SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made and entered into as
of May 20, 2004, by and between Adzone Research, Inc., a Delaware corporation
(the "Company"), and The Nutmeg Group, L.L.C., a US Virgin Islands limited
liability company (the "Purchaser").
1. Subscription. Subject to the terms and conditions contained herein, the
Purchaser hereby agrees to purchase from the Company, and the Company hereby
agrees to issue and sell to the Purchaser, a certain number of shares of the
Company's Common Stock (the "Common Stock"), and warrants to purchase additional
shares of Common Stock (the Common Stock and warrants referred to as the
"Securities"), for an aggregate purchase price of up to $1,750,000 (the
"Purchase Price"). The number of shares issuable to Nutmeg (the "Applicable
Number") will equal the Purchase Price by Nutmeg, divided by the lesser of:
(a) $.20, or
(b) fifty-seven percent (57%) of the average closing bid price for Common
Stock on the two trading days immediately prior to Closing of such traunche, or
(c) fifty-seven percent (57%) of the average closing bid price for Common
Stock on the two trading days immediately prior to the date on which the
registration statement (as described in the Registration Rights Agreement) is
declared effective,
(the lesser of (a), (b) and (c) being hereinafter referred to as the
"Fixed Price").
Purchaser will be issued Warrants (hereinafter "Warrants") exercisable
into such number of shares of Common Stock as is equal to 50% of the Purchase
Price paid by Nutmeg, divided by the Fixed Price. The Common Stock into which
the Warrants are exercisable will have piggyback registration rights, and the
Warrants will be transferable. Unexercised Warrants will expire December 31,
2008 ("Warrant Expiration Date"). Warrants will be exercisable into Common Stock
at a price equal to 125% of fifty-seven percent (57%) of the average closing bid
price for Common Stock on the two trading days immediately prior to the filing
with the Securities and Exchange Commission of the registration statement (as
described in the Registration Rights Agreement).
The $1,750,000 Purchase Price will be payable by Purchaser, in three
traunches. The first traunche will be a minimum of $400,000 and shall occur no
later than May 20, 2004. The second traunche will be an amount equal to
$1,000,000 minus the amount of funds received from the first traunche and shall
occur no later than June 4, 2004. The third traunche will be at the option of
the Company for an amount of $750,000 and shall occur within 5 days of the date
on which the registration statement registering the Securities is declared
effective.
Conditioned upon the Closing, Nutmeg will receive at each Closing: a fixed
non-accountable allowance to cover due diligence expenses of one percent (1%) of
the total amount raised pursuant to such Closing, plus a flat non-accountable
expense allowance of $10,000 to cover legal, escrow fees and miscellaneous
costs. At the election of Nutmeg, or its designees, any or all of the foregoing
compensation and expense allowances can be taken in kind, pursuant to the same
terms and conditions as that of an investment herein, for a like amount.
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Nutmeg or its designee shall also be entitled to a commission of 5% of any
and all amounts received, directly or indirectly, by the Company and/or its
principals as a consequence of a merger, license or any other similar
arrangement or remuneration as a consequence of the efforts of Nutmeg or its
designee or agent. All references to the "Company" shall include associates, and
any individual, corporation, organization, firm or company, of which the Company
is a member, employee, principal, party to, or from which such it would
otherwise benefit financially, directly or indirectly.
Closing. The closing (the "Closing") of the purchase and sale of the
Securities shall take place at the offices of the Company, the Company will
deliver to the Purchaser certificates for the Shares and the warrant agreement
against payment to the Company of the Purchase Price by wire transfer or other
acceptable consideration designated by the Company.
Conditions to Obligations of the Purchaser. The Purchaser's obligation to
purchase the Securities at the Closing is subject to the fulfillment (or waiver
by the Purchaser), at or prior to the Closing, of each of the following
conditions:
Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects at the time of the Closing, except
as such representations and warranties are affected by the consummation of the
transactions contemplated by this Agreement.
Performance by the Company. The Company shall have duly performed and
complied in all material respects with all agreements and conditions contained
in this Agreement and required to be performed or complied with by the Company
at or prior to the Closing.
Nonfulfillment of Conditions. If any of the conditions specified in
Section 3 shall not have been fulfilled at or prior to the Closing, the
Purchaser shall be relieved of all further obligations under this Agreement,
without thereby waiving any other rights the Purchaser may have by reason of
such nonfulfillment.
Conditions to Obligations of the Company. The obligations of the Company
to issue and sell the Securities to the Purchaser at the Closing shall be
subject to the fulfillment (or waiver by the Company), at or prior to the
Closing, of each of the following conditions:
1.1 Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties made by the Purchaser in this Agreement shall be
true and correct in all material respects when made and at the time of the
Closing.
1.2 Performance by the Purchaser. The Purchaser shall have duly performed
and complied in all material respects with all agreements and conditions
contained in this Agreement and required to be performed or complied with by the
Purchaser at or prior to the Closing, including but not limited to payment to
the Company of the Purchase Price for the Securities in immediately available
funds.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Purchaser as follows:
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2.1 Corporate Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation and has all requisite corporate power and authority to own or
lease its properties and to carry on its business as presently conducted.
2.2 Authorization. This Agreement and the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly executed and delivered by the Company, and
are the legal, valid and binding obligations of the Company, enforceable against
it in accordance with their terms.
2.3 No Conflict or Violation. Subject to the Company obtaining stockholder
approval to increase its authorized common stock, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (a) violate, conflict with or result in a breach of or
constitute a default under any provision of the Certificate of Incorporation or
Bylaws of the Company, (b) violate, conflict with or result in a breach of or
constitute a default under any judgment, order, decree, rule or regulation of
any court or governmental agency to which the Company is subject or (c) violate,
conflict with or result in a breach of any applicable rule or regulation of any
federal, state, local or other governmental authority.
2.4 Stock. The Securities to be issued to the Purchaser pursuant to this
Agreement are duly authorized and, when issued and paid for in accordance with
the terms of this Agreement, will be validly issued, fully paid and
nonassessable.
3. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company that:
3.1 Authorization. The Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of the USVI and
has all requisite power and authority to execute and deliver this Agreement and
to subscribe for and purchase the Securities hereunder. This Agreement and the
transactions contemplated hereby and thereby have been duly authorized by all
necessary limited liability company action on the part of the Purchaser. This
Agreement has been duly executed and delivered by the Purchaser, and is the
legal, valid and binding obligations of the Purchaser, enforceable against it in
accordance with their terms.
3.2 No Conflict or Violation. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate, conflict with or result in a breach of or constitute a default
under any provision of the limited liability company agreement of the Purchaser,
(b) violate, conflict with or result in a breach of or constitute a default
under any judgment, order, decree, rule or regulation of any court or
governmental agency to which the Purchaser is subject or (c) violate, conflict
with or result in a breach of any applicable rule or regulation of any federal,
state, local or other governmental authority.
3.3 Access to Information; Investigation. The Purchaser made, either alone
or together with its advisors ------------------------------------ (if any),
such independent investigation of the Company, its management and related
matters as the Purchaser deemed to be, or such advisors (if any) have advised to
be, necessary or advisable in connection with an investment in the Securities.
The Purchaser and its advisors (if any) have received all information and data
that the Purchaser and such advisors (if any) believe to be necessary in order
to reach an informed decision as to the advisability of an investment in the
Shares..
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3.4 Information Regarding the Purchaser. The Purchaser is (a) not an
"underwriter" within the meaning of the Securities Act of 1933 or otherwise, and
(b) not otherwise acting as a placement agent, broker or dealer in connection
with its acquisition of the Securities. distribution.
3.5 Investment Intent. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Purchaser's right, subject to the provisions of this
Agreement, at all times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the Securities
Act or under an exemption from such registration and in compliance with
applicable federal and state securities laws. Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. Such Purchaser does
not have any agreement or understanding, directly or indirectly, with any Person
to distribute any of the Securities.
3.6 Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants or receives any shares of Common Stock it will be, an
"accredited investor" as defined in Rule 501(a) under the Securities Act. Such
Purchaser has not been formed solely for the purpose of acquiring the
Securities. Such Purchaser is not a registered broker-dealer under Section 15 of
the Exchange Act.
3.7 Experience of such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
3.8 General Solicitation. Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities 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.
t 6 0 3.9 Reliance on Representations and Warranties of the Purchaser. The
Purchaser understands and acknowledges that the Company is relying on the
representations and warranties made by the Purchaser in this Agreement in
connection with the transactions contemplated hereby.
3.10 Indemnification. Each party (the "Indemnifying Party") will indemnify
and hold the other parties and their directors, officers, shareholders,
partners, employees and agents (each, an "Indemnified 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 that any such
Indemnified Party may suffer or incur as a result of or relating to any breach
of any of the representations, warranties, covenants or agreements made by the
Indemnifying Party in this Agreement. If any action shall be brought against any
Indemnified Party in respect of which indemnity may be sought pursuant to this
Agreement, such Indemnified Party shall promptly notify the Indemnifying Party
in writing, and the Indemnifying Party shall have the right to assume the
defense thereof with counsel of its own choosing. Any Indemnified Party shall
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have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party except to the extent that (i) the employment
thereof has been specifically authorized by the Indemnifying Party in writing,
(ii) the Indemnifying Party has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Indemnifying Party and the position
of such Indemnified Party. The Indemnifying Party will not be liable to any
Indemnified Party under this Agreement (i) for any settlement by an Indemnified
Party effected without the Indemnifying Party's prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but only
to the extent that a loss, claim, damage or liability is attributable to any
Indemnified Party's breach of any of the representations, warranties, covenants
or agreements made by the Purchasers in this Agreement.
4. Amendments and Waivers. This Agreement may be amended and the
observance of any provision hereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of each party to be bound thereby. No provision of this
Agreement shall be deemed to have been waived, unless such waiver is contained
in a written notice given to the party claiming such waiver, and no such waiver
shall be deemed to be a waiver of any other or further obligation or liability
of the party or parties in whose favor the waiver was given.
5. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by the Purchaser or by the
Company in connection with the transactions contemplated by this Agreement shall
survive the Closing Date and shall remain in full force and effect for three
years thereafter. All covenants and agreements contained in this Agreement shall
survive the Closing Date indefinitely until, by their respective terms, they are
no longer operative. No claims shall be made after the date on which the
applicable representation or warranty upon which such claim was based ceases to
survive pursuant to this Section; provided, however, that the expiration of any
representation or warranty under this Section shall not affect any claim made in
good faith prior to the date of such expiration.
6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.
7. Notices. All notices, requests, demands and other communications given
hereunder (collectively, "Notices") shall be in writing and delivered personally
or by overnight courier to the parties at the following addresses or sent by
telecopier or telex, with confirmation received, to the telecopy specified
below:
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If to the Company, at:
Xxxxxxx Xxxxxxx
Adzone Research, Inc.
0000 Xxxxxxx Xxxx
Xxx 000
Xxxxxxxxx, XX 00000
With copy to:
XXXXXX X. XXXXXX, ESQ.
SICHENZIA XXXX XXXXXXXX XXXXXXX LLP
1065 Avenue of the Americas, 00xx xxx.
Xxx Xxxx, Xxx Xxxx 00000
tel: 000-000-0000
fax:000-000-0000
xxxxxxxx@xxxxxxx.xxx
If to the Purchaser, at:
Xxxxxxx X. Xxxxxxxx
The Nutmeg Group, L.L.C.
0000 Xxxxxxxxxx
Xxxxxxxxxx XX 00000
Phone:(000) 000-0000; Fax:(000) 000-0000
All Notices shall be deemed delivered when actually received if delivered
personally or by overnight courier, sent by telecopier or telex (promptly
confirmed in writing), addressed as set forth above. Each of the parties shall
hereafter notify the other in accordance with this Section, of any change of
address or telecopy number to which notice is required to be mailed.
8. Governing Law; Enforcement. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois applicable to contracts made in that state, without giving effect to
the conflicts of laws principles thereof. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties are entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Illinois or in Illinois state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any federal court located in the State of Illinois
or any Illinois state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal or state court sitting in the
State of Illinois.
9. Disputes. The parties agree to submit any dispute arising under this
Agreement to arbitration to be held in Illinois. Arbitration shall be by a
single arbitrator experienced in the matters at issue selected by the parties in
accordance with the commercial arbitration rules of the Better Business Bureau
or the American Arbitration Association. The decision of the arbitrator shall be
final and binding as to any matter submitted to him under this Agreement. All
costs and expenses incurred in connection with such arbitration proceeding shall
be borne by the party against whom the decision is rendered.
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10. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
11. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall constitute one and the same instrument.
12. Entire Agreement. This Agreement and the Letter Agreement constitute
the entire agreement of the parties with respect to the subject matter hereof
and supersede all prior negotiations, agreements and understandings, whether
written or oral, of the parties.
13. No Third-Party Rights. This Agreement is not intended, and shall not
be construed, to create any rights in any parties other than the Company and the
Purchaser and no person shall assert any rights as third-party beneficiary
hereunder.
14. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
ADZONE RESEARCH, INC.:
By:
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Its:
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THE NUTMEG GROUP, L.L.C.
By:
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Its:
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