares. The Company covenants to obtain the shareholder approval no later than
90 days from the Closing Date.
7.2. Covenants of Subscriber. The Subscriber covenants and
agrees with the Company as follows:
(a) The Subscriber will provide for itself and any
beneficial holder of the Securities, information and documents reasonably
required by the Company for the Company to
comply with its governmental and regulatory obligations including but not
limited to the Securities and Exchange Commission, blue sky and NASDAQ
requirements.
(b) The Subscriber will not directly or indirectly
engage in the uncovered short selling of the Common Stock until 180 days after
the Closing Date.
8. Covenants of the Company and Subscriber Regarding
Indemnifications.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon Subscriber which results, arises out of or is based
upon (i) any misrepresentation by Company or breach of any warranty by Company
in this Agreement or in any Exhibits or Schedules attached hereto, or Reports or
other Written Information; or (ii) any breach or default in performance by
Company of any covenant or undertaking to be performed by Company hereunder.
(b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company at all times against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company which results, arises out of or
is based upon (a) any misrepresentation by Subscriber in this Agreement or in
any Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder.
9.1. Reset.
(a) The amount of Company Shares issuable to the
Subscriber shall be redetermined from time to time as described herein (the
"Reset") and if appropriate, additional shares of Common Stock (the "Additional
Shares") will be issued and delivered to the Subscriber as provided herein. The
original purchase price set forth on the signature page of this Subscription
Agreement (the "Purchase Price") shall be deemed the purchase price of all the
shares of Common Stock to be delivered pursuant to this Subscription Agreement.
Provided the Additional Shares are issued after the effective date of the
Registration Statement described in Section 10.1(iv) hereof, such Additional
Shares will be free-trading on the books and records of the Company and issued
without restrictive legend.
(b) The Reset shall be determined on the dates
identified below (each a "Reset Date") for an amount of the Purchase Price equal
to not less than 10% and not more than 25% of the Purchase Price, at the
Subscriber's election ("Designated Portion") per Reset Date. The initial Reset
Date shall be the effective date of the Registration Statement described in
Section 10.1(iv) of this Subscription Agreement or at the Subscriber's election
on the 180th day after the Closing Date if the Registration Statement required
to be filed pursuant to Section 10.1(iv) hereof has not been declared effective
by the Securities and Exchange Commission on such date ("Trigger Date").
Subsequent Reset Dates shall be on the 30th, 60th, 90th, 120th, 150th, 180th,
210th, 240th, and 270th day following the Trigger Date. If any such date is not
a trading day on the NASDAQ
SmallCap Market, then the Reset Date shall be the first trading day thereafter.
In the event any portion of the Common Shares comprising the Registration Escrow
(as hereinafter defined) is released to the Company pursuant to Section
10.1(iv), then the aggregate Designated Portions of the Purchase Price shall not
be greater than that portion of the Purchase Price set forth on the signature
page to this Subscription Agreement less the corresponding amount of Purchase
Price returned to the Subscriber. In no event may the aggregate Designated
Portions of the Purchase Price exceed the Purchase Price. To the extent a
Registration Escrow is held in escrow on a Reset Date, then such Common Shares
issuable in connection with such Registration Escrow will be deposited in escrow
to be held pursuant to the Funds Escrow Agreement.
(c) On each Reset Date a number of Company Shares
will be calculated for the Designated Portion of the Purchase Price by dividing
the Designated Portion of the Purchase Price by a number equal to seventy-seven
percent (77%) of the average closing bid prices for the Common Stock on the
NASDAQ SmallCap Market, or on any securities exchange or other securities market
on which the Common Stock is then being traded, for the five trading days
immediately preceding, but not including, the Reset Date (the "Average Price").
If the Average Price is less than the Issue Price designated on the signature
page hereto, then the Company will issue to the Subscriber the number of shares
of Common Stock obtained by subtracting (y) the number of shares obtained by
dividing the Designated Portion of Purchase Price by the Issue Price from (z)
the number of shares obtained by dividing the Designated Portion of Purchase
Price by the Average Price.
(d) In the event the Average Price calculated on a
Reset Date is more than 130% but less than 200% of the Issue Price, then 20% of
the Purchase Price will no longer be subject to Reset. In the event the Average
Price calculated on a Reset Date is 200% or more than the Issue Price, then 50%
of the Purchase Price shall no longer be subject to Reset.
(e) In no event will the Subscriber be required to
return any Company Shares to the Company. Each Reset calculation shall be made
independent of all other Reset calculations.
(f) The Company agrees to deliver the Additional
Shares to the Subscriber in hand, or Redemption Amount (as defined herein), if
such payment of the Redemption Amount is permitted hereunder, no later than ten
(10) business days after notice from the Subscriber of the Designated Portion
amount (the "Delivery Date"). The Company understands that a delay in the
delivery of either the Additional Shares or failure to deliver the Redemption
Amount described in Sections 9.2 and 9.3 beyond the Delivery Date could result
in economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay as liquidated damages payments to the Subscriber
for late delivery of Additional Shares or Redemption Amount beyond the Delivery
Date, in the amount of $100 per business day after the Delivery Date for each
$10,000 of Designated Portion of Purchase Price for which a Reset has been
calculated. Additionally, in the case of late payment of the Redemption Amount,
the Company will pay on additional sum equal to 10% of the Designated Portion of
the Purchase Price. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand. The late payment charges
described
in this Section 9.1(f) shall be payable through the date the Additional Shares
or Redemption Amount is received in hand by the Subscriber.
(g) Company Shares as defined and employed in this
Subscription Agreement shall mean and include Additional Shares for all purposes
including but not limited to Section 10 of this Subscription Agreement.
(h) Nothing contained herein or in any document
referred to herein 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 a rate of interest required or imputed 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.
9.2. Optional Redemption. In the event the average closing bid
price for the Common Stock on NASDAQ SmallCap or any securities exchange or
other securities market on which the Common Stock is then being traded for the
five trading days immediately preceding, but not including a Reset Date
("Redemption Price") is less than $2.50 per share, then at the Company's
election, in lieu of delivering the Additional Shares on the Delivery Date, the
Company may deliver on the Delivery Date a sum of money determined by
multiplying the number of Additional Shares otherwise deliverable, by the
Redemption Price ("Redemption Amount"). In the event the Additional Shares or
payment of the Redemption Amount is not received by the Subscriber in US funds
on or before a Delivery Date, then the Company shall no longer have the right
described in this paragraph to substitute cash payment in lieu of delivery of
Additional Shares. As a precondition to exercising the right to substitute the
Redemption Amount in lieu of delivering Additional Shares, the Company must
notify the Subscriber in writing of its intention to do so no later than ten
(10) business days after notice from the Subscriber of the Designated Portion
Amount.
9.3. Mandatory Redemption. In the event the Company may not
issue Additional Shares on a Reset Date because such issuance and delivery would
be contrary to NASDAQ's Corporate Governance Rules, or for any other reason,
then the Company must pay to the Subscriber on the Delivery Date the Redemption
Amount calculated as described in Section 9.2 hereof.
10. Registration Rights; Procedure; Indemnification.
10.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Company Shares and the Warrants.
(i) On one occasion, for a period commencing
61 days after the Closing Date, but not later than three years from the date
hereof, the Company, upon a written request therefor from any record holder or
holders of more than 50% of the aggregate of the Company's Shares and Common
Stock issuable upon exercise of the Warrants (the Securities and Placement
Shares and securities issued or issuable by virtue of ownership of the
Securities and Placement Shares being, the "Registrable Securities"), shall
prepare and file with the SEC a
registration statement under the Act covering the Registrable Securities which
are the subject of such request, unless such Registrable Securities are the
subject of an effective registration statement. In addition, 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 10 days after the Company
gives such written notice. Such other requesting record holders shall be deemed
to have exercised their demand registration right under this Section 10.1. As a
condition precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests. The obligation of the Company under this Section 10.1(i)
shall be limited to one registration statement.
(ii) If the Company at any time proposes to
register any of its securities under the 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 Subscriber pursuant to an effective registration statement, each such time
it will give at least 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 10 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, 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"). In
the event that any registration pursuant to this Section 10.1(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 forgoing
provisions, the Company may withdraw any registration statement referred to in
this Section 10.1(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 10.1(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, such
written request shall be deemed to have been given pursuant to Section 10.1(ii)
rather than Section 10.1(i), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section 10.1(ii)
except that the Company or underwriter, if any, may not withdraw such
registration or limit the amount of Registrable Securities included in such
registration.
(iv) The Company shall file with the
Commission, within sixty (60) days of the Closing Date, and use its reasonable
commercial efforts to cause to be declared effective
a Form SB-2 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 Act. The registration statement described in this paragraph must be
declared effective by the Commission within 120 days of the Closing Date. The
Company will register not less than 8,889 shares of Common Stock in the SB-2
registration statement for each $10,000 of Purchase Price as set forth on the
signature page hereto and one share of Common Stock for each share of Common
Stock issuable upon exercise of the Warrants and one common share for each
Placement Share. These shares to be registered shall be reserved and set aside
exclusively for the benefit of the Subscriber and Placement Agents, as the case
may be, and not issued, employed or reserved for anyone other than the
Subscriber and Placement Agents, as the case may be. It is the intention of the
parties that the registration statement include the Additional Shares described
in Section 9 hereof and the Put Shares described in Section 11 hereof. Such
registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional shares of Common Stock issuable upon Reset. Thirty percent (30%) of
the Purchase Price, and up to thirty percent (30%) of the Common Shares and
thirty percent (30%) of the Warrants purchased by the Subscriber as set forth on
the signature page of this Subscription Agreement and thirty percent (30%) of
the Placement Shares shall be held in escrow pursuant to the Funds Escrow
Agreement annexed hereto as Exhibit B until the acceptance for filing by the
Securities and Exchange Commission of the registration statement described in
this Section 10.1(iv) and obtainment of the shareholder approval or NASDAQ
exemption described in Section 7.1(e) hereof ("Registration Escrow"). In the
event the registration statement relating to the Registrable Securities is not
filed within 60 days from the Closing Date or the shareholder approval or NASDAQ
exemption described in Section 7.1(e) hereof is not obtained within 90 days of
the Closing Date, then the Registration Escrow shall be employed as a
non-exclusive remedy, to pay the damages described in Section 10.2(j) of this
Subscription Agreement. In the event the Registration Statement is not filed
within 60 days from the Closing Date, and/or if the Company fails to obtain
within 90 days of the Closing Date, the shareholder approval or exemption from
NASDAQ's Corporate Governance Rules as described in Section 7.1(e) hereof,
unless otherwise agreed to in writing by the Subscriber, then thirty percent
(30%) of the Purchase Price shall be released to the Subscriber, and up to
thirty percent (30%) of the Common Shares, thirty percent (30%) of the Warrants
and thirty percent (30%) of the Placement Shares shall be returned to the
Company. In such event the Company shall not be released from any of its
obligations under this Subscription Agreement or any agreement delivered in
connection herewith including the Company's obligations pursuant to this Section
10 and Reset provisions described in Section 9 of this Subscription Agreement
except that the Company shall no longer be required to file a registration
statement in connection with only those Securities released to the Company and
damages shall not accrue to the Subscriber in relation to the Common Shares
released to the Company from and after the date the corresponding portion of the
Purchase Price is returned to the Subscriber. To the extent any part of the
Purchase Price portion of the Registration Escrow is released to a Subscriber,
then that portion of the Registration Escrow may, at the Subscriber's election,
first be applied in satisfaction of payment by the Company of sums payable to
such Subscriber pursuant to Section 9.1(f) and Section 10.2(j) hereof. Anything
to the contrary herein or in the Shares Escrow Agreement notwithstanding, the
Company Shares component of the Registration Escrow will not be released to the
Company until all outstanding monetary obligations to the Subscriber are
satisfied. Within ten (10) business days of receipt of shareholder approval or
NASDAQ exemption described in Secton
7.1(e) hereof, the Company agrees to deliver additional Common Shares to the
Escrow Agent, to be held pursuant to the Shares Escrow Agreement representing
the balance of the Common Shares portion of the Registration Escrow so that the
Escrow Agent will be in possession of Common Shares representing 30% of the
aggregate Common Shares Purchased designated on the signature page hereto.
Failure by the Company to timely deposit such additional shares will void the
Company's right to receive a proportionate amount of the funds portion of the
Registration Escrow. Releases of the components of the Registration Escrow will
be in proportion to the amount of Common Stock held by the Escrow Agent.
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a
registration statement 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 hereinafter
provided);
(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 for the period specified in paragraph (a) above and comply
with the provisions of the Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller or, in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, 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) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each
underwriter under such registration statement at any time when a prospectus
relating thereto is required to be delivered under the 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;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
(h) at the request of the Seller, provided a demand
for registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10. In the event of a firm commitment underwritten public offering in
which the Registrable Securities are so included, the lockup, if any, requested
by the managing underwriter may not exceed ninety (90) days after the effective
date thereof.
(i) In connection with each registration hereunder,
the Seller will furnish to the Company in writing such information 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.
In connection with each registration pursuant to Section 10.1(i) or 10.1(ii)
covering an underwritten public offering, the Company and the Seller agree to
enter into a written agreement with the managing underwriter in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
(j) The Company and the Subscriber agree that the
Seller will suffer damages if any registration statement required under Section
10.1(i) or 10.1(ii) above is not filed within 45 days after request by the
Holder and not declared effective by the Commission within 130 days after such
request [or 60 days and 120 days, respectively, after the Closing Date in
reference to the Registration Statement on Form SB-2 or such other form
described in Section 10.1(iv)], and maintained in the manner and within the time
periods contemplated by Section 10 hereof, and it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if (i) the
Registration Statement described in Sections 10.1(i) or 10.1(ii) is not filed
within 45 days of such request, or is not declared effective by the Commission
on or prior to the date that is 130 days after such request, or (ii) the
registration statement on Form SB-2 or such other form described in Section
10.1(iv) is not filed within 60 days after the Closing Date or not declared
effective within 120 days of the Closing Date, or (iii) any registration
statement described in Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and
declared effective but shall thereafter cease to be effective (without being
succeeded immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate per
year but not more than 20 consecutive calendar days (defined as a period of 365
days commencing on the date the Registration Statement is declared effective)
(each such event referred to in clauses (i), (ii) and (iii) of this Section
10.2(j) is referred to herein as a "Non-Registration Event"), then, for so long
as such Non-Registration Event
shall continue, the Company shall pay in cash as Liquidated Damages to each
holder of any Securities an amount equal to three (3%) percent per month, or
part thereof, of the Purchase Price of the Company Shares then owned of record
by such holder as of immediately following the occurrence of such
Non-Registration Event, unless such Non-Registration Event arises from
Subscriber's material default of Subscriber's obligations hereunder. Payments to
be made pursuant to this Section 10.2(j) shall be due and payable immediately
upon demand in immediately available funds. The Subscriber may elect to satisfy
any outstanding Company obligations arising under Section 9.1(f) hereof or this
Section 10.2(j) by demanding the release from escrow of cash funds and/or
Company Shares at a per share value equivalent to 75% of the lowest bid price of
the Company's Common Stock on NASDAQ SmallCap or on any exchange or other
securities market on which the Common Stock is then being traded, for the five
trading days prior to the date notice of such election is given to the Company.
The Liquidated Damages payable in connection with the initial 60 day period
after the occurrence of a Non-Registration Event arising from a Registration
Statement required pursuant to Section 10.1(iv) hereof not being declared
effective by the Commission on or before 120 days after the Closing Date, may be
paid by the Company, at its option, in common stock at a per share value
equivalent to 75% of the lowest bid price of the Company's Common Stock on
NASDAQ SmallCap or on any exchange or other securities market on which the
Common Stock is then being traded, for the five trading days preceding the
effective date of the Registration Statement or the 180th day after the Closing
Date, whichever is sooner. The Company agrees to deliver to Subscriber the
Common Stock deliverable in satisfaction of Company's monetary obligations
described in this Section 10.2(j) within five business days after written demand
by Subscriber. Common Shares delivered to Subscriber in satisfaction of
Company's monetary obligations are granted all registration rights described
herein, including but not limited to the registration rights described in
Section 10.1(iv) hereof.
10.3. Expenses. All expenses incurred by the Company in
complying with Section 10, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, fee of one counsel, if
any, to represent all the Sellers, and costs of insurance are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Seller, are called "Selling
Expenses". The Seller shall pay the fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in connection
with the registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne by
the Seller 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.
10.4. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the 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 Act pursuant to Section 10, 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 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 will not be liable in any such case if and 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, the underwriter or any
such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the 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 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 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 Act pursuant to Section 10, 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 hereuder shall be limited to
the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion
that the public offering price of the Registrable Securities sold by the Seller
under such registration statement bears to the total public offering price of
all securities sold thereunder, but not in any event to exceed the gross
proceeds received by the Seller from the sale of Registrable Securities covered
by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 10.4(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.4(c) 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 10.4(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fes 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 Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 10.4 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 10.4 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.4; 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, (A) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
11.1. Future Offerings.
(a) Offering Restriction. Until the later of (i) 90
days after the effective date of the SB-2 Registration Statement or such other
form of registration statement described in Section 10.1(iv) hereof, or (ii) 270
days after the Closing Date, and so long as Subscriber is not in material
default under Section 11.2, the Company and its subsidiaries will not issue any
equity, or convertible debt or other securities other than pursuant to Section
11.1(b) without the consent of the Subscribers investing a majority of the
Purchase Price of the subscriptions in the $2,500,000 offering to which this
Subscription Agreement relates, if such offering would or could result in the
issuance of Common Stock or any other security of the Company that would be
freely tradable on the books of the Company, with or without registration with
the Securities and Exchange Commission or in reliance on any exemption from
registration prior to 90 days after the effective date of a Registration
Statement described in Sections 10.1(i) or 10.1(iv) relating to all the
Registrable Securities.
(b) Right of First Refusal. Until the end of the
period described in Section 11.1(a) above, the Subscriber shall be given not
less than ten (10) business days prior written notice of any proposed sale by
the Company of its common stock or other securities, other than any investment
in the Company in exchange for securities of the Company that may not either be
registered pursuant to the 0000 Xxx for at least 270 days after the date of such
investment or resold for at least 270 days after the date of such investment.
The Subscriber shall have the right during the ten (10) business days following
the notice to agree to purchase an amount of Company Shares in the same
proportion as being purchased in the aggregate offering to which this
Subscription Agreement relates (i.e. $2,500,000 in the aggregate), of those
securities proposed to be issued and sold, in accordance with the terms and
conditions set forth in the notice of sale. In the event such terms and
conditions are modified during the notice period, the Subscriber shall be given
prompt notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice of
modification, whichever is longer, to exercise such right.
11.2. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the
Company additional shares of common stock of the Company (the "Put Shares") for
the aggregate consideration designated on the signature page hereof (the "Put").
The Put may be exercised by the Company only during the two (2) year period
commencing on the Closing Date ("Put Period").
(b) The agreement to purchase the Put Shares is
contingent on the Company filing a registration statement relating to the Put
Shares issuable upon exercise of the Put with the Securities and Exchange
Commission on Form S-3 or such other registration statement described in Section
10.1(iv) of this Subscription Agreement or another form suitable for such
purpose and reasonably designated by the Purchaser on or before 60 days from the
Closing Date, and
such registration statement being declared effective by the Securities and
Exchange Commission on or before 120 days from the Closing Date.
(c) The exercise of the Put is further contingent on
the following:
(1) As of the effective date of the
registration statement described in Section 11.2(b), and the Put Date (as
hereinafter defined), the Company will be a full reporting company with the
class of Shares registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934.
(2) The Company's Common Stock will have
traded at an average daily trading volume of 75,000 shares for the thirty
trading days prior to each Put Date with an average daily closing bid price of
not less than $1.00 per share for the same period.
(3) The Company's financial condition will
be at least equivalent to the Company's financial condition as reported in the
Company's most recent financial statements included in the Reports and Other
Information.
(4) None of the following events of default
shall have occurred or be continuing:
(i) The Company shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
(ii) Any money judgment, writ or similar
process shall be entered or filed against Company or any of its property or
other assets for more than $50,000, and shall remain unvacated, unbonded or
unstayed for a period of forty-five (45) days.
(iii) Bankruptcy, insolvency, reorganization
or liquidation proceedings or other proceedings or relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or against the
Company.
(iv) Delisting of any of the Company's
securities from the NASDAQ SmallCap Market or such other principal exchange on
which such security was listed for trading, or receipt by the Company of notice
from NASDAQ or such other principal exchange that the Company is not in
compliance with its listing requirements.
(v) A concession by the Company or a default
by the Company under any one or more obligation in an aggregate monetary amount
in excess of $50,000.
(vi) An SEC stop trade order or NASDAQ
trading suspension.
(vii) Any representation or warranty of the
Company made in this Subscription Agreement or in connection herewith, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith shall be materially false or misleading.
(viii) The occurrence of a Non-Registration
Event.
(ix) Any material default by the Company of
any covenant or undertaking described in this Subscription Agreement or any
document delivered in connection herewith.
(5) A Closing shall have occurred on an
aggregate of $2,500,000 on the same terms and conditions described in this
Subscription Agreement.
(6) The Put Shares on the Put Date (as
hereinafter defined) will be free-trading, unrestricted, unlegended and not
subject to volume or other resale limitations.
(7) The obtainment prior to 90 days from the
Closing Date of an exemption from NASDAQ's Corporate Governance Rules or the
approval of its shareholders of the issuance of the Securities and Placement
Shares as described in Section 7.1(e) hereof.
(d) The Subscriber is required to purchase Put Shares
within ten (10) business days of notice by the Company that the Company is
exercising the Put ("Put Notice"). The date notice is given is the "Put Date".
The Company's right to give a Put Notice expires two years from the Closing
Date. The Company may not give such notice more often than once each twenty-one
(21) calendar days, nor within five (5) business days before or after a Reset
Date or effective date of a reverse split of the Company's Common Stock. Unless
otherwise agreed to by the Subscribers, Put Notices must be given to all
Subscribers in the same proportion to the amounts agreed to be purchased by all
Subscribers undertaking to purchase Put Shares in the $2,500,000 offering to
which this Subscription Agreement relates. The aggregate amount of all such Put
Notices may not exceed $3,000,000. Payment for the Put Shares will be made upon
receipt of the Put Shares by the Subscriber or an escrow agent to be designated
by the Company and Subscriber.
(e) The price per common share for each Put Share
shall be 88% of the average closing bid prices of the Company's Common Stock on
the NASDAQ SmallCap Market, or on any securities exchange or other securities
market on which the Common Stock is then being traded, for the five trading days
commencing two trading days prior to the Put Date and ending two trading days
after the Put Date (the "Put Price").
(f) The aggregate purchase price of Put Shares for
which each Put Notice may be given to all Subscribers in the $2,500,000 offering
to which this Subscription Agreement relates, is as follows: 9/23/98
Average Per Common Average Daily Aggregate Dollar
Share Closing Common Stock Purchase Price of
Bid Price For Trading Volume For Put Shares For
15 Trading Days 15 Trading Days All Put Notices
Prior to Put Date Prior to Put Date On a Put Date
----------------- ------------------ -----------------
Between $1.00 Not Less Than Up to $400,000
and $2.00 75,000 Common Shares
Between $2.00 Not Less Than Up to $600,000
and $3.00 75,000 Common Shares
More than $3.00 Not Less Than Up to $750,000
100,000 Common Shares
(g) The Put Price and number of Common Shares to be
issued pursuant to this Section shall be subject to adjustment from time to time
upon the happening of certain events while the Put right remains outstanding, as
follows:
(1) Stock Splits, Combinations and
Dividends. If the shares of Common Stock are subdivided or combined into a
greater or smaller number of shares of Common Stock, or if a dividend is paid on
the Common Stock in shares of Common Stock, the Put Price shall be
proportionately reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of shares, in each such
case by the ratio which the total number of shares of Common Stock outstanding
immediately after such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
(2) Share Issuance. Subject to the
provisions of this Section, if the Company at any time shall issue any shares of
Common Stock prior to the exercise of the aggregate Put amounts (otherwise than
as provided in Section 11.2(f)(1) or this subparagraph 11.2(f)(2) for a
consideration less than the Put Price that would be in effect at the time of
such issue, then, and thereafter successively upon each such issue, the Put
Price shall be reduced as follows: (i) the number of shares of Common Stock
outstanding immediately prior to such issue shall be multiplied by the Put Price
in effect at the time of such issue and the product shall be added to the
aggregate consideration, if any, received by the Company upon such issue of
additional shares of Common Stock; and (ii) the sum so obtained shall be divided
by the number of shares of Common Stock outstanding immediately after such
issue. The resulting quotient shall be the adjusted Put Price. For purposes of
this adjustment, the issuance of any security of the Company carrying the right
to convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in an adjustment to the Put Price
upon the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.
(h) The Company may not exercise the Put without the
consent of the Subscriber, in connection with that number of shares of Common
Stock which would be in excess
of the sum of (i) the number of shares of Common Stock beneficially owned by the
Subscriber and its affiliates on the Closing Date, and (ii) the number of shares
of Common Stock issuable upon the exercise of the Put with respect to which the
determination of this proviso is being made on a Put Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 4.99% of
the outstanding shares of Common Stock of the Company. For the purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13d-3 thereunder, except as otherwise provided
in clause (i) of such proviso.
12. Miscellaneous.
(a) Notices. All notices or other communications
given or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied (provided that a
copy is delivered by overnight courier) to the party to receive the same at its
address set forth below or to such other address as either party shall hereafter
give to the other by notice duly made under this Section: (i) if to the Company,
to The Recovery Network, Inc., 0000 0xx Xxxxxx, Xxxxx 000, Xxxxx Xxxxxx,
Xxxxxxxxxx 00000, telecopier number: (000) 000-0000, with a copy via telecopier
to: Parker, Chapin, Flattau & Klimpl, Attn: Xxxxx Xxxxxxx, Esq., (212) 704-
6288, and (ii) if to the Subscriber, to the name, address and telecopy number
set forth on the signature page hereto.
(b) Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Xxxxxxx, 000
Xxxxxxxx, Xxxxx 000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of all
conditions to Closing set forth in this Agreement. The closing date shall be the
date that subscriber funds representing the net amount due the Company from
aggregate subscriptions of $2,500,000 are transmitted by wire transfer to the
Company and the Registration Escrow is received by the Escrow Agent identified
in the Funds Escrow Agreement (the "Closing Date").
(c) Entire Agreement; Assignment. This Agreement
represents the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by both
parties. No right or obligation of either party shall be assigned by that party
without prior notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.
(e) Law Governing this Agreement. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or 9/23/98
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.
(f) Cancellation. Until a Closing actually takes
place, either or both the Company or Subscriber may withdraw without penalty
from the transactions described herein.
(g) Automatic Termination. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the seventh (7th) business day following the
date this Agreement is accepted by the Subscriber, provided, however, that any
such termination shall not terminate the liability of any party which is then in
breach of the Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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.
Very truly yours,
THE RECOVERY NETWORK, INC.
By:________________________________
Dated: June ____, 1998
Purchase Price: $750,000.00
Issue Price (per share): $2.2875
Common Shares Purchased (aggregate): 327,869
Common Stock Purchase Warrants Obtained: 30,000
Aggregate Put Consideration: $900,000
Section 7.1(e) Shares: 285,656
ACCEPTED:
AUSTOST ANSTALT XXXXXX
7440 Fuerstentum
Xxxxxxxxxxx
Xxxxxxxxxxx 000
Fax No.: 000-000-000000000
By:____________________________
Dated as of June ____, 1998
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.
Very truly yours,
THE RECOVERY NETWORK, INC.
By:________________________________
Dated: June ____, 1998
Purchase Price: $750,000.00
Issue Price (per share): $2.2875
Common Shares Purchased (aggregate): 327,869
Common Stock Purchase Warrants Obtained: 30,000
Aggregate Put Consideration: $900,000
Section 7.1(e) Shares: 285,656
ACCEPTED:
BALMORE FUNDS S.A.
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax No.: 000-000-000-0000
By:____________________________
Dated as of June ____, 1998
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.
Very truly yours,
THE RECOVERY NETWORK, INC.
By:________________________________
Dated: June ____, 1998
Purchase Price: $500,000.00
Issue Price (per share): $2.2875
Common Shares Purchased (aggregate): 218,579
Common Stock Purchase Warrants Obtained: 20,000
Aggregate Put Consideration: $600,000
Section 7.1(e) Shares: 190,437
ACCEPTED:
ZAKENI LTD.
c/o Betuvo AG
Xxxxxx Xxxxxxx
00 Xxxxxxxx 0000
0000 XXX, Xxxxxxxxxxx
Fax No.: 000-000-0000
By:____________________________
Dated as of June ____, 1998
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.
Very truly yours,
THE RECOVERY NETWORK, INC.
By:________________________________
Dated: June ____, 1998
Purchase Price: $200,000.00
Issue Price (per share): $2.2875
Common Shares Purchased (aggregate): 87,432
Common Stock Purchase Warrants Obtained: 8,000
Aggregate Put Consideration: $240,000
Section 7.1(e) Shares: 76,175
ACCEPTED:
BL SQUARED FOUNDATION
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax No.: 000-000-0000
By:____________________________
Dated as of June ____, 1998
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.
Very truly yours,
THE RECOVERY NETWORK, INC.
By:________________________________
Dated: June ____, 1998
Purchase Price: $150,000.00
Issue Price (per share): $2.2875
Common Shares Purchased (aggregate): 65,574
Common Stock Purchase Warrants Obtained: 6,000
Aggregate Put Consideration: $180,000
Section 7.1(e) Shares: 57,131
ACCEPTED:
THE SARGON FUND, L.P.
00 Xxxxx Xxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Fax No.: 000-000-0000
By:____________________________
Dated as of June ____, 1998
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.
Very truly yours,
THE RECOVERY NETWORK, INC.
By:________________________________
Dated: June ____, 1998
Purchase Price: $100,000.00
Issue Price (per share): $2.2875
Common Shares Purchased (aggregate): 43,716
Common Stock Purchase Warrants Obtained: 4,000
Aggregate Put Consideration: $120,000
Section 7.1(e) Shares: 38,087
ACCEPTED:
XXXXXX XXXXX
0000 Xxxx 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Fax No.: 000-000-0000
-------------------------------
Dated as of June ____, 1998
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.
Very truly yours,
THE RECOVERY NETWORK, INC.
By:________________________________
Dated: June ____, 1998
Purchase Price: $50,000.00
Issue Price (per share): $2.2875
Common Shares Purchased (aggregate): 21,858
Common Stock Purchase Warrants Obtained: 2,000
Aggregate Put Consideration: $60,000
Section 7.1(e) Shares: 19,044
ACCEPTED:
TLG REALTY
c/o Melo
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax No.: 000-000-0000
-------------------------------
Dated as of June ____, 1998
