EXHIBIT 10.7
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Union Dental Holdings, Inc.
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This offering consists of $600,000 of the Company's 5 Year Convertible
Debentures convertible into the
Company's Common Stock.
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SUBSCRIPTION AGREEMENT
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SUBSCRIPTION PROCEDURES
Convertible Debentures of Union Dental Holdings, Inc. (the "Company")
are being offered (the "Debentures"). This offering is being made in accordance
with the exemptions from registration provided for under Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act") and Rule 506 of Regulation D
promulgated under the 1933 Act.
In order to purchase Debentures, each subscriber must complete and execute
a questionnaire (the "Questionnaire") and a subscription agreement (the
"Subscription Agreement"). In addition, the subscriber must make a payment
pursuant to the Funds Authorization Distribution Agreement, for the amount being
purchased or directly to the Holder. All subscriptions are subject to acceptance
by the Company, which shall not occur until the Company has returned the signed
Company Signature Page.
The Questionnaire is designed to enable the Holder to demonstrate the
minimum legal requirements under federal and state securities laws to purchase
the Debentures. The Signature Page for the Questionnaire and the Subscription
Agreement contain representations relating to the subscription and should be
reviewed carefully by each subscriber.
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to thirty percent (30%) of any dividends paid by the
Company. In order to eliminate or reduce such withholding tax you must submit a
properly executed I.R.S. Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States) or I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate),
claiming exemption from withholding or eligibility for treaty benefits in the
form of a lower rate of withholding tax on interest or dividends.
Payment must be made by wire transfer by Dutchess Private Equities Fund,
II, LP (the "Holder") per the wire instructions that will be established. In the
event of a termination of the offering or the rejection of a subscription,
subscription funds will be returned by the Company without interest or charges.
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THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUBSCRIPTION AGREEMENT
To: Union Dental Holdings, Inc.
This Subscription Agreement is made between Union Dental Holdings, Inc., a
Florida corporation, (the "Company"), and the undersigned prospective Holder
("Holder") who is subscribing hereby for the Company's convertible debentures
(the "Debentures") on August 17, 2005. This subscription is submitted to you in
accordance with and subject to the terms and conditions described in this
Subscription Agreement, together with any Exhibits thereto, relating to an
offering (the "Offering") of Six Hundred Thousand dollars ($600,000) of
Debentures. The Offering is limited to accredited Investors and is made in
accordance with the exemptions from registration provided for under Section 4(2)
of the 1933 Act and Rule 506 of Regulation D promulgated under the 1933 Act
("Regulation D").
Whereas, contemporaneously with the execution and delivery of this
Agreement, the partiers hereto are executing and delivering a Debenture
Registration Rights Agreement, the Debenture Agreement, the Irrevocable Transfer
Agent Agreement, and Warrant Agreement (collectively, the "Transaction
Documents").
1. SUBSCRIPTION.
(a) The closing shall be deemed to have occurred on the date in the
preamble of this document (the "Closing Date" or a "Closing"). The Company shall
pay ten percent (10%) annual coupon on the unpaid principal amount of this
Debenture (the "Debenture") at such times and in such amounts as outlined in the
Debenture Agreement.
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(b) Upon receipt by the Company of the requisite payment for the Debentures
being purchased, the Debentures so purchased will be forwarded by the Company to
the Holder or its broker, as listed on the signature page, and the name of such
Holder will be registered on the Debenture transfer books of the Company as the
record owner of such Debentures.
(c) As long as the Holder owns the Debenture, the Holder shall have the
right to change the terms for the balance of the Debenture it then holds, to
match the terms of any other offering of securities made by the Company.
(d) The Holders shall fund three hundred thousand dollars ($300,000) upon
the initial closing and an additional three hundred thousand dollars ($300,000)
simultaneously on the date the registration statement covering this Offering is
filed with the United States Securities and Exchange Commission ("SEC").
2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER.
The Holder hereby represents and warrants to, and agrees with, the Company
as follows:
(a) The Holder has been furnished with, and has carefully read the
applicable form of Debenture Registration Rights Agreement, and the
Debenture and is familiar with and understands the terms of the Offering.
With respect to tax and other economic considerations involved in his
investment, the Holder is not relying on the Company. The Holder has
carefully considered and has, to the extent the Holder believes such
discussion necessary, discussed with the Holder 's professional legal, tax,
accounting and financial advisors the suitability of an investment in the
Company, by purchasing the Debentures, for the Holder 's particular tax and
financial situation and has determined that the investment being made by
the Holder is a suitable investment for the Holder.
(b) The Holder acknowledges that all documents, records, and books
pertaining to this investment which the Holder has requested have been made
available for inspection or the Holder has had access thereto.
(c) The Holder has had a reasonable opportunity to ask questions of and
receive answers from a person or persons acting on behalf of the Company
concerning the Offering and if such opportunity was taken then all such
questions have been answered to the full satisfaction of the Holder.
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(d) The Holder will not sell, or otherwise dispose of the Debentures or the
Common Stock issued upon conversion of the Debentures without registration
under the 1933 Act or applicable state securities laws or compliance with
an exemption therefrom including but not limited to: Rule 144A, 144 (k)
(herein after referred to as an "Exemption"). The Debentures have not been
registered under the 1933 Act or under the securities laws of any state.
Resales of the Common Stock underlying the Debentures or issued in payment
of accrued interest on the Debentures are to be registered by the Company
pursuant to the terms of the Debenture Registration Rights Agreement
incorporated herein and made a part hereof.
(e) The Holder recognizes that an investment in the Debentures involves
substantial risks, including loss of the entire amount of such investment.
Further, the Holder has carefully read and considered the schedule entitled
Litigation matters attached hereto as Schedule 3(h).
(f) The Holder acknowledges that each certificate representing the
Debentures (and the shares of Common Stock issued upon conversion of the
Debentures, unless registered or with an Exemption) or in payment of
dividends on the Debentures shall be stamped or otherwise imprinted with a
legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
If Holder sends a Notice of Conversion (See Exhibit A attached
hereto), and provided a registration statement under the Securities Act of
1933 that is in effect as to the sale, then in such event the Company shall
have its transfer agent send Holder the appropriate number of shares of
Common Stock without restrictive legends and the Company is not subject to
stop transfer instructions.
(g) If this Subscription Agreement is executed and delivered on behalf of a
corporation: (i) such corporation has the full legal right and power and
all authority and approval required (a) to execute and deliver, or
authorize execution and delivery of this Subscription Agreement and all
other instruments (including, without limitation, the Debenture
Registration Rights Agreement, Irrevocable Transfer Agent Agreement,
Security Agreement, Warrant Agreement and Debenture Agreements) executed
and delivered by or on behalf of such corporation in connection with the
purchase of the Debentures and (b) to purchase and hold the Debentures; and
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(ii) the signature of the party signing on behalf of such corporation is
binding upon such corporation.
(h) The Holder is not subscribing for the Debentures as a result of, or
pursuant to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or meeting.
(i) The Holder is purchasing the Debentures for its own account for
investment, and not with a view toward the resale or distribution thereof,
except pursuant to sales registered or exempted from registration under the
1933 Act. The Holder has not offered or sold any portion of the Debentures
being acquired nor does the Holder have any present intention of dividing
the Debentures with others or of selling, distributing or otherwise
disposing of any portion of the Debentures either currently or after the
passage of a fixed or determinable period of time or upon the occurrence or
non-occurrence of any predetermined event or circumstance in violation of
the 1933 Act provided, however, that by making the representations herein,
Holder does not agree to hold any of the Debentures for any minimum or
other specific term and reserves the right to dispose of the Debentures at
any time in accordance with or pursuant to a registration statement or an
exemption under the 1933 Act. Holder is neither an underwriter of, nor a
dealer in, the Debentures or the Common Stock issuable upon conversion
thereof or upon the payment of dividends thereon and is not participating
in the distribution or resale of the Debentures or the Common Stock
issuable upon conversion or exercise thereof.
(j) The Holder or the Holder's representatives, as the case may be, has
such knowledge and experience in financial, tax and business matters so as
to enable the Holder to utilize the information made available to the
Holder in connection with the Offering to evaluate the merits and risks of
an investment in the Debentures and to make an informed investment decision
with respect thereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Holder that:
a. Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Subscription Agreement means any entity in which the
Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the respective jurisdictions of their incorporation, and have the requisite
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corporate power and authorization to own their properties and to carry on their
business as now being conducted. Both the Company and its Subsidiaries are duly
qualified to do business and are in good standing in every jurisdiction in which
their ownership of property or the nature of the business conducted by them
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Subscription Agreement, "MATERIAL ADVERSE EFFECT" means any
material adverse effect on the business, properties, assets, operations, results
of operations, financial condition or prospects of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined in Section 3(b)below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Subscription Agreement, the Debenture Registration Rights
Agreement, Warrant Agreement, Security Agreement, Stock Transfer Agent Agreement
and the Debenture Agreement, and each of the other agreements entered into by
the parties hereto in connection with the transactions contemplated by this
Subscription Agreement (collectively, the "TRANSACTION DOCUMENTS"), and to issue
the Debentures in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the reservation for issuance and the issuance of
the Debentures pursuant to this Subscription Agreement, have been duly and
validly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors, or its
shareholders, (iii) the Transaction Documents have been duly and validly
executed and delivered by the Company, and (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
c. Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of 300,000,000 shares of Common Stock authorized, of which
as of the date hereof, approximately 31,107,486 shares are issued and
outstanding. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c) which is attached hereto and made a part hereof, (i) no shares of
the Company's capital stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding shares of capital stock, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
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securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Debenture Registration Rights
Agreement), (v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries, (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Subscription Agreement, (vii)
the Company does not have any stock appreciation rights or "phantom stock" plans
or agreements or any similar plan or agreement and (viii) there is no dispute as
to the class of any shares of the Company's capital stock. The Company has
furnished to the Holder, or the Holder has had access through XXXXX to, true and
correct copies of the Company's Articles of Incorporation, as in effect on the
date hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS `), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
Holder thereof in respect thereto.
d. Issuance of Debentures. A sufficient number of Debentures issuable
pursuant to this Subscription Agreement, but not more than 4.99% of the shares
of Common Stock outstanding as of the date hereof (if the Company becomes listed
on Nasdaq or the American Stock Exchange), has been duly authorized and reserved
for issuance pursuant to this Subscription Agreement. Upon issuance in
accordance with this Subscription Agreement, the Debentures will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof. In the event the Company cannot register a
sufficient number of shares of Common Stock, due to the remaining number of
authorized shares of Common Stock being insufficient, the Company will use its
best efforts to register the maximum number of shares it can based on the
remaining balance of authorized shares and will use its best efforts to increase
the number of its authorized shares as soon as reasonably practicable.
e. No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
Articles of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or the
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By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree, including United States federal and state securities laws and
regulations and the rules and regulations of the principal securities exchange
or trading market on which the Common Stock is traded or listed (the "Principal
Market"), applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 3(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any
governmental authority or agency, regulatory or self-regulatory agency, or
court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Subscription Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
3(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.
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f. SEC Documents; Financial Statements. Since the date hereof, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the Securities and Exchange Commission ("SEC") pursuant
to the reporting requirements of the Securities and Exchange Act of 1934 ("1934
Act") (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Holder or its representatives, or
they have had access through XXXXX, to true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted 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. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Holder which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 3(d) of this Subscription Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstance under which they
are or were made, not misleading.
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g) or the
SEC Documents filed at least five (5) days prior to the date hereof, there has
been no change or development in the business, properties, assets, operations,
financial condition, results of operations or prospects of the Company or its
Subsidiaries which has had or reasonably could have a Material Adverse Effect.
The Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. Except as set forth in the Company's SEC filings,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
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pending or, to the knowledge of the executive officers of Company or any of its
Subsidiaries, threatened against or affecting the Company, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, in which an
adverse decision could have a Material Adverse Effect.
i. Acknowledgment Regarding the Purchase of Debentures. The Company
acknowledges and agrees that the Holder is acting solely in the capacity of an
arm's length investor with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Holder is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by the Holder
or any of its respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to the Holder's purchase of the Debentures. The Company
further represents to the Holder that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. Intentionally omitted.
k. Employee Relations. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the 0000 Xxx) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
l. Intellectual Property Rights. All patents, patent applications,
trademark registrations and applications for trademark registration held by the
Company are owned free and clear of all mortgages, liens, charges or
encumbrances whatsoever. No licenses have been granted with respect to these
items and the Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service xxxx registrations, trade secret or other similar rights of
others, and, except as set forth on Schedule 3(l), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service xxxx registrations, trade secret or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
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which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
m. Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
n. Title. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(n) or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its Subsidiaries.
Any real property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
o. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
p. Regulatory Permits. The Company and its Subsidiaries have in full force
and effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
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approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
q. Internal Accounting Controls. The Company and each of its Subsidiaries
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.
r. No Materially Adverse Contracts, Etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
s. Tax Status. The Company's consolidated 2004 federal income tax return,
the Company and each of its Subsidiaries has made or filed all United States
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has set
aside on its books provision reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
t. Certain Transactions. Except as set forth in the SEC Documents filed at
least ten days prior to the date hereof and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed on Schedule 3(c), none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
13
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 corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
u. Dilutive Effect. The Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Subscription Agreement will increase in certain circumstances including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines following the effective date of the registration statement
covering the Common Stock underlying the Debentures (the "Effective Date"). The
Company's executive officers and directors have studied and fully understand the
nature of the transactions contemplated by this Subscription Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Subscription Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
v. Additional Financings. Except for (i) shares issued pursuant to a
registration statement on Form S-8 for the payment of legal services provided by
the Company's SEC counsel; and (ii) shares issued pursuant to a registration
statement on Form S-8 as a normal course of the Company's existing employee
option program, provided the strike price of such option is at least $0.50, the
Company shall not, directly nor indirectly, without the prior written consent of
Holder, offer, sell, grant any option to purchase, or otherwise dispose of (or
announce any offer, sale, grant or any option to purchase or other disposition)
any of its Common Stock or securities convertible into Common Stock, or file any
registration statement, including those on Form S-8, for any securities (a
"SUBSEQUENT FINANCING") for a period of 360 (three hundred and sixty ) days
after the Effective Date. ("Lock Up Period")
During the twelve (12) month period following Closing, or if there is any
outstanding balance on the Debentures, the Holder shall retain a first right of
refusal for any additional financings. The Company must submit to the Holder a
duly authorized term sheet of the financing and the Holder may elect, in writing
within five (5) days, to exercise its right to finance the Company upon the same
terms and conditions. In the event the Holder chooses not to complete such
14
financing, the Company may proceed with the proposed third-party financing on
the same terms and conditions as contained in the notice to Holder. The Company
will file within three (3) business days any necessary documentation required by
the SEC to reflect the Holder's new position.
4. COVENANTS OF THE COMPANY
a. Best Efforts. The Company shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in this Subscription
Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense, make all
filings and reports relating to the offer and sale of the Debentures and the
Common Stock underlying the Debentures as required under the applicable
securities or "Blue Sky" laws of such states of the United States as specified
by the Holder.
c. Reporting Status. Until the earlier of (i) the date that the Holder may
sell all of the Common Stock underlying the shares acquired pursuant to this
Subscription Agreement without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto), or (ii) the date on which the Holder
shall have sold all the Common Stock underlying the Debentures, the Company
shall file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as a reporting company under
the 1934 Act.
d. Use of Proceeds. The Company shall use the entire proceeds from this
Debenture exclusively to further the growth and interest of the Company. Any
other use of the funds contemplated herein, shall be considered a breach of
contract and an event of Default.
e. Conditions to Closing, The Company shall sign the Transaction Documents
with Dutchess Private Equities Fund, II, L.P.
f. Financial Information. The Company agrees to make available to the
Holder via XXXXX or other electronic means the following: (i) within five (5)
business days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any Current
Reports on Form 8-K and any Registration Statements or amendments filed pursuant
to the 1933 Act; (ii) on the same day as the release thereof, facsimile copies
of all press releases issued by the Company or any of its Subsidiaries, (iii)
copies of any notices and other information made available or given to the
shareholders of the Company generally, contemporaneously with the making
15
available or giving thereof to the shareholders and (iv) within two (2) calendar
days of filing or delivery thereof, copies of all documents filed with, and all
correspondence sent to, the Principal Market, any securities exchange or market,
or the National Association of Securities Dealers, Inc.
g. Reservation of Common Stock. Subject to the following sentence, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Common Stock underlying the Debentures.
In the event that the Company determines that it does not have a sufficient
number of authorized shares of Common Stock to reserve and keep available for
issuance, the Company shall use its best efforts to increase the number of
authorized shares of Common Stock by seeking shareholder approval for the
authorization of such additional shares. The Holder shall have the right to
determine the amount of shares to be re-registered to satisfy the terms of the
Agreement. Such amount must be usual or customary.
h. Listing. The Company shall promptly secure the listing of all of the
Common Stock underlying the Debentures upon the Principal Market and each other
national securities exchange and automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and shall maintain, such listing. The Company shall maintain the Common Stock's
authorization for quotation on the Principal Market, unless the Holder and the
Company agree otherwise. Neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market (excluding suspensions of
not more than one trading day resulting from business announcements by the
Company). The Company shall promptly provide to the Holder copies of any notices
it receives from the Principal Market regarding the continued eligibility of the
Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section.
i. Transactions With Affiliates. The Company shall not, and shall cause
each of its Subsidiaries not to, enter into, amend, modify or supplement, or
permit any Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, shareholders who beneficially own five percent (5%) or
more of the Common Stock, or affiliates or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a five percent (5%) or more beneficial interest (each
a "RELATED PARTY") during the Lock Up Period; except for (i) customary
employment arrangements and benefit programs on reasonable terms (including
16
changes currently under discussion with the Company's Board of Directors
concerning the compensation, to be payable in stock, of the Chairman of the
Board), (ii) any agreement, transaction, commitment or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (iii) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a five percent (5%) or more equity interest in that person or entity,
(ii) has five percent (5%) or more common ownership with that person or entity,
(iii) Controls that person or entity, or (iv) shares common control with that
person or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
j. Corporate Existence. The Company shall use its commercially reasonable
best efforts to preserve and continue the corporate existence of the Company.
k. Notice of Certain Events Affecting Registration. The Company shall
promptly notify Holder upon the occurrence of any of the following events in
respect of a registration statement or related prospectus covering the Common
Stock underlying the Debentures: (i) receipt of any request for additional
information 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 the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of any registration statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Common Stock underlying the Debentures for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
registration statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of a registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
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
17
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate, and the Company
shall promptly make available to Holder any such supplement or amendment to the
related prospectus.
l. Indemnification. In consideration of the Holder's execution and delivery
of the this Agreement and the Debenture Registration Rights Agreement and
acquiring the Debentures hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Holder and all of their shareholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Debentures or (v) the status of the Holder as an investor in the Company,
except insofar as any such untrue statement, alleged untrue statement, omission
or alleged omission is made in reliance upon and in conformity with written
information furnished to the Company by the Holder which is specifically
intended by the Holder for use in the preparation of any such Registration
Statement, preliminary prospectus or prospectus. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The indemnity provisions contained herein shall be in addition to any cause of
action or similar rights the Holder may have, and any liabilities to which the
Holder may be subject.
m. Reimbursement. If (i) Holder, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Holder is impleaded in any such
18
action, proceeding or investigation by any person, or (ii) Holder, other than by
reason of its gross negligence or willful misconduct or by reason of its trading
of the Common Stock in a manner that is illegal under the federal securities
laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Holder is impleaded in any such
action, proceeding or investigation by any person, then in any such case, the
Company will reimburse Holder for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which Holder is a named party, the Company will pay to Holder
the charges, as reasonably determined by Holder, for the time of any officers or
employees of Holder devoted to appearing and preparing to appear as witnesses,
assisting in preparation for hearings, trials or pretrial matters, or otherwise
with respect to inquiries, hearing, trials, and other proceedings relating to
the subject matter of this Subscription Agreement. The reimbursement obligations
of the Company under this section shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any affiliates of Holder that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees, attorneys,
accountants, auditors and controlling persons (if any), as the case may be, of
Holder and any such affiliate, and shall be binding upon and inure to the
benefit of any successors of the Company, Holder and any such affiliate and any
such person.
n. Transfer Agent. The Company covenants and agrees that, in the event that
the Company's agency relationship with the transfer agent should be terminated
for any reason prior to the Maturity Date (as defined in the Debenture
Agreement), the Company shall immediately appoint a new transfer agent and shall
require that the new transfer agent execute and agree to be bound by the terms
of the Irrevocable Transfer Agent Instructions (as defined herein). The Company
shall be up to date with all payments to the transfer agent, and continue to pay
transfer agent as outlined in the Irrevocable Transfer Agent Agreement.
5. OPINION LETTER/BOARD RESOLUTION
Prior to or on the Closing Date the Company shall deliver to the Holder an
opinion letter signed by counsel for the Company in the form attached hereto as
Exhibit D. If the Company's counsel fails to provide a Rule 144 opinion letter
in a timely manner, then the Company shall: (a) pay the Investor's counsel to
write said Rule 144 opinion letter; and (b) instruct the designated transfer
agent to accept same Rule 144 Opinion letter. Also, prior to or on the Closing
Date the Company shall deliver to the Holder a signed Board Resolution
authorizing this Offering, which shall be attached hereto as Exhibit E.
19
6. DELIVERY INSTRUCTIONS; FEES
The Debentures being purchased hereunder shall be delivered to Dutchess
Private Equities Fund, L.P., II, on the Closing Date at which time funds will be
wired to the Company and the Debentures will be delivered to the Holder, per the
Holder's instructions.
7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company as
follows:
FOR ALL SUBSCRIBERS:
a. This Subscription may be rejected, in whole or in part, by the Company
in its sole and absolute discretion at any time before the date set for Closing
unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement and delivering it to Holder.
b. No U.S. federal or state agency or any agency of any other jurisdiction
has made any finding or determination as to the fairness of the terms of the
Offering for investment nor any recommendation or endorsement of the Debentures
or the Company.
c. The representations, warranties and agreements of the undersigned and
the Company contained herein shall be true and correct in all material respects
on and as of the date of the sale of the Debentures as if made on and as of such
date and shall survive the execution and delivery of this Subscription Agreement
and the purchase of the Debentures.
d. In making an investment decision, Holders must rely on their own
examination of the Company and the terms of the Offering, including the merits
and risks involved. The shares have not been recommended by any federal or state
securities commission or regulatory authority. Furthermore, the foregoing
authorities have not confirmed the accuracy or determined the adequacy of this
document. Any representation to the contrary is a criminal offense.
e. The Offering is intended to be exempt from registration by virtue of
Section 4(2) of the 1933 Act and the provisions of Regulation D thereunder,
which is in part dependent upon the truth, completeness and accuracy of the
statements made by the undersigned herein and in the Questionnaire.
f. It is understood that in order not to jeopardize the Offering's exempt
status under Section 4(2) of the 1933 Act and Regulation D, any Holder may, at a
minimum, be required to fulfill the investor suitability requirements
thereunder.
20
g. The shares may not be resold except as permitted under the securities
act and applicable state securities laws, pursuant to registration or exemption
therefrom. Holder should be aware that they will be required to bear the
financial risks of this investment for an indefinite period of time.
8. DISPUTES SUBJECT TO ARBITRATION GOVERNED BY MASSACHUSETTS LAW
a. All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
9. MISCELLANEOUS.
a. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Subscription Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Xxxxxx Xxxxx
0000 Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxx Xxxxxx XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a Copy to:
Xxxxxx X. Xxxxxx
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
1065 Avenue of the Xxxxxxxx, 00xx xxx.
Xxx Xxxx, XX 00000
21
If to the Holder:
At the address listed in the Questionnaire.
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
b. All pronouns and any variations thereof used herein shall be deemed to
refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
c. Neither this Subscription Agreement nor any provision hereof shall be
waived, modified, changed, discharged, terminated, revoked or canceled, except
by an instrument in writing signed by the party effecting the same against whom
any change, discharge or termination is sought.
d. Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered or sent
by facsimile transmission: (i) if to the Company, at it's executive offices or
(ii) if to the Holder, at the address for correspondence set forth in the
Questionnaire, or at such other address as may have been specified by written
notice given in accordance with this paragraph.
e. This Subscription Agreement shall be enforced, governed and construed in
all respects in accordance with the laws of the Commonwealth of Massachusetts,
as such laws are applied by Massachusetts courts to agreements entered into, and
to be performed in, Massachusetts by and between residents of Massachusetts, and
shall be binding upon the undersigned, the undersigned's heirs, estate and legal
representatives and shall inure to the benefit of the Company and its
successors. If any provision of this Subscription Agreement is invalid or
unenforceable under any applicable statue or rule of law, then such provisions
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
provision hereof that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision hereof.
f. This Agreement shall not be assignable.
g. This Subscription Agreement, together with Exhibits A, B, C, D and E
attached hereto and made a part hereof, constitute 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 hereto.
h. This Subscription Agreement may be executed in two or more counterparts,
all of which taken together shall constitute one instrument. Execution and
delivery of this Subscription Agreement by exchange of facsimile copies bearing
22
the facsimile signature of a party shall constitute a valid and binding
execution and delivery of this Subscription Agreement by such party. Such
facsimile copies shall constitute enforceable original documents.
10. TRANSFER AGENT INSTRUCTIONS
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Dutchess Capital Management, LLC and its
managing members ("DCM"), as its agent for purpose of having certificates
issued, registered in the name of the Holder or its respective nominee(s), for
the issuance of Shares representing such amounts from the respective for
conversions or warrants, as specified from time to time by the Holder to the
Company upon the Conversion Date (as defined in the Debenture Agreement), and
for any and all Liquidated Damages, if any (as this term is defined in the
Debenture Registration Rights Agreement). DCM shall be paid a cash fee of Fifty
Dollars ($50) for every occasion they act pursuant to the Irrevocable Transfer
Agent Instructions. The Company shall not change its transfer agent without the
express written consent of the Holder, which may be withheld by the Holder in
its sole discretion. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 10, will be
given by the Company to its transfer agent and that the issuance of Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Debenture Registration Rights
Agreement. Nothing in this Section 10 shall affect in any way the Holder's
obligations and agreement to comply with all applicable securities laws upon
resale of Shares. If the Holder provides the Company with an opinion of counsel,
in form, scope and substance customary for opinions of counsel in comparable
transactions to the effect that registration of a resale by the Holder of any of
the Conversion Shares is not required under the 1933 Act, the Company shall
within two (2) business days instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Holder.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holder by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 10 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 10, that the Holder shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
23
11. WAIVER:
The Holder's delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants shall
not waiver, affect, or diminish any right of the Holder under this Agreement to
demand strict compliance and performance herewith. Any waiver by the Holder of
any Event of Default shall not waive or affect any other Event of Default,
whether such Event of Default is prior or subsequent thereto and whether of the
same or a different type. None of the undertakings, agreements and covenants of
the Company contained in this Agreement, and no Event of Default, shall be
deemed to have been waived by the Holder, nor may this Agreement be amended,
changed or modified, unless such waiver, amendment, change or modification is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Holder.
12. WAIVER OF JURY TRIAL.
AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT,
THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER
DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
24
UNION DENTAL HOLDINGS, INC.
QUESTIONNAIRE
The information contained in this Questionnaire is being furnished in order
to determine whether the undersigned's subscription to purchase the Debentures
described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned understands, however, that the Company may
present this Questionnaire to such parties as it deems appropriate if called
upon to establish that the proposed offer and sale of the Securities is exempt
from registration under the 1933 Act, as amended. Further, the undersigned
understands that the offering is required to be reported to the Securities and
Exchange Commission, NASDAQ and to various state securities and "blue sky"
regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY THE COMPANY, THE
UNDERSIGNED MUST COMPLETE FORM W-9.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES.
[_] 1. The undersigned: (a) has total assets in excess of $5,000,000; (b) was
not formed for the specific purpose of acquiring the securities and (c) has
its principal place of business in ___________.
[_] 2. The undersigned is a natural person whose individual net worth* or joint
net worth with his or her spouse exceeds $1,000,000.
[_] 3. The undersigned is a natural person who had an individual income* in
excess of $200,000 in each of the two most recent years and who reasonably
expects an individual income in excess of $200,000 in the current year.
Such income is solely that of the undersigned and excludes the income of
the undersigned's spouse.
[_] 4. The undersigned is a natural person who, together with his or her
spouse, has had a joint income* in excess of $300,000 in each of of the two
most recent years and who reasonably expects a joint income in excess of
$300,000 in the current year.
---------
* For purposes of this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In determining "income", an investor should
add to his or her adjusted gross income any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to XXX or Xxxxx retirement plan,
alimony payments and any amount by which income from long-term capital gains has
been reduced in arriving at adjusted gross income.
25
5. The undersigned is:
[_] (a) a bank as defined in Section 3(a)(2) of the 1933 Act; or
[_] (b) a savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the 1933 Act whether acting in its individual or
fiduciary capacity; or
[_] (c) a broker or dealer registered pursuant to Section 15 of the 1934
Act; or
[_] (d) an insurance company as defined in Section 2(13) of the 1933 Act;
or
[_] (e) An investment company registered under the Investment Company Act
of 1940 or a business development company as defined in Section
2(a)(48) of the Investment Company Act of 1940; or
[_] (f) a small business investment company licensed by the U.S. Small
Business Administration under Section 301 (c) or (d) of the Small
Business Investment Act of 1958; or
[X] 6. The undersigned is an entity in which all of the equity owners are
accredited investors.
26
II. HOLDER INFORMATION.
Name of Entity Dutchess Private Equities Fund, II, L.P._
-----------------------------------------
Person's Name Xxxxxxx Xxxxxxxx Title:Managing Member
State of Organization Delaware
------------
Principal Business Address 000 Xxxxxx Xx, Xxxxx Xxxxx
--------------------------
Xxxx, Xxxxx, Zip Code Xxxxxx, XX 00000
----------------
Taxpayer Identification Number _____________________
Phone 000-000-0000 Fax 000-000-0000
------------ ---------------
Send Correspondence to:
-----------------------------------------------
27
UNION DENTAL HOLDINGS, INC.
SIGNATURE PAGE
Your signature on this Signature Page evidences your agreement to be bound
by the Questionnaire, Subscription Agreement and Debenture Registration Rights
Agreement.
1. The undersigned hereby represents that (a) the information contained in
the Questionnaire is complete and accurate and (b) the undersigned will notify
Company immediately if any material change in any of the information occurs
prior to the acceptance of the undersigned's subscription and will promptly send
Company written confirmation of such change.
2. The undersigned signatory hereby certifies that he/she has read and
understands the Subscription Agreement and Questionnaire, and the
representations made by the undersigned in the Subscription Agreement and
Questionnaire are true and accurate.
$600,000 August 17, 2005
------------------------------ ------------------------
Amount of Debentures being purchased Date
By: /s/ Xxxxxxx Xxxxxxxx
-----------------------------------------------
(Signature)
Name: Xxxxxxx Xxxxxxxx
----------------------------------------------
(Please Type or Print)
Title: Managing Member,
Dutchess Capital Management, LLC;
General Partner to:
Dutchess Private Equities Fund, LP
and Dutchess Private Equities Fund II, LP
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(Please Type or Print)
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COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted and agreed to this 17th day of August,
2005.
By UNION DENTAL HOLDINGS, INC. and duly authorized to sign on behalf of the
Company:
By /s/ Xxxxxx Xxxxx
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Xxxxxx Xxxxx, CEO
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LIST OF EXHIBITS
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EXHIBIT A Notice of Conversion
EXHIBIT B Debenture Registration Rights Agreement
EXHIBIT C Debenture Agreement
EXHIBIT D Opinion of Company's Counsel
EXHIBIT E Board Resolution
LIST OF SCHEDULES
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Schedule 3(a) Subsidiaries
Schedule 3(c) Capitalization
Schedule 3(e) Conflicts
Schedule 3(g) Material Changes
Schedule 3(h) Litigation
Schedule 3(l) Intellectual Property
Schedule 3(n) Liens
Schedule 3(t) Certain Transactions
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Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Owner in order to Convert Debenture)
The undersigned hereby irrevocably elects, as of ________________, to
convert $________________ of its convertible debenture (the "Debenture") into
Common Stock of Union Dental Holdings, Inc. (the "Company") according to the
conditions set forth in the Debenture issued by the Company.
Date of Conversion________________________________________________
Applicable Conversion Price________________________________________
Number of Debentures Issuable upon this Conversion_______________________
Name(Print) Dutchess Private Equities Fund, II, LP
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Address 000 Xxxxxx Xx, 0xx Xxxxx
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Phone 000-000-0000 Fax 000-000-0000
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By:_______________________________________
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EXHIBIT D OPINION OF COMPANY'S COUNSEL
Holders of [Company] [Describe Securities] _______________, 2005
Re: UNION DENTAL HOLDINGS, INC.
Ladies and Gentlemen:
As counsel to UNION DENTAL HOLDINGS, INC. (the "Company"), we are familiar
with its Articles of Incorporation and Bylaws and with the corporate proceedings
taken by it in connection with the proposed issuance and sale of convertible
debentures (the "Securities") pursuant to the related Subscription Agreement
(including all Exhibits and Appendices thereto) (collectively the "Agreements").
We have been furnished with copies, certified or otherwise identified to
our satisfaction, of the Agreements, and have examined such other documents,
agreements and records as we deemed necessary to render the opinions set forth
below.
In conducting our examination, we have assumed the following: (i) that each
of the Agreements has been executed by each of the parties thereto in the same
form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and accuracy
of all documents submitted to us as originals, and the conformity to originals
of all documents submitted to us as copies, (iii) that each of the Agreements
has been duly and validly authorized, executed and delivered by the party or
parties thereto other than the Company, and (iv) that each of the Agreements
constitutes the valid and binding agreement of the party or parties thereto
other than the Company, enforceable against such party or parties in accordance
with the Agreements' terms.
Based upon the subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Texas, and has all
requisite corporate power and authority to own its properties and conduct its
business.
2. The authorized capital stock of the Company consists of _______ shares
of Common Stock, .0001 par value per share, ("Common Stock").
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3. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a) or
15(d) of such Act for a period of at least twelve months preceding the date
hereof;
4. When duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities [and any Common Stock to be issued upon the conversion of the
Securities] as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5 The Company has the requisite corporate power and authority to enter into
the Subscription Agreement and to sell and deliver the Securities and the Common
Stock to be issued upon the conversion of the Securities as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by the Company to our knowledge, no approval of any
governmental or other body is required for the execution and delivery of each of
the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors rights generally, and except as to compliance with federal,
state, and foreign securities laws, as to which no opinion is expressed;
6. To the best of our knowledge, after due inquiry, the execution, delivery
and performance of the Subscription Agreement and Securities by the Company and
the performance of its obligations thereunder do not and will not constitute a
breach or violation of any of the terms and provisions of, or constitute a
default under or conflict with or violate any provision of (i) the Company's
Certificate of Incorporation or By-Laws, (ii) any indenture, mortgage, deed of
trust, agreement or other instrument to which the Company is party or by which
it or any of its property is bound, (iii) any applicable statute or regulation
or as other, (iv) or any judgment, decree or order of any court or governmental
body having jurisdiction over the Company or any of its property.
7. To the best of our knowledge, after due inquiry, there is no pending or
threatened litigation, investigation or other proceedings against the Company
[except as described in Exhibit A hereto].
8. The Company complies with the eligibility requirements for the use of
Form SB-2, under the Securities Act of 1933, as amended.
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This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the Commonwealth of Massachusetts and does not include an interpretation or
statement concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Subscription Agreement and Securities may be governed by
the laws of other states, we have assumed that such laws are identical in all
respects to the laws of the Commonwealth of Massachusetts.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Subscription Agreement and
Securities and may not be relied upon by any other person or entity or for any
other purpose without our prior consent.
Very truly yours,
By:
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RESOLUTIONS OF THE BOARD OF DIRECTORS
Of Union Dental Holdings, Inc.
Effective August 17, 2005
The undersigned Directors of Union Dental Holdings, Inc, Inc. (the "Company")
takes the following actions by consent with a meeting.
IT HAS BEEN RESOLVED:
The officers of the Company are instructed to take all actions necessary to
execute, deliver, and perform the steps required of the Company in connection
with registration of shares pursuant to the Debenture Agreement, Warrant
Agreement and Subscription Agreement of even date. All shares have been fully
paid and should be issued without restrictive legend, or if the shares have been
not registered for sale under the Securities Act of 1933, as amended, then the
certificates shall be marked with proper legend.
FURTHER, IT HAS BEEN RESOLVED:
That each member of the Board jointly and individual hereby agree not to issue a
stop transfer order on any of the shares defined herein, if the to Dutchess
Private Equities Fund, II, LP. ("Dutchess")
FURTHER, IT HAS BEEN FURTHER RESOLVED:
The officers do hereby consent to the appointment of Xxxxxxx Xxxxxxxx of
Dutchess Capital Management, LLC to issue shares pursuant to the shares due to
the Holder as outlined in the Irrevocable Transfer Agent Agreement solely for
the benefit of Dutchess.
FURTHER, IT HAS BEEN RESOLVED:
That the board has given the requisite authority for the Company to enter into
the Subscription Agreement, Warrant Agreement, Security Agreement, Debenture
Agreement, Debenture Registration Rights Agreement, Stock Transfer Agent
Agreement, Investment Agreement and Equity Line Registration Rights Agreement
(collectively, the "Transaction Documents") with Dutchess Private Equities Fund,
II, LP ("Dutchess") dated August 17, 2005
FURTHER, IT HAS BEEN RESOLVED:
That in the event counsel for the Company is unable to write an opinion
regarding the issuance of Shares for any of the Transactions Documents, where
required, that the Transfer Agent shall accept the opinion of the Holder's
counsel.
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FURTHER, IT HAS BEEN RESOLVED:
That the board shall issue up to 1,304,348 shares of Common Stock pursuant to
the Warrant Agreement between the Company and Dutchess; and, up to the amount of
shares registered for resale in the SB-2 filed for Dutchess' underlying
Debentures.
This resolution is signed by the Board, to be effective as of August 17, 2005
Date: August 17, 2005
/s/ Dr. Xxxxxx Xxxxx
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BY: Dr. Xxxxxx Xxxxx, CEO & Chairman
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SCHEDULE 3(a) SUBSIDIARIES
None.
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SCHEDULE 3(c) CAPITALIZATION
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SCHEDULE 3(e) CONFLICTS
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SCHEDULE 3(g) MATERIAL CHANGES
None
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SCHEDULE 3(h) LITIGATION
NONE, EXCEPT AS DISCLOSED IN THE COMPANY'S SEC FILINGS.
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SCHEDULE 3(l) INTELLECTUAL PROPERTY
None
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SCHEDULE 3(n) LIENS
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SCHEDULE 3(t) CERTAIN TRANSACTIONS
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