SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT
(this “Agreement”),
dated as of March 23, 2010, by and among Phreadz USA LLC., a Nevada limited
liability company (“Phreadz”), Universal Database
of Music USA LLC, a Nevada limited liability company (“UDM”, together with Phreadz,
the “Issuers”), and
Professional Capital Partners, Ltd., a British Virgin Islands company (the
“Subscriber”).
WHEREAS, the Issuers and the
Subscriber 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 Issuers
shall issue and sell to the Subscriber, as provided herein, and the Subscriber
shall purchase (i) Eighty Five Thousand Dollars ($85,000) (the “Purchase Price”) of principal
amount of a promissory note of the Issuers (“Note”), a form of which is
annexed hereto as Exhibit A and (ii) a right (the “Right”) to receive $85,000 of
that amount of securities offered in a bona fide third party sale by the Issuers
(or a Public Company (as defined below) of its equity securities (including
equity or debt securities directly or indirectly convertible or exchangeable for
equity securities), alone or with any debt securities in which the aggregate
gross proceeds (in either cash or conversion of outstanding indebtedness or a
combination thereof) received by the Issuers (or, if after a the Reorganization,
the Public Company) equals or exceeds $1 million before deduction of any
commissions or expenses (the “Subsequent Equity
Financing”). For the avoidance of doubt, if the Subsequent Equity
Financing is for units (“Units”) consisting of common
stock and warrant with a purchase price per Unit equal to $1.00 per Unit, than
Subscriber would receive 85,000 Units with no additional consideration due
Issuers (or, if after a the Reorganization, the Public Company) from Subscriber
at time of issuance. The Note and the Right are collectively referred to herein
as the “Securities”;
WHEREAS, the Issuers desire to
obtain funds from Subscriber in order to provide working capital, to and further
the operations of the Issuers, including the consummation of a Reorganization
(as defined below);
WHEREAS, to secure payment for
the Note, concurrent with the Closing Date, the Issuers will grant Subscriber a
first lien security interest in all of their assets pursuant to a security
agreement and an intellectual property security agreement substantially in the
forms attached hereto as Exhibit B and Exhibit C (the “Security
Agreements”)
NOW, THEREFORE, in
consideration of the mutual covenants and other agreements contained in this
Agreement the Issuers and the Subscriber hereby agree as follows:
1. Definitions. For
purposes of this Agreement, the following definitions shall apply and shall be
equally applicable to both the singular and plural forms of the defined
terms:
(a) “Affiliate” of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person or
entity. For purposes of this definition, “control” means the power to direct the
management
(b) “Material Adverse Effect”
shall mean a material adverse effect on the financial condition,
results of operations, properties or business of the Issuers taken as a
whole.
(c) “Public Company” shall mean is
a publicly-held company subject to reporting obligations
pursuant to Section 13 of the Securities Exchange Act of 1934 (the “1934 Act”) and has a class of
common shares registered pursuant to Section 12(g) of the 1934 Act (i) who
issues securities to the holders of outstanding limited liability company
interests of the Issuers in connection with (A) a merger, acquisition, or
consolidation of the Issuers into or with such company (or an Affiliate
thereof), or (ii) a sale, lease, license (on an exclusive basis) or transfer by
the Issuers of all or substantially all of their assets to such company (or an
Affiliate thereof) and (ii) whose business operations were dormant immediately
before such merger, acquisition, consolidation, sale, lease, license or
transfer.
(d) “Reorganization” shall mean
the merger, acquisition, or consolidation of the Issuers into or with the Public
Company (or an Affiliate thereof), or any sale, lease, license (on an exclusive
basis) or transfer by the Issuers of all or substantially all of their assets to
the Public Company (or an affiliate thereof), in each case which results in (a)
the exchange of all limited liability company interests of the Issuers for
common stock of the Public Company; (b) the conversion or exchange of the Right
into in Right in the Public Company, (c) the members of the Issuers (including
holders of any convertible securities in the Issuers on a fully diluted as
converted basis) immediately prior to the transaction, own at least seventy-five
percent (75%) of the then outstanding shares of capital stock (on a fully
diluted, as-if converted basis) of the Public Company immediately after the
transaction
(e) “Transaction Documents” shall
mean this Agreement, the Note, the Security Agreements and any other agreements
delivered together with this Agreement or in connection herewith.
2. Conditions To
Closing. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the Closing Date, the Subscriber shall purchase
and the Issuers shall sell to the Subscriber a (i) Note in the principal amount
designated on the signature page hereto and (ii) a Right. The aggregate amount
of the Note to be purchased by the Subscriber on the Closing Date shall, in the
aggregate, be equal to the Purchase Price.
3. Closing Date. The
“Closing Date” shall be
the date that subscriber funds representing the net amount due the Issuers from
the Purchase Price is transmitted by wire transfer or otherwise to or for the
benefit of the Issuers. The consummation of the transactions contemplated herein
for the Closing shall take place at the offices of Indeglia & Xxxxxx, P.C.,
0000 Xxxx Xxxxxx, Xxxxx 000, Xxxxxx, XX 00000, upon the satisfaction of all
conditions to Closing set forth in this Agreement.
4. Subscriber’s
Representations and Warranties. The Subscriber hereby represents and
warrants to and agrees with the Issuers that:
(a) Organization and Standing of
the Subscriber. The 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. The Subscriber has the requisite power and authority to enter into
and perform this Agreement and to purchase the Securities being sold to it
hereunder. The execution, delivery and performance of this Agreement by the
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 the Subscriber or its Board
of Directors, stockholders, partners, members, as the case may be, is required.
This Agreement has been duly authorized, executed and delivered by the
Subscriber and constitutes, or shall constitute when executed and delivered, a
valid and binding obligation of the Subscriber enforceable against the
Subscriber in accordance with the terms thereof 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.
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(c) No Conflicts. The
execution, delivery and performance of this Agreement and the consummation by
the Subscriber of the transactions contemplated hereby or relating hereto do not
and will not (i) result in a violation of the 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 the 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
the 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 the Subscriber). The Subscriber is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or to purchase the Securities in
accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, the Subscriber is assuming and relying
upon the accuracy of the relevant representations and agreements of the Issuers
herein.
(d) Information on
Issuers. The Subscriber has received and had the opportunity to review
all documents and any other information requested from the Issuers, has been
given full and complete access to information regarding the Issuers, and has
utilized such access to the Subscriber’s satisfaction for the purpose of
obtaining such information regarding the Issuers as the Subscriber has
reasonably requested; and, particularly, the Subscriber has been given
reasonable opportunity to ask questions of, and receive answers from,
representatives of the Issuers concerning the terms and conditions of the
offering of the Securities and to obtain any additional information, to the
extent reasonably available.
(e) Information on
Subscriber. The Subscriber is an “accredited investor”, as such term is
defined in Regulation D promulgated by the Commission under the 1933 Act, is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by the Issuers
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities. The Subscriber is
able to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate.
(f) Purchase
of Securities. On the Closing Date, the Subscriber will purchase the Note and
the Right 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
Act. The Subscriber understands and agrees that the Securities have not
been registered under the 1933 Act or any applicable state securities laws, by
reason of their issuance in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the representations and
warranties of Subscriber contained herein), and that such Securities must be
held indefinitely unless a subsequent disposition is registered under the 1933
Act or any applicable state securities laws or is exempt from such
registration.
(h) Note Legend. The Note
shall bear the following legend:
“THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUERS THAT SUCH REGISTRATION
IS NOT REQUIRED.”
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(i) Communication of
Offer. The offer to sell the Securities was directly communicated to the
Subscriber by the Issuers. At no time was the Subscriber presented with or
solicited by any leaflet, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or solicited or invited
to attend a promotional meeting otherwise than in connection and concurrently
with such communicated offer.
(j) Restricted
Securities. Subscriber understands that the Securities have not been
registered under the 1933 Act and the Subscriber will not sell, offer to sell,
assign, pledge, hypothecate or otherwise transfer the Note unless pursuant to an
effective registration statement under the 1933 Act. Notwithstanding anything to
the contrary contained in this Agreement, the 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.
(k) No Governmental
Review. The 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 Notes nor have such authorities passed upon or endorsed the
merits of the offering of the Notes.
(l) Correctness
of Representations. The Subscriber represents as to the Subscriber that the
foregoing representations and warranties are true and correct as of the date
hereof.
5. Issuers Representations and
Warranties. Each Issuer represents and warrants to and agrees with the
Subscriber, on a joint and several basis, that except as otherwise qualified in
the Transaction Documents:
(a) Due Incorporation.
Issuer is a limited liability duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite limited liability power to own its properties and to carry on its
business. Issuer is duly qualified as a foreign entity 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.
(b) Outstanding Membership
Interest. All issued and outstanding limited liability company units of
each Issuer has been duly authorized and validly issued and are fully paid and
nonassessable and have been issued in compliance with all federal and applicable
state securities laws.
(c) Authority;
Enforceability. The Transaction Documents have been duly authorized,
executed and delivered by each Issuer, as applicable, 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. Issuer has full corporate power and authority
necessary to enter into and deliver the Transaction Documents and to perform its
obligations thereunder.
(d) Consents. No consent,
approval, authorization or order of any court, governmental agency or body or
arbitrator having jurisdiction over Issuer, nor either Issuer’s members is
required for the execution by the Issuers of the Transaction Documents and
compliance and performance by Issuer of its obligations under the Transaction
Documents, including, without limitation, the issuance and sale of the
Securities.
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(e) No Violation or
Conflict. Assuming the representations and warranties of the Subscriber
in Section 4 are true and correct, neither the issuance and sale of the
Securities nor the performance of Issuer’s obligations under this Agreement and
all other agreements entered into by the Issuers relating thereto by the Issuers
will 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 in any material respect) of a material
nature under (A) the articles or certificate of incorporation, charter or bylaws
of Issuer, (B) any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Issuers of any court, governmental agency or
body, or arbitrator having jurisdiction over Issuer or over the properties or
assets of Issuer or any of its Affiliates, or (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 Issuers or any of its Affiliates is a party, by which
Issuer or any of its Affiliates is bound, or to which any of the properties of
Issuer or any of its Affiliates is subject, except, in the case of (C), the
violation, conflict, breach, or default of which would not have a Material
Adverse Effect and which would not serve as a basis for any rescission of the
issuance of the Securities.
(f) The Securities. The
Securities, and any other securities issuable upon conversion or exercise
thereof, 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 duly and validly authorized;
(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 Issuers; and
(iv) will
not result in a violation of Section 5 under the 0000 Xxx.
(g) Litigation. There is
no pending or, to the best knowledge of the Issuers, threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Issuers that would affect the execution
by Issuer or the performance by the Issuers of its obligations under the
Transaction Documents.
(h) Defaults. Issuer is
not in violation of its articles of organization or operating agreement. Issuer
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.
(i) No General
Solicitation. Neither Issuer, 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.
6. Regulation D
Offering. The offer and issuance of the Securities to the Subscriber 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.
7. Assumption of Right by
Public Company. In connection with the consummation of a Reorganization,
the Issuers shall cause the Right to be specifically assumed by the Public
Company at the closing thereof under the operative documents providing for such
Reorganization.
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8. 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 Issuers, to: (A) Phreadz USA, Inc., 00 Xxxx Xxxxxx, Xxxxxxxxxx, XX,
00000 Attention: Xxxxxxxx Xxxxxxxx, (B) Universal Database of Music USA, Inc.,
00 Xxxx Xxxxxx, Xxxxxxxxxx, XX, 00000 Attention: Xxxxxxxx Xxxxxxxx, and (ii) if
to the Subscriber, to: the one or more addresses and telecopier numbers
indicated on the signature pages hereto.
(b) Entire Agreement;
Assignment. This Agreement and other documents delivered in connection
herewith represent the entire agreement between the parties hereto with respect
to the subject matter hereof and may be amended only by a writing executed by
both parties. Neither the Issuers nor the Subscriber have relied on any
representations not contained or referred to in this Agreement and the documents
delivered herewith. No right or obligation of the Issuers shall be assigned
without prior notice to and the written consent of the Subscriber.
(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 conflicts of
laws principles that would result in the application of the substantive laws of
another jurisdiction. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the Supreme Court of New York, New York County, or in the United States
District Court for the Southern District of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Issuers agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be
entitled to recover from the other party its reasonable attorney’s fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
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(e) Specific Enforcement,
Consent to Jurisdiction. The Issuers 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 one or more preliminary and final 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 7(d) hereof,
each of the Issuers, Subscriber and any signator hereto in his personal capacity
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction in New York of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Nothing
in this Section shall affect or limit any right to serve process in any other
manner permitted by law.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
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SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (A)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
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ISSUERS:
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PHREADZ
USA, LLC
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a
Nevada limited liability company
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By:
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Name:
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Title:
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Dated:
March 23, 2010
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UNIVERSAL
DATABASE OF MUSIC USA, LLC
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a
Nevada limited liability company
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By:
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Name:
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Title:
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Dated:
March 23, 2010
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8
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SUBSCRIBER
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NOTE PRINCIAL
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PROFESSIONAL
CAPITAL PARTNERS, LTD., a British Virgin Islands company
By:
PCPM GP, LLC, its general partner By:
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$85,000
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Name:
Title:
Address:
0000
Xxx Xxxxxxx Xxxx
Xxxxxxxx,
Xxx Xxxx 00000
Facsimile:
(000) 000-0000
with
a copy (by facsimile only) to:
Indeglia
& Xxxxxx, P.C.,
0000
Xxxx Xxxxxx, Xxxxx 000
Xxxxxx,
XX 00000
Attention:
Xxxx X. Xxxxxxxx, Esq.
Facsimile:
(000) 000-0000
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9
LIST OF EXHIBITS AND
SCHEDULES
Exhibit
A Form
of Note
Exhibit
B
Security Agreement
Exhibit
C
Intellectual Property Security Agreement
10
