SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT (the “Agreement”)
is
made as of this ___ day of ____________ 2006 by and among Aero Grow
International, Inc., a Nevada corporation (the “Company”)
and
the investor identified on the signature page to this Agreement which Agreement
is one of like agreements with other investors participating in an offering
of
securities described herein (the
“Investors”
and
individually an “Investor”).
RECITALS
WHEREAS,
upon the terms and conditions and subject to the provisions hereinafter set
forth, the Company desires to issue and sell and each Investor desires to
purchase, units (“Units”),
each
unit consisting of one share of common stock (“Common
Stock”)
and one
common stock purchase warrant (“Warrant”)
which
will be exercisable for one share of Common Stock (“Warrant
Share”
or
“Warrant
Shares”).
The
Unit price will be $5.00. The Warrants will be exercisable for five years from
the Closing Date at an exercise price of $6.25 per share. The offering of the
Units is being made on a “$5,000,000 minimum and $12,000,000 maximum, best
efforts basis.” There will be one closing of the offering. The Warrants will be
in substantially the form attached to this Agreement as Exhibit
A.
The
Common Stock and the Warrants and the common stock issuable upon exercise
thereof are collectively referred to herein as the “Securities.”
Whereas,
the offering is being made through Xxxxxxx Securities LLC (“Xxxxxxx”) and other
broker-dealers, foreign banks, dealers and institutions selected by Xxxxxxx
(“Participating Agents”). Xxxxxxx and the Participating Agents will receive cash
compensation from the Company, and Xxxxxxx will be issued placement agent
warrants (“Agent
Warrants”)
as more
fully described in the Private Place Memorandum dated as of February 6, 2006
(“Memorandum”).
NOW,
THEREFORE, for and in consideration of the mutual premises contained herein
and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Accredited
Investors.
This
offering is limited to accredited investors (whether residents or entities
within or without the United States) as defined in Section 2(15) of the
Securities Act of 1933, as amended (“Securities
Act”),
Regulation D and Rule 501 promulgated thereunder, and is being made without
registration under the Securities Act in reliance upon certain exemptions
including, without limitation, the exemptions under Sections 3(b), 4(2) and/or
4(6) of the Securities Act, Regulation S promulgated under the Securities Act,
Rule 506 of Regulation D promulgated under the Securities Act and applicable
state securities laws. As indicated by the responses on the signature page
hereof, the Investor is an accredited investor within the meaning of Section
2(15) of the Securities Act and Rule 501 promulgated thereunder.
2. Purchase
and Sale of the Units.
Subject
to the terms and conditions of this Agreement, each Investor agrees to purchase
at the Closing (as defined below) and the Company agrees to sell and issue
to
each Investor, the Units, in the manner set forth in Section
2
hereof,
in the number set forth on the signature page hereto, at $5.00 per Unit (the
“Purchase
Price”).
The
Units are offered for sale in a private placement in accordance with the terms
set forth in the Memorandum, as amended or supplemented from time to time,
which
has been delivered to each Investor and of which the Investor acknowledges
receipt. The Common Stock and Warrants shall have the terms as set forth in
the
Memorandum, in this Agreement and in Exhibit A. In the event of any
inconsistency between the terms of the Common Stock and Warrants set forth
herein and in the exhibits hereto and the terms set forth in the Memorandum,
the
terms contained herein and in the exhibit hereto shall supercede and be
controlling.
3. Terms
of Purchase and Sale of the Common Stock.
The
closing of the transactions contemplated hereby (the “Closing”)
shall
take place on or before the second full business day after the Notice Date
(as
such term is defined in the Placement Agreement dated as of February 6, 2006
(the “Placement
Agreement”),
between the Company and Xxxxxxx Securities, LLC (the “Placement
Agent”)),
at
the offices of the Placement Agent, or at such other time and place as the
Company and the Placement Agent may agree upon. Contemporaneously with the
delivery of this Agreement, each Investor shall deliver to Xxxxxx Street State
Bank, Denver, Colorado (the “Escrow
Agent”)
the
Purchase Price by wire transfer of immediately available funds pursuant to
wire
transfer instructions given to the Investor by the Company and/or the Placement
Agent. At the Closing, the Escrow Agent shall deliver to the Company the
Purchase Price by wire transfer of immediately available funds pursuant to
wire
transfer instructions given to the Escrow Agent by the Company and the Placement
Agent. As soon as reasonably practicable following Closing, the Company shall
deliver to each Investor the duly executed certificates representing the Common
Stock and Warrants, each registered in the name of the Investor. Notwithstanding
the foregoing, the obligations of the Company and each Investor hereunder are
subject to the Company’s receipt of aggregate subscriptions for a minimum of
$5,000,000 in
aggregate gross proceeds for the Units on or prior to March 1, 2006 (or such
closing date as may be agreed by the Company and the Placement Agent), which
date may be extended by the Company and the Placement Agent up to 30 additional
days, without notice to the Investor. The subscription funds will be held in
an
Escrow Account maintained by the Escrow Agent under the name Xxxxxxx - AeroGrow
Escrow Account (Account Number 00000000). Prior to the earlier of the Closing
or
the termination date of the Offering, the subscription account will be held
in a
non-interest bearing segregate account, subject to the terms and conditions
herein and a separate escrow agreement among Xxxxxxx, the Company and Escrow
Agent.
The
Company and Xxxxxxx have the right to reject this subscription, in whole or
in
part for any reason and at any time prior to the Closing, notwithstanding prior
receipt by the Investor of notice of acceptance of the Investor’s subscription.
In the event the Investor’s subscription is rejected, which may be for any
reason, the subscription payment will be returned promptly to the Investor,
without interest or deduction, and this Subscription Agreement will have no
force or effect. The Units subscribed for herein will not be deemed issued
to or
owned by the Investor until one copy of this Subscription Agreement has been
executed by the Investor and countersigned by the Company, and the Closing
with
respect to the Investor’s subscription has occurred.
2
4. Representations
and Warranties of the Company.
In order
to induce the Investor to enter into this Agreement, the Company represents
and
warrants to the Investor the following:
4.1 Authority.
The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Nevada. The Company is a registered foreign
corporation in all other jurisdictions in which it is either required to be
registered or where the failure to be registered would have a material adverse
effect on the operations or assets of the Company. The Company has all requisite
right, power, and authority to execute, deliver and perform this Agreement,
the
Warrants, the Placement Agreement, Agent Warrants and Escrow Agreement. The
Company has the requisite authorized capital and the power and authority,
without shareholder approval, and taken action to issue the shares of Common
Stock included in the Units and, to issue, upon exercise of the Warrants and
Agent Warrants in accordance with the terms of such agreements, the shares
of
Common Stock underlying such warrants, and all of such shares of Common stock,
when issued, will be deemed fully paid and non-accessible at the time of
issuance.
4.2 Subsidiary.
The
Company has no direct or indirect subsidiaries.
4.3 Enforceability.
The
execution, delivery, and performance of this Agreement, the Warrants, the
Placement Agreement, the Agent Warrants and the Escrow Agreement by the Company
have been duly authorized by all requisite corporate action. This Agreement,
the
Warrants, the Placement Agreement, the Agent Warrants and the Escrow Agreement
have been duly executed and delivered by the Company, and, upon their execution
by the Investor, shall constitute the legal, valid, and binding obligations
of
the Company, enforceable in accordance with the respective terms, except to
the
extent that enforceability is limited by bankruptcy, insolvency, reorganization,
or other laws relating to or affecting the enforcement of creditors’ rights
generally and by general principles of equity.
4.4 No
Violations.
The
execution, delivery, and performance of this Agreement, the Warrants, the
Placement Agreement, the Agent Warrants and the Escrow Agreement by the Company
do not and will not violate or conflict with any provision of the Company’s
Articles of Incorporation or Bylaws and do not and will not, with or without
the
passage of time or the giving of notice, result in the breach of, or constitute
a default, cause the acceleration of performance, or require any consent under
(except such consents as have been obtained as of the date hereof), or result
in
the creation of any lien, charge or encumbrance upon any property or assets
of
the Company pursuant to, any material instrument or agreement to which the
Company is a party or by which the Company or its properties are bound, except
such consents as have been obtained as of the date hereof. Assuming the accuracy
of the representations and warranties of the Investor and all other purchasers
of the Common Stock in the offering contemplated by the Placement Agreement,
will be issued in accordance with a valid exemption from the registration or
qualification provisions of the Securities Act and any applicable state
securities laws (the “State
Acts”).
3
4.5 Capitalization.
The
authorized capital stock of the Company consists of: (i) 75,000,000
shares of Common Stock and 20,000,000 shares of preferred stock, par value
of
$0.001 (“Preferred Stock”).
Immediately prior to the Closing, the Company will have 6,270,740 shares of
Common Stock issued and outstanding, and options, warrants, convertible
securities and commitments outstanding to purchase an aggregate of 2,717,546
shares of Common Stock, provided, however, that the foregoing includes
conversions of certain convertible notes of the Company only though January
31,
2006.
4.6 Financial
Statements. The
audited financial statements for fiscal years ended December 31, 2003 and 2004
and unaudited financial statements for the nine-month periods ended September
30, 2004 and 2005, copies of which have been provided to the Investor as part
of
the Memorandum (collectively, the “Financial
Statements”),
respectively, fairly present in all material respects, on the basis stated
therein and on the date thereof, the financial position of the Company at the
respective dates therein specified and its results of operations and cash flows
for the periods then ended. Such statements and related notes have been prepared
in accord-ance with general-ly accepted accounting principles in the United
States applied on a consistent basis and audited in accordance with the
standards of the U.S. Public Company Accounting Oversight Board (“PCAOB”),
except as expressly noted therein.
4.7 No
Material Liabilities. Since
September 30, 2005, the Company has not incurred any material liabilities or
obligations, direct or contingent, except in the ordinary course of business
and
except for liabilities or obligations reflected or reserved against on their
respective balance sheets as of September 30, 2005, and there has not been
any
change, or to the knowledge of the Company, development or effect (individually
or in the aggregate) that is or is reasonably likely to be, materially adverse
to the condition (financial or otherwise), business, prospects, or results
of
operations of the Company (a “Material
Adverse Effect”)
or any
change in the capital or material increase in the long-term debt of the Company,
nor has the Company declared, paid, or made any dividend or distribution of
any
kind on its capital stock.
4.8 No
Disputes Against the Company.
Except
as disclosed in this Memorandum, there is no material pending or, to the
knowledge of the Company, threatened (a) action, suit, claim, proceeding, or
investigation against the Company, at law or in equity, or before or by any
Federal, state, municipal, or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (b) arbitration
proceeding against the Company, (c) governmental inquiry against the Company,
or
(d) any action or suit by or on behalf of the Company pending or threatened
against others.
4.9 Approvals.
(i) The
execution, delivery, and performance by the Company of this Agreement and the
Warrants, the Agent Warrants, the Placement Agreement and the Escrow Agreement,
(ii) the offer and sale of the Common Stock and Warrants, and (iii) the issuance
of the Common Stock and the Warrant Shares upon due exercise of the Warrants
require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than those consents that have
been
obtained and filings that have been made pursuant to applicable state securities
laws and post-sale filings pursuant to applicable state and federal securities
laws, which the Company undertakes to file within the applicable time
period.
4
4.10 Compliance.
Except
as set forth in the Memorandum, the Company (i) is not in default under or
in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company),
nor
has the Company received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement, or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is not in violation of any order of any court, arbitrator, or governmental
body, or (iii) is not or has not been in violation of any statute, rule, or
regulation of any governmental authority, including without limitation all
foreign, federal, state, and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and
employment and labor matters, except in each case as could not, individually
or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
4.11 Patents
and Trademarks.
The
Company has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses, and
other similar rights that are necessary or material for use in connection with
its business as described in the Memorandum and which the failure to have such
rights could, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
The
Company has not received a written notice that the Intellectual Property Rights
used by the Company violates or infringes upon the rights of any Person. Except
as set forth in this Memorandum, to the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another person of any of the Intellectual Property Rights,
except where such infringement could not have or reasonably be expected to
result in a Material Adverse Effect.
4.12 Transactions
With Affiliates and Employees.
Except
as set forth in the Memorandum, none of the officers or directors of the Company
and, to the knowledge of the Company, none of the employees of the Company
is
presently a party to any transaction with the Company (other than for services
as employees, officers, and directors), including any contract, agreement,
or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director, or such employee or, to the knowledge
of the Company, any entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee, or
partner.
4.13 Internal
Accounting Controls.
The
Company maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization, and (iv) the recorded accountability for assets
is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14)
for
the Company and designed such disclosure controls and procedures to ensure
that
material information relating to the Company is made known to the certifying
officers by others within those entities .
5
4.14 Certain
Fees.
Except
as may be due to the Placement Agent (and Participating Agents approved by
the
Placement Agent) from the Company under the Placement Agreement and except
for
an advisory fee of $350,000 payable to Placement Agent in connection with
advisory services rendered in connection with the Merger (as defined herein)
which advisory fee is payable only if a minimum of $10,000,000 of gross proceeds
are raised in the offering, no brokerage or finder’s fees or commissions are or
will be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank, or other person with respect
to the transactions contemplated by this Agreement. The Investor shall have
no
obligation with respect to any Placement Agent (or Participating Agent) fees
or
with respect to any claims (other than such fees or commissions owed by an
Investor pursuant to written agreements executed by the Investor which fees
or
commissions shall be the sole responsibility of such Investor) made by or on
behalf of other Persons for fees of a type contemplated in this Section 4 that
may be due in connection with the transactions contemplated by this Agreement.
4.15 Certain
Registration Matters.
Assuming the accuracy of the Investor’s representations and warranties set forth
in Section
6,
no
registration under the Securities Act is required for the offer and sale of
the
Common Stock and Warrants by the Company to the Investor hereunder.
4.16 Investment
Company.
The
Company is not, and is not an “affiliate” of, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.
4.17 No
Additional Agreements.
The
Company does not have any agreement or understanding with any Investor with
respect to the transactions contemplated by this Agreement on terms that differ
from those set forth in this Agreement.
4.18 Disclosure.
All
disclosure provided to the Investor regarding the Company, its businesses and
the transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company’s representations and warranties set forth in this
Agreement) are true and correct and do not contain any untrue statement of
a
material fact or omit to state any material fact necessary in order to make
the
statements made therein, in light of the circumstances under which they were
made, not misleading.
5. Reserved.
6
6. Representations
and Warranties of the Investor.
In order
to induce the Company to enter into this Agreement, the Investor represents
and
warrants to the Company the following:
6.1 Authority.
If a
corporation, partnership, limited partnership, limited liability company, or
other form of entity, the Investor is duly organized or formed, as the case
may
be, validly existing, and in good standing under the laws of its jurisdiction
of
organization or formation, as the case may be. The Investor has all requisite
individual or entity right, power, and authority to execute, deliver, and
perform this Agreement.
6.2 Enforceability.
The
execution, delivery, and performance of this Agreement by the Investor have
been
duly authorized by all requisite partnership, corporate or entity action, as
the
case may be. This Agreement has been duly executed and delivered by the
Investor, and, upon its execution by the Company, shall constitute the legal,
valid, and binding obligation of the Investor, enforceable in accordance with
its terms, except to the extent that its enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium, or other laws relating
to or
affecting the enforcement of creditors’ rights generally and by general
principles of equity.
6.3 No
Violations.
The
execution, delivery, and performance of this Agreement by the Investor do not
and will not, with or without the passage of time or the giving of notice,
result in the breach of, or constitute a default, cause the acceleration of
performance, or require any consent under, or result in the creation of any
lien, charge or encumbrance upon any property or assets of the Investor pursuant
to, any material instrument or agreement to which the Investor is a party or
by
which the Investor or its properties may be bound or affected, and, do not
or
will not violate or conflict with any provision of the articles of incorporation
or bylaws, partnership agreement, operating agreement, trust agreement, or
similar organizational or governing document of the Investor, as applicable.
6.4 Knowledge
of Investment and its Risks.
The
Investor has knowledge and experience in financial and business matters as
to be
capable of evaluating the merits and risks of Investor’s investment in the
Common Stock and Warrants. The Investor is an investor in securities of
companies in the development stage and acknowledges that the Investor is able
to
fend for itself and bear the economic risk of the Investor’s investment,
including the complete loss thereof. Investor has a preexisting personal or
business relationship with the Company or one or more of its officers, directors
or other persons in control of the Company, or Investor has such knowledge
and
experience in financial or business matters that it is capable of evaluating
the
merits and risks of the investment in the Common Stock and the Warrants. If
an
entity, the Investor has not been organized for the purpose of acquiring Common
Stock and Warrants. The Investor understands that an investment in the Company
represents a high degree of risk and there is no assurance that the Company’s
business or operations will be successful. The Investor has considered carefully
the risks attendant to an investment in the Company, and that, as a consequence
of such risks, the Investor could lose Investor’s entire investment in the
Company.
7
6.5 Investment
Intent.
The
Investor hereby represents and warrants that (i) the Common Stock and Warrants
are being acquired for investment for the Investor’s own account, and not as a
nominee or agent and not with a view to the resale or distribution of all or
any
part of the Common Stock or Warrants, and the Investor has no present intention
of selling, granting any participation in, or otherwise distributing any of
the
Common Stock or Warrants within the meaning of the Securities Act, (ii) the
Common Stock and Warrants are being acquired in the ordinary course of the
Investor’s business, and (iii) the Investor does not have any contracts,
understandings, agreements, or arrangements, directly or indirectly, with any
person and/or entity to distribute, sell, transfer, or grant participations
to
such person and/or entity with respect to, any of the Common Stock or Warrants.
The Investor is not purchasing the Common Stock and Warrants as a result of
any
advertisement, article, notice or other communication regarding the Common
Stock
or Warrants published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or any other general
solicitation or general advertisement.
6.6 Investor
Status.
Whether
or not the Investor is a United States resident, the Investor is an “accredited
investor” as that term is defined by Rule 501 of Regulation D promulgated under
the Securities Act and the information provided by the Investor in the
Investor’s Questionnaire, a copy of which is attached hereto as Exhibit
B,
is
truthful, accurate, and complete. The Investor is not registered as a
broker-dealer under Section 15 of the Exchange Act. The Investor has provided
or
will provide prior to the Closing, a United States tax identification number
or
a completed and signed copy of a X-0 Xxxxxx Xxxxxx Tax Form.
6.7 Disclosure.
The
Investor has reviewed information provided by the Company in connection with
the
decision to purchase the Common Stock and Warrants, consisting of the Company’s
Memorandum which includes the Financial Statements. The Company has provided
the
Investor with all other information that the Investor reasonably has requested
in connection with the decision to purchase the Common Stock and Warrants and
is
readily available to the Company and does not breach any confidentiality
agreements or other restrictions and is not a trade secret of the Company.
The
Investor further represents that the Investor has had an opportunity to ask
questions and receive adequate answers from the Company regarding the business,
properties, prospects, and financial condition of the Company. All such
questions have been answered to the full satisfaction of the Investor. Neither
such inquiries nor any other investigation conducted by or on behalf of the
Investor or its representatives or counsel shall modify, amend, or affect the
Investor’s right to rely on the truth, accuracy, and completeness of the
disclosure materials and the Company’s representations and warranties contained
herein.
6.8 No
Registration.
The
Investor understands that Investor may be required to bear the economic risk
of
Investor’s investment in the Company for an indefinite period of time. The
Investor further understands that (i) neither the offering nor the sale of
the Common Stock and Warrants has been registered under the Securities Act
or
any applicable State Acts in reliance upon exemptions from the registration
requirements of such laws, (ii) the Common Stock, the Warrants, and the
Warrant Shares (collectively, the “Securities”)
must
be held by the Investor indefinitely unless the sale or transfer thereof is
subsequently registered under the Securities Act and any applicable State Acts,
or an exemption from such registration requirements is available, (iii) except
as set forth in the registration rights provisions in this Agreement, the
Company is under no obligation to register any of the Securities on the
Investor’s behalf or to assist the Investor in complying with any exemption from
registration, and (iv) the Company will rely upon the representations and
warranties made by the Investor in this Subscription Agreement in order to
establish such exemptions from the registration requirements of the Securities
Act and any applicable State Acts.
8
6.9 Transfer
Restrictions.
The
Investor will not transfer any of the Securities unless such transfer is
registered or exempt from registration under the Securities Act and such State
Acts, and, if requested by the Company in the case of an exempt transaction,
the
Investor has furnished an opinion of counsel reasonably satisfactory to the
Company that such transfer is so exempt. The Investor understands and agrees
that (i) the instruments or certificates evidencing the Securities will bear
appropriate legends indicating such transfer restrictions placed upon the
Securities, (ii) the Company shall have no obligation to honor transfers of
any
of the Securities in violation of such transfer restrictions, and (iii) the
Company shall be entitled to instruct any transfer agent or agents for the
securities of the Company to refuse to honor such transfers.
6.10 Principal
Address.
The
Investor’s principal residence, if an individual, or principal executive office,
if an entity, is set forth on the signature page of this Subscription
Agreement.
7. Independent
Nature of Investor’s Obligations and Rights.
The
obligations of the Investor under this Agreement and any other documents
delivered in connection herewith (collectively, the “Transaction
Documents”)
are
several and not joint with the obligations of any other purchaser of the Common
Stock and Warrants, and the Investor shall not be responsible in any way for
the
performance of the obligations of any other purchaser of the Common Stock and
Warrants under any Transaction Document. The decision of the Investor to
purchase the Common Stock and Warrants pursuant to the Transaction Documents
has
been made by the Investor independently of any other purchaser of the Common
Stock and Warrants. Nothing contained herein or in any Transaction Document,
and
no action taken by any purchaser of the Common Stock and Warrants pursuant
thereto, shall be deemed to constitute such purchasers as a partnership, an
association, a joint venture, or any other kind of entity, or create a
presumption that the purchasers of the Common Stock and Warrants are in any
way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Document. The Investor acknowledges
that no other purchaser of the Common Stock and Warrants has acted as agent
for
the Investor in connection with making its investment hereunder and that no
other purchaser of the Common Stock and Warrants will be acting as agent of
the
Investor in connection with monitoring its investment in the Common Stock and
Warrants or enforcing its rights under the Transaction Documents. The Investor
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other purchaser
of
the Common Stock and Warrants to be joined as an additional party in any
proceeding for such purpose.
9
8. Prospectus
Delivery Requirement.
The
Investor hereby covenants with the Company not to make any sale of the
Securities without complying with the provisions hereof and without effectively
causing the prospectus delivery requirement under the Securities Act to be
satisfied (unless the Investor is selling such Securities in a transaction
not
subject to the prospectus delivery requirement).
9. Merger
Agreement and Related Matters.
9.1 Merger.
As a
condition to Closing, the Company shall have completed the transactions under
a
certain Agreement and Plan of Merger (“Merger Agreement”) entered into by and
among the Company and Wentworth I, Inc. (“Wentworth”), a Delaware corporation,
and dated as of January 12, 2006. Pursuant to the Merger Agreement the Company
intends to complete a business combination transaction by means of a merger
(“Merger”) between itself and Wentworth in which Wentworth will merge with the
Company and the Company will be the surviving entity, through an exchange of
all
the issued and outstanding shares of common and preferred stock of Wentworth
for
shares of the Company’s Common Stock. A copy of the Merger Agreement has been
made available to the Investor.
9.2 Covenant
Not to Xxx.
From
and after the Closing, the Investor agrees, on behalf of itself and its
officers, directors, shareholders and affiliates, that none of the Investor
or
its officers, directors, shareholders and affiliates will assert, or assist
in
the assertion of, any claim or action before any federal, state, local or
foreign judicial, arbitration, administrative, executive or other type of body
or tribunal against the officers, directors and advisors of Wentworth in such
positions prior to completion of the Merger and each of their respective
affiliates, subsidiaries, partners, successors and assigns and all of their
respective employees, officers, directors, agents and representatives
(collectively, “Wentworth
Persons”)
that
is based in whole or in part on their actions as an officer, director or advisor
of Wentworth or by reason of their conduct in respect of the business of
Wentworth, unless such claim or action is based on the gross negligence or
commission of fraud. The grants of immunity set forth in this section (i) are
irrevocable, (ii) shall survive indefinitely, and (iii) are binding on all
successors and assigns of the Investor.
9.3 Release.
The
Investor hereby agrees to unconditionally and irrevocably release, exonerate,
acquit and discharge the Wentworth Persons, from any and all actions, causes
of
action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, judgments, executions, claims, demands, counterclaims,
rights to damages and liabilities (collectively, “Claims”),
that
the Investor ever had, now has, or hereafter might, can or shall have against
Wentworth Persons under statute, common law or otherwise, for or by reason
of
any matter, cause or thing whatsoever from the beginning of the world to, and
including, the date of the consummation of the Merger, other than Claims that
are for gross negligence or the commission of fraud as an officer, director
or
advisor in their conduct of the business of Wentworth.
10
9.4 Third
Party Beneficiaries.
The
Wentworth Persons are third-party beneficiaries with respect to this
Section
9
and may
enforce the foregoing provisions as if they were a signatory
hereto.
10. Registration
of the Shares; Compliance with the Securities Act.
10.1 Registration
Procedures and Other Matters.
The
Company shall:
(a) subject
to receipt of necessary information from the Investor after prompt request
from
the Company to the Investor to provide such information, prepare and file with
the SEC, within 45 days after the Closing Date, a registration statement (the
“Registration
Statement”)
to
enable the resale of the shares of Common Stock sold in the Offering and the
shares of Common Stock underlying the Warrants (collectively the “Registrable
Securities”)
by the
Investors from time to time through a securities exchange, the automated
quotation system of the Nasdaq National Market or Nasdaq Capital Markets, in
the
Over-the-Counter Bulletin Board, the Pink Sheets or in privately-negotiated
transactions;
(b) subject
to receipt of necessary information from the Investor after prompt request
from
the Company to the Investor to provide such information, use its reasonable
commercial efforts to cause the Registration Statement to become effective
on or
prior to the 150th
day
after the Closing Date (the “Effective
Date”);
(c) use
its
reasonable commercial efforts to prepare and file with the SEC such amendments
and supplements to the Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep the Registration Statement
current, effective and free from any material misstatement or omission to state
a material fact for a period not exceeding, with respect to each Investor’s
Registrable Securities , the earlier of (i) the date on which the Investor
may sell all the Registrable Securities then held by the Investor without
restriction by the volume limitations of Rule 144(e) of the Securities Act,
or (ii) such time as all the Registrable Securities purchased by such
Investor in this Offering have been sold pursuant to a registration statement.
Notwithstanding the foregoing, if any Investor is not able to immediately,
freely resell all Registrable Securities that it owns, the Company will continue
to keep the Registration Statement current, effective and free from any material
misstatement or omission to state a material fact for such period as is
necessary;
(d) furnish
to the Investor with respect to the Registrable Securities registered under
the
Registration Statement such number of copies of the Registration Statement,
Prospectuses and Preliminary Prospectuses in conformity with the requirements
of
the Securities Act and such other documents as the Investor may reasonably
request, in order to facilitate the public sale or other disposition of all
or
any of the Registrable Securities by the Investor; provided, however, that
the
obligation of the Company to deliver copies of Prospectuses or Preliminary
Prospectuses to the Investor shall be subject to the receipt by the Company
of
reasonable assurances from the Investor that the Investor will comply with
the
applicable provisions of the Securities Act and of such other securities or
blue
sky laws as may be applicable in connection with any use of such Prospectuses
or
Preliminary Prospectuses;
11
(e) file
documents required of the Company for normal blue sky clearance in states
specified in writing by the Investor and use its reasonable commercial efforts
to maintain such blue sky qualifications during the period the Company is
required to maintain the effectiveness of the Registration Statement pursuant
to
Section 10.1(c); provided,
however,
that
the Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified
or
has not so consented;
(f) bear
all
expenses in connection with the procedures in paragraph (a) through (e) of
this
Section 10.1 (other than underwriting discounts or commissions, brokers’
fees and similar selling expenses, and any other fees or expenses incurred
by
the Investor, including attorney fees of the Investor) and the registration
of
the Registrable Securities pursuant to the Registration Statement;
and
(g) advise
the Investor, promptly after it shall receive notice or obtain knowledge of
the
issuance of any stop order by the SEC delaying or suspending the effectiveness
of the Registration Statement or of the initiation or threat of any proceeding
for that purpose; and it will promptly use its reasonable commercial efforts
to
prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued.
Notwithstanding
anything to the contrary herein, the Registration Statement shall cover only
the
Registrable Securities and certain other securities of the Company issuable
in
connection with the private offering of debt securities during the period
commencing July 2005 and ending September 2005, the Agent Warrants and
securities to be issued to the stockholders of Wentworth in the Merger. In
no
event at any time before the Registration Statement becomes effective with
respect to the Registrable Securities shall the Company publicly announce or
file any other registration statement, other than registrations on
Form S-8, without the prior written consent of a majority in interest of
the Investors.
The
Company understands that the Investor disclaims being an underwriter, but if
the
SEC deems the Investor to be an underwriter the Company shall not be relieved
of
any obligations it has hereunder; provided,
however
that if
the Company receives notification from the SEC that the Investor is deemed
an
underwriter, then the period by which the Company is obligated to submit an
acceleration request to the SEC shall be extended to the earlier of (i) the
90th day after such SEC notification, or (ii) 120 days after the initial
filing of the Registration Statement with the SEC.
The
Plan
of Distribution section of the Registration Statement shall be approved by
the
Placement Agent on behalf of the Investors whose Registrable Securities are
to
be included in the Registration Statement. If the Placement Agent, after being
provided a copy of the Registration Statement as to be filed, does not respond
or make comments to the Plan of Distribution section within five business days,
then the form of Plan of Distribution as submitted shall be deemed
approved.
12
10.2 Transfer
of Registrable Securities After Registration;
Suspension.
(a) The
Investor agrees that it will not effect any disposition of the Registrable
Securities or its right to purchase the Registrable Securities that would
constitute a sale within the meaning of the Securities Act except as
contemplated in the Registration Statement referred to in Section 10.1 and
as described below or as otherwise permitted by law, and that it will promptly
notify the Company of any changes in the information set forth in the
Registration Statement regarding the Investor or its plan of
distribution.
(b) Except
in
the event that paragraph (c) below applies, the Company shall (i) if deemed
necessary by the Company, prepare and file from time to time with the SEC a
post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or a supplement or amendment to any document incorporated
therein by reference or file any other required document so that such
Registration Statement will not contain an 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, and so that, as thereafter delivered
to purchasers of the Registrable Securities being sold thereunder, such
Prospectus will not contain an 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, in light of the circumstances under which they were made,
not misleading; (ii) provide the Investor copies of any documents filed
pursuant to Section 10.2(b) as the Investor may reasonably request; and
(iii) inform each Investor that the Company has complied with its
obligations in Section 10.2(b) (or that, if the Company has filed a
post-effective amendment to the Registration Statement which has not yet been
declared effective, the Company will notify the Investor to that effect, will
use its reasonable commercial efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly notify the
Investor pursuant to Section 10.2(b) hereof when the amendment has
become effective).
(c) Subject
to paragraph (d) below, in the event (i) of any request by the SEC or any
other federal or state governmental authority during the period of effectiveness
of the Registration Statement for amendments or supplements to a Registration
Statement or related Prospectus or for additional information; (ii) of the
issuance by the SEC or any other federal or state governmental authority of
any
stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose; (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale
in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) of any event or circumstance which, upon the advice of its
counsel, necessitates the making of any changes in the Registration Statement
or
Prospectus, or any document incorporated or deemed to be incorporated therein
by
reference, so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; then the Company shall deliver a certificate in writing to the
Investor (the “Suspension
Notice”)
to the
effect of the foregoing and, upon receipt of such Suspension Notice, the
Investor will refrain from selling any of the Registrable Securities pursuant
to
the Registration Statement (a “Suspension”)
until
the Investor’s receipt of copies of a supplemented or amended Prospectus
prepared and filed by the Company, or until it is advised in writing by the
Company that the current Prospectus may be used, and has received copies of
any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in any such Prospectus. In the event of any Suspension, the Company
will use its reasonable commercial efforts to cause the use of the Prospectus
so
suspended to be resumed as soon as reasonably practicable within 20 business
days after the delivery of a Suspension Notice to the Investor. In addition
to
and without limiting any other remedies (including, without limitation, at
law
or at equity) available to the Investor, the Investor shall be entitled to
specific performance in the event that the Company fails to comply with the
provisions of this Section 10.2(c).
13
(d) Notwithstanding
the foregoing paragraphs of this Section 10.2, the Investor shall not be
prohibited from selling the Registrable Securities under the Registration
Statement as a result of Suspensions on more than two occasions of not more
than
30 days each in any twelve month period, unless, in the good faith judgment
of
the Company’s Board of Directors, upon the written opinion of counsel of the
Company, the sale of the Registrable Securities under the Registration Statement
in reliance on this Section 10.2(d) would be reasonably likely to cause a
violation of the Securities Act or the Exchange Act and result in liability
to
the Company.
(e) Provided
that a Suspension is not then in effect, the Investor may sell the Registrable
Securities under the Registration Statement, provided that it arranges for
delivery of a current Prospectus to the transferee of such the Registrable
Securities. Upon receipt of a request therefor, the Company has agreed to
provide an adequate number of current Prospectuses to the Investor and to supply
copies to any other parties requiring such Prospectuses.
(f) In
the
event of a sale of the Registrable Securities by the Investor pursuant to the
Registration Statement, the Investor must also deliver to the Company’s transfer
agent such documentation as is reasonably necessary so that the Registrable
Securities may be properly transferred.
10.3 Indemnification.
For the
purpose of this Section 10.3:
(a) the
term
“Selling
Stockholder”
means
the Investor and any affiliate of such Investor;
(b) the
term
“Registration
Statement”
shall
include the Prospectus in the form first filed with the SEC pursuant to
Rule 424(b) of the Securities Act or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) filing is
required, and any exhibit, supplement or amendment included in or relating
to
the Registration Statement referred to in Section 10.1; and
14
(c) the
term
“Untrue
Statement”
means
any untrue statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact required to
be
stated therein or necessary to make the statements therein, in the light of
the
circumstances under which they were made, not misleading.
(d) the
Company agrees to indemnify and hold harmless each Selling Stockholder from
and
against any losses, claims, damages or liabilities to which such Selling
Stockholder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon (i) any breach of the
representations or warranties of the Company contained herein or failure to
comply with the covenants and agreements of the Company contained herein,
(ii) any Untrue Statement, or (iii) any failure by the Company to
fulfill any undertaking included in the Registration Statement as amended or
supplemented from time to time, and the Company will reimburse such Selling
Stockholder for any reasonable legal or other expenses reasonably incurred
in
investigating, defending or preparing to defend any such action, proceeding
or
claim, or preparing to defend any such action, proceeding or claim, provided,
however,
that
the Company shall not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, an Untrue Statement
made in reliance upon and in conformity with written information furnished
to
the Company by or on behalf of such Selling Stockholder specifically for use
in
preparation of the Registration Statement, as amended or supplemented from
time
to time (including, without limitation, information set forth in the Investor
Questionnaire), or the failure of such Selling Stockholder to comply with its
covenants and agreements contained in Section 10.2 hereof respecting sale of
the
Registrable Securities or any statement or omission in any Prospectus that
is
corrected in any subsequent Prospectus that was delivered to the Selling
Stockholder prior to the pertinent sale or sales by the Selling Stockholder.
The
Company shall reimburse each Selling Stockholder for the indemnifiable amounts
provided for herein on demand as such expenses are incurred.
(e) The
Investor agrees to indemnify and hold harmless the Company (and each person,
if
any, who controls the Company within the meaning of Section 15 of the
Securities Act, each officer of the Company who signs the Registration Statement
and each director of the Company) from and against any losses, claims, damages
or liabilities to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or otherwise),
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, (i) any
failure to comply with the covenants and agreements contained in
Section 10.2 hereof respecting sale of the Registrable Securities, or
(ii) any Untrue Statement if such Untrue Statement was made in reliance
upon and in conformity with written information furnished by or on behalf of
the
Investor specifically for use in preparation of the Registration Statement,
as
amended or supplemented from time to time (including, without limitation,
information set forth in the Investor Questionnaire), and the Investor will
reimburse the Company (or such officer, director or controlling person), as
the
case may be, for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding
or
claim. The Investor shall reimburse the Company or such officer, director or
controlling person, as the case may be, for the indemnifiable amounts
provided
for
herein on demand as such expenses are incurred. Notwithstanding the foregoing,
the Investor’s aggregate obligation to indemnify the Company and such officers,
directors and controlling persons shall be limited to the net amount received
by
the Investor from the sale of the Registrable Securities.
15
(f) Promptly
after receipt by any indemnified person of a notice of a claim or the beginning
of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 10.3, such indemnified person
shall notify the indemnifying person in writing of such claim or of the
commencement of such action, but the omission to so notify the indemnifying
person will not relieve it from any liability which it may have to any
indemnified person under this Section 10.3 (except to the extent that such
omission materially and adversely affects the indemnifying person’s ability to
defend such action) or from any liability otherwise than under this
Section 10.3. Subject to the provisions hereinafter stated, in case any
such action shall be brought against an indemnified person, the indemnifying
person shall be entitled to participate therein, and, to the extent that it
shall elect by written notice delivered to the indemnified person promptly
after
receiving the aforesaid notice from such indemnified person, shall be entitled
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified person. After notice from the indemnifying person to such
indemnified person of its election to assume the defense thereof, such
indemnifying person shall not be liable to such indemnified person for any
legal
expenses subsequently incurred by such indemnified person in connection with
the
defense thereof, provided,
however,
that if
there exists or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the indemnified person, for the
same
counsel to represent both the indemnified person and such indemnifying person
or
any affiliate or associate thereof, the indemnified person shall be entitled
to
retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel (together with appropriate local
counsel) for all indemnified parties. In no event shall any indemnifying person
be liable in respect of any amounts paid in settlement of any action unless
the
indemnifying person shall have approved the terms of such settlement;
provided
that
such consent shall not be unreasonably withheld or delayed. No indemnifying
person shall, without the prior written consent of the indemnified person,
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified person is or could have been a party and indemnification
could have been sought hereunder by such indemnified person, unless such
settlement includes an unconditional release of such indemnified person from
all
liability on claims that are the subject matter of such proceeding.
16
(g) If
the
indemnification provided for in this Section 10.3 is unavailable to or
insufficient to hold harmless an indemnified person under subsection (a) or
(b)
above in respect of any losses, claims, damages or liabilities (or actions
or
proceedings in respect thereof) referred to therein, then each indemnifying
person shall contribute to the amount paid or payable by such indemnified person
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Investor, as well as any other
Selling Shareholders under such Registration Statement on the other in
connection with the statements or omissions or other matters which resulted
in
such losses, claims, damages or liabilities (or actions in respect thereof),
as
well as any other relevant equitable considerations. The relative fault shall
be
determined by reference to, among other things, in the case of an Untrue
Statement, whether the Untrue Statement relates to information supplied by
the
Company on the one hand or an Investor or other Selling Shareholder on the
other
and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such Untrue Statement. The Company and the
Investor agree that it would not be just and equitable if contribution pursuant
to this subsection (d) were determined by pro rata allocation (even if the
Investor and other Selling Shareholders were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified person as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified person in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), the Investor shall not be required to contribute any amount
in
excess of the amount by which the net amount received by the Investor from
the
sale of the Registrable Securities to which such loss relates exceeds the amount
of any damages which such Investor has otherwise been required to pay by reason
of such Untrue Statement. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Investor’s obligations in this subsection to contribute
shall be in proportion to its Investor sale of the Registrable Securities to
which such loss relates and shall not be joint with any other Selling
Shareholders.
(h) The
parties to this Agreement hereby acknowledge that they are sophisticated
business persons who were represented by counsel during the negotiations
regarding the provisions hereof including, without limitation, the provisions
of
this Section 10.3, and are fully informed regarding said provisions. They
further acknowledge that the provisions of this Section 10.3 fairly
allocate the risks in light of the ability of the parties to investigate the
Company and its business in order to assure that adequate disclosure is made
in
the Registration Statement as required by the Securities Act and the Exchange
Act. The parties are advised that federal or state public policy as interpreted
by the courts in certain jurisdictions may be contrary to certain of the
provisions of this Section 10.3, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 10.3 and further agree not to attempt
to assert any such defense.
10.4 Termination
of Conditions and Obligations.
The
conditions precedent imposed by this Section 10 upon the transferability of
the Registrable Securities shall cease and terminate as to any particular number
of the Registrable Securities when such Registrable Securities shall have been
effectively registered under the Securities Act and sold or otherwise disposed
of in accordance with the intended method of disposition set forth in the
Registration Statement covering such Registrable Securities or at such time
as
an opinion of counsel reasonably satisfactory to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.
17
10.5 Information
Available.
So long
as the Registration Statement is effective covering the resale of the
Registrable Securities owned by the Investor, the Company will furnish to the
Investor:
(a) as
soon
as practicable after it is available, one copy of (i) its Annual Report to
Stockholders (which Annual Report shall contain financial statements audited
in
accordance with generally accepted accounting principles by a national firm
of
certified public accountants), (ii) its Annual Report on Form 10-KSB and
(iii) its Quarterly Reports on Form 10-QSB (the foregoing, in each
case, excluding exhibits);
(b) upon
the
request of the Investor, all exhibits excluded by the parenthetical to
subparagraph (a) of this Section 10.5 as filed with the SEC and all
other information that is made available to shareholders; and
(c) upon
the
reasonable request of the Investor, the President or the Chief Financial Officer
of the Company (or an appropriate designee thereof) will meet with the Investor
or a representative thereof at the Company’s headquarters to discuss all
information relevant for disclosure in the Registration Statement covering
the
Registrable Securities and will otherwise cooperate with any Investor conducting
an investigation for the purpose of reducing or eliminating such Investor’s
exposure to liability under the Securities Act, including the reasonable
production of information at the Company’s headquarters; provided, that the
Company shall not be required to disclose any confidential information to or
meet at its headquarters with any Investor until and unless the Investor shall
have entered into a confidentiality agreement in form and substance reasonably
satisfactory to the Company with the Company with respect thereto.
10.6 Legend;
Restrictions on Transfer.
The
certificate or certificates for the Registrable Securities (and any securities
issued in respect of or exchange for the Registrable Securities) shall be
subject to a legend or legends restricting transfer under the Securities Act
and
referring to restrictions on transfer herein, such legend to be substantially
as
follows:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
The
Company and the Investor acknowledge and agree that the Investor may, as
permitted by law, from time to time pledge pursuant to a bona fide margin
agreement or grant a security interest in some or all of the Registrable
Securities and, if required under the terms of such arrangement, Investor may,
as permitted by law, transfer pledged or secured Registrable Securities to
the
pledgees or secured parties. So long as Investor is not an affiliate of the
Company, such a pledge or transfer would not be subject to approval or consent
of the Company, provided that, upon the request of the Company, a legal opinion
of legal counsel to the pledgee, secured party or pledgor shall be obtained.
At
the Investor’s expense, so long as the Registrable Securities are subject to the
legend required by this Section 10.6, the Company will use its reasonable
commercial efforts to execute and deliver such reasonable documentation as
a
pledgee or secured party of Registrable Securities may reasonably request in
connection with a pledge or transfer of the Registrable Securities including
such amendments or supplements to the Registration Statement and Prospectus
as
may be reasonably required. The foregoing does not affect Investor’s obligations
pursuant to Section 10.2(a).
18
10.7 Liquidated
Damages.
The
Company and Investor agree that Investor will suffer damages if the Company
fails to fulfill its obligations pursuant to Section 10.1 and 10.2 hereof and
that it would not be possible to ascertain the extent of such damages with
precision. Accordingly, the Company hereby agrees to pay liquidated damages
(“Liquidated
Damages”)
to
Investor under the following circumstances: (a) if the Registration Statement
is
not filed by the Company on or prior to 45 days after the Closing Date (such
an
event, a “Filing
Default”);
(b)
if the Registration Statement is not declared effective by the SEC on or prior
to the 150th
day
after the Closing Date (such an event, an “Effectiveness
Default”);
and/or (c) if the Registration Statement (after its effectiveness date) ceases
to be effective and available to Investor for any continuous period that exceeds
30 days or for one or more period that exceeds in the aggregate 60 days in
any
12-month period (such an event, a “Suspension
Default”
and
together with a Filing Default and an Effectiveness Default, a “Registration
Default”).
In
the event of a Registration Default, the Company shall as Liquidated Damages
pay
to Investor, for each 30-day period of a Registration Default, an amount equal
to 1% of the aggregate purchase price paid by Investor pursuant to this
Agreement up to a maximum of 18% of the aggregate purchase price paid by the
Investor, provided that Liquidation Damages in respect of a Suspension Default
shall not be payable in relation to any Registrable Securities not owned by
the
Investor at the time of the Suspension Default and, provided
further,
that no
Liquidated Damages are due in respect of the Warrants. In the event of a Filing
Default or an Effectiveness Default, the Liquidated Damages shall be paid by
the
issuance of additional Common Stock at the rate of the amount of the Liquidated
Damages due divided by $2.00 (“Penalty
Shares”).
To
the extent any Penalty Shares are issued or may be issuable, the Penalty Shares
shall be included in the Registration Statement. In the event of a Suspension
Default, the Liquidated Damages shall be paid in cash. The Company shall pay
the
Liquidated Damages as follows: (i) in connection with a Filing Default, on
the
46th day after the Closing Date, and each 30th day thereafter until the
Registration Statement is filed with the SEC; (ii) in connection with an
Effectiveness Default, on the 150th
day
after the Closing Date and each 30th day thereafter until the Registration
Statement is declared effective by the SEC; or (iii) in connection with a
Suspension Default, on either (x) the 31st
consecutive day of any Suspension or (y) the 61st
day (in
the aggregate) of any Suspensions in any 12-month period, and each
30th
day
thereafter until the Suspension is terminated in accordance with Section 10.2.
Notwithstanding the foregoing, all periods shall be tolled during delays
directly caused by the action or inaction of any Investor, and the Company
shall
have no liability to any Investor in respect of any such delay. The Liquidated
Damages payable herein shall apply on a pro rata basis for any portion of a
30-day period of a Registration Default.
19
11. Indemnification
of Investor.
In
addition to the indemnity provided in the registration rights provisions of
this
Agreement, the Company will indemnify and hold the Investor and its directors,
officers, shareholders, partners, employees and agents (each, an “Investor
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs, and reasonable attorneys’ fees and costs of
investigation (collectively, “Losses”)
that
any such Investor Party may suffer or incur as a result of or relating to any
misrepresentation, breach, or inaccuracy of any representation, warranty,
covenant, or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Investor Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation, and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred.
12. Non-Public
Information.
Subsequent to the Closing, the Company covenants and agrees that neither it
nor
any other person acting on its behalf will provide Investor or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto Investor shall have executed a
written agreement regarding the confidentiality and use of such information.
The
Company understands and confirms that Investor shall be relying on the foregoing
representations in effecting transactions in securities of the
Company.
13. Further
Assurances.
The
parties hereto will, upon reasonable request, execute and deliver all such
further assignments, endorsements and other documents as may be necessary in
order to perfect the purchase by the Investor of the Common Stock and
Warrants.
14. Entire
Agreement; No Oral Modification.
This
Agreement contains the entire agreement among the parties hereto with respect
to
the subject matter hereof and supersedes all prior agreements and understandings
with respect thereto and may not be amended or modified except in a writing
signed by both of the parties hereto.
15. Binding
Effect; Benefits.
This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, successors and assigns; however, nothing in this
Agreement, expressed or implied, is intended to confer on any other person
other
than the parties hereto, or their respective heirs, successors or assigns,
any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
16. Counterparts.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed to be an original and all of which together shall be deemed to be one
and
the same instrument. The execution of this Agreement may be evidenced by
facsimile or electronic signature, and such signature shall for all purposes
be
treated as an original signature of such party.
20
17. Governing
Law.
This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the United States of America and the State of Colorado, both
substantive and remedial. Any
judicial proceeding brought against either of the parties to this agreement
or
any dispute arising out of this Agreement or any matter related hereto shall
be
brought in the courts of the State of Colorado, or in the United States District
Court located in Denver, Colorado and, by its execution and delivery of this
agreement, each party to this Agreement accepts the jurisdiction of such courts.
18. Prevailing
Parties.
In any
action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the prevailing
party shall be entitled to receive and the non-prevailing party shall pay upon
demand reasonable attorneys’ fees in addition to any other remedy.
19. Notices.
All
communication hereunder shall be in writing and, if sent to you shall be mailed,
delivered, telegraphed or sent by facsimile or electronic mail, and confirmed
to
an Investor at the address set forth on the signature page of this Agreement,
or
if sent to the Company, shall be mailed, delivered, telegraphed or sent by
facsimile or electronic mail and confirmed to the Company at 000 00xx
Xxxxxx,
Xxxxx 000, Xxxxxxx, XX 00000, Attention: CEO, telephone number: (000) 000-0000,
fax number: (000) 000-0000.
20. Headings.
The
section headings herein are included for convenience only and are not to be
deemed a part of this Agreement.
[Signature
on following page]
21
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first written above.
AERO
GROW INTERNATIONAL, INC.
a
Nevada
corporation
By:
__________________________
Xxxxxxx
Xxxxxxxxxxx, CEO
[INVESTOR
SIGNATURE PAGE FOLLOWS]
22
[INVESTOR
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT]
|
INVESTOR
(for Entities, Trusts and IRAs):
|
INVESTOR
(for Individuals):
|
|
|
___________________________________
|
____________________________________
|
|
|
Print
Name of Entity (full legal name)
|
Print
Name of Individual (full legal name)
|
|
|
By:
_________________________________
|
________________________________ | |
|
Signature
of Authorized Person
|
Signature
|
|
|
____________________________________
|
||
|
Print
Name and Title
|
||
|
____________________________________
|
____________________________________
|
|
|
____________________________________
|
____________________________________
|
|
|
____________________________________
|
____________________________________
|
|
|
Executive
Office Address
|
Principal
Residence Address
|
|
|
____________________________________
|
||
|
IRS
Tax Identification No.
|
IRS
Tax Identification No.
|
|
|
____________________________________
|
____________________________________
|
|
|
Telephone
Number
|
Telephone
Number
|
|
|
____________________________________
|
____________________________________
|
|
|
Fax
Number
|
Fax
Number
|
|
|
____________________________________
|
____________________________________
|
|
|
E-mail
Address
|
E-mail
Address
|
Number
of
Units subscribed to (Minimum 5,000 Units): ____________
Subscription
Amount: Number of Units subscribed to multiplied by $5.00 = $__________
23
INSTRUCTIONS
TO INVESTORS:
Subscription
Documents:
Please
send the completed and signed Subscription Agreement, Investor Questionnaire,
NASD Questionnaire and, if you are a non-U.S. person, a Form W-8, to the
following person:
|
Xxxxxxx
Securities, LLC
0000
XXX Xxxxxxx, Xxxxx 0000
Xxxxxxxxx
Xxxxxxx, XX 00000
Attn:
Xxxxxx Xxxxxx, Operations Associate
(000)
000-0000
(000)
000-0000 telecopy
xx@xxxxxxxxxxxxxxxxxx.xxx
e-mail
|
Payment
of Funds:
All
wire
transfers of subscription funds should be sent to the Escrow Account. All
subscribers' checks should be made payable to “Xxxxxxx - AeroGrow Escrow
Account” and sent directly
to the
Escrow Agent. The deposit and wire instructions for the Escrow Account are
as
follows:
|
Xxxxxx
Street State Bank
|
||
|
00
Xxxxxx Xxxxxx, Xxxxx 00
|
||
|
Xxxxxx,
XX 00000
|
||
|
Attn:
Xxxxx Xxxxx
|
||
|
For
Benefit to: Xxxxxxx - AeroGrow Escrow Account
|
||
|
Account
#: 00000000
|
||
|
Wire
Instructions:
|
||
|
Receiving
Bank Name:
|
Xxxxx
Fargo Bank, N.A.
|
|
|
Receiving
Bank ABA#:
|
000000000
|
|
|
Receiving
Bank City/State:
|
San
Francisco, CA
|
|
|
Beneficiary:
|
Xxxxxx
Street State Bank
|
|
|
Beneficiary’s
Account #:
|
4100059286
|
|
|
For
Further Benefit to:
|
Xxxxxxx-AeroGrow
Escrow Account
|
|
|
Account
#:
|
00000000
|
24
EXHIBIT
A
- COMMON STOCK PURCHASE WARRANT
EXHIBIT
B
- INVESTOR QUESTIONNAIRE
EXHIBIT
C
- NASD QUESTIONNAIRE
25
