CONFIDENTIAL SUBSCRIPTION AGREEMENT SKINNY NUTRITIONAL CORP. Private Sale of Securities Consisting of up to 41,666,667 Shares of Common Stock Aggregate Offering Amount: $2,500,000
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_______________________
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____________________
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Name
of Subscriber
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Agreement
No.
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CONFIDENTIAL
SUBSCRIPTION AGREEMENT
Private
Sale of Securities
Consisting
of up to 41,666,667 Shares of Common Stock
Aggregate
Offering Amount: $2,500,000
THIS
SUBSCRIPTION AGREEMENT CONTAINS MATERIAL NONPUBLIC INFORMATION CONCERNING SKINNY
NUTRITIONAL CORP. AND IS PREPARED SOLELY FOR THE USE OF THE OFFEREE NAMED
ABOVE. ANY USE OF THIS INFORMATION FOR ANY PURPOSE OTHER THAN IN
CONNECTION WITH THE CONSIDERATION OF AN INVESTMENT IN THE SECURITIES OFFERED
HEREBY MAY SUBJECT THE USER TO CRIMINAL AND CIVIL LIABILITY.
THE SECURITIES OFFERED HEREBY ARE
HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE DILUTION AND
MAY BE PURCHASED ONLY BY PERSONS WHO QUALIFY AS “ACCREDITED INVESTORS” UNDER
RULE 501 (a) OF REGULATION D UNDER THE SECURITIES ACT.
THIS DOCUMENT HAS NOT BEEN FILED WITH
OR REVIEWED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER
COMMISSION OR REGULATORY AUTHORITY, AND HAS NOT BEEN FILED WITH OR REVIEWED BY
THE ATTORNEY GENERAL OF ANY STATES NOR HAS ANY SUCH COMMISSION, AUTHORITY OR
ATTORNEY GENERAL DETERMINED WHETHER IT IS ACCURATE OR COMPLETE OR PASSED UPON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
0 Xxxx
Xxxxx Xxxx, Xxxxx 000
Xxxx
Xxxxxx, Xxxxxxxxxxxx 00000
Tel.
(000)
000-0000
August
31, 2009
CONFIDENTIAL
SUBSCRIPTION AGREEMENT
INSTRUCTIONS:
Items to
be delivered by all Investors:
a.
One
(1) completed and executed Subscription Agreement, including the Investor
Questionnaire.
b.
Payment
in the amount of subscription, by wire transfer of funds or check. All checks
should be made payable to “Xxxxxx & Xxxxxxxxx, LLP escrow account for Skinny
Nutritional Corp.” in the total amount of the Securities subscribed
for.
c.
Wired
funds should be directed as follows:
Signature
Bank
000
Xxxxxxx Xxxxxx
Xxx Xxxx,
Xxx Xxxx 00000
THE
SUBSCRIBER IS RESPONSIBLE FOR ALL WIRE TRANSFER FEES IMPOSED BY THE SUBSCRIBER’S
BANK.
ALL
DOCUMENTS SHOULD BE RETURNED TO:
c/x
Xxxxxx & Poliakoff, LLP
00
Xxxxxxxx, 00xx
Xxxxx
Xxx Xxxx,
Xxx Xxxx 00000
THE
FOLLOWING EXHIBITS ARE ANNEXED TO
AND
FORM PART OF THIS SUBSCRIPTION AGREEMENT:
EXHIBIT
A: INVESTOR QUESTIONNAIRE
2
The
undersigned (the “Subscriber” or the
“Purchaser”)
hereby subscribes to purchase from Skinny Nutritional Corp., a Nevada
corporation (the “Company”), certain of
the Company’s securities, as described herein, for a total purchase price of
$2,500,000 (the “Purchase Price”). The
Company is offering hereby (the “Offering”) a maximum
of 41,666,667 shares of its Common Stock (the “Common
Shares”).
Article
I
SALE OF
SECURITIES
1.1 Sale
of Securities; Offering Period
(a) Subject
to the terms and conditions hereof and on the basis of the representations and
warranties hereinafter set forth, the Company hereby agrees to issue and sell to
the Subscriber and the Subscriber agrees to purchase from the Company, upon
Closing, the Common Shares as described herein for the Purchase Price as set
forth on the signature page of this Subscription Agreement executed by the
Subscriber. The number of Common Shares purchased hereunder by a Subscriber
shall be as specified on the signature page of this Subscription Agreement
executed by the Subscriber. The Company may reject any subscription in whole or
in part. The securities being offered consist of a total of up to 41,666,667
Common Shares, par value $0.001 per share. The Common Shares are being offered
at a purchase price of $0.06 per share (the “Purchase Price”) for
a minimum subscription amount of $20,000 (333,333 Common Shares), unless waived
by the Company. This Offering is only being made to “accredited investors” (as
defined in Rule 501 under the Securities Act of 1933, as amended (the “Securities Act”)) in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act and/or Regulation D promulgated thereunder, and on similar
exemptions under applicable state laws. The Common Shares may be purchased, in
part or their entirety, by officers and directors of the Company. The
Common Shares may be referred to herein as the “Securities”.
(b) The
Common Shares are being offered during the offering period commencing on the
date set forth on the cover page of this Subscription Agreement and terminating
on the earlier of (a) 5:00 p.m. (New York time) on December 31, 2009, or (b) the
date on which all Common Shares authorized for sale have been sold (the “Offering
Period”).
1.2 High Risk Investment. This
investment is speculative and should only be made by investors who can afford
the risk of loss of their entire investment. The proceeds from the sale of the
Common Shares will be used to fund short term capital needs to enable the
Company to maintain operations until additional funding is received. The Company
may sell additional securities after the completion of this transaction to
further fund its operations. Unless the Company is successful in completing
these additional funding transactions, or is able to generate sufficient revenue
from operations, the Company may be forced to significantly curtail its
operations and the Subscribers will lose their entire investment.
1.3 Selling Agent Compensation.
The Company intends to engage registered broker-dealers to serve as selling
agents (the “Selling
Agents”) for the sale of the Common Shares and pay commissions and other
compensation to the Selling Agents who procure purchasers of the Common Shares.
We will pay and issue to each Selling Agent a warrant (the “Agent Warrants”) to
purchase such number of Common Shares as equals 10% of the total number of
Common Shares actually sold in the Offering to Subscribers procured by each
Selling Agent. Agent Warrants shall be exercisable at the per share price of
$0.07 for a period of five years from the date of issuance.
3
Summary
of Offering
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Offering Summary:
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The
Company is offering a maximum of 41,666,667 Common Shares solely to
accredited investors on a best efforts
basis.
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Minimum
Subscription:
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The
minimum subscription amount for the Common Shares is $20,000, although the
Company may accept subscriptions in lesser amounts in its sole
discretion.
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Piggyback Registration
Rights:
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Subscribers
shall be entitled to the piggyback registration rights applicable to the
Common Shares, as described in Section 5.1 of this
Agreement.
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Subscription
Procedure:
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In
order to subscribe for the Common Shares, each prospective subscriber
must complete, execute and deliver to the Company a signature page
evidencing such prospective subscriber’s execution of this Subscription
Agreement along with a completed confidential Purchaser
Questionnaire.
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Restrictions
on Transferability:
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The
Common Shares have not been registered under the Securities Act or under
the securities laws of the United States or of any state or other
jurisdiction. As a result, the Common Shares may not be transferred
without registration under the Securities Act, or, if applicable, the
securities laws of any state or other jurisdiction, unless in the opinion
of counsel to the Company, such registration is not then required because
of the availability of an exemption from
registration.
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Investment:
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An
investment in the Company is highly speculative, and each investor bears
the risk of losing his, her or its entire investment. All Purchasers must
complete and execute a Subscription Agreement and a confidential Purchaser
Questionnaire. Purchasers must set forth representations in such documents
that he, she or it is purchasing the Common Shares for investment purposes
only and without a view toward distribution. The Common Shares are
suitable investments only for sophisticated investors for whom an
investment in the Common Shares does not constitute a complete investment
program and who fully understand, are willing to assume, and who have the
financial resources necessary to withstand, the risks involved in
investing in the Common Shares and who can bear the potential loss of
their entire investment. The Common Shares are being offered and sold only
to persons who qualify as “accredited investors,” as defined under
Regulation D of the Securities Act.
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1.4 Escrow; No Minimum Offering
Amount. The Subscriber acknowledges and agrees that all subscription
amounts will be deposited in a non-interest bearing account established on
behalf of the Company, but that there is no minimum Offering amount necessary to
conduct a closing for the funds to be released to the Company. Accordingly,
funds may be released to the Company and closings held, from time to time, as
determined by the Company at any time during the Offering Period. During the
Offering Period, subscription funds will be placed into the escrow account and
closings will be held from time to time up to the sale of the maximum amount of
Common Shares described in this Subscription Agreement or the expiration of the
Offering Period. The final Closing shall be either the date on which this
Offering is fully subscribed or the last date during the Offering Period on
which the Company accepts a subscription, whichever is latest. Each closing of
the transactions contemplated hereunder (the “Closing”) shall be
deemed to occur at the offices of Xxxxxx & Xxxxxxxxx, LLP, 00 Xxxxxxxx,
00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other place as shall be mutually
agreeable to the parties, at 11:00 a.m., New York Time, on such other date as
shall be mutually agreeable to the parties.
4
1.5 Closing Matters. At each
Closing the following actions shall be taken:
(a) each
Subscriber shall deliver its Purchase Price in immediately available United
States funds to the escrow account established for the Offering;
(b) the
Company shall cause its stock transfer agent to deliver certificates
representing the Common Shares subscribed for to each Subscriber;
and
(c) each
of the Company and the Subscriber shall deliver to the other signed copies of
this Agreement and the Subscriber shall deliver to the Company a completed and
executed Purchaser Questionnaire.
1.6 Use of
Proceeds. The Company intends to use the proceeds derived from
this Offering to satisfy its working capital requirements and general corporate
purposes. Management reserves the right to utilize the net proceeds of the
Offering in a manner in the best interests of the Company. The amount of the net
proceeds that will be invested in particular areas of the Company’s business
will depend upon future economic conditions and business opportunities. To the
extent that the Company continues to incur losses from operations, such losses
will be funded from its general funds, including the net proceeds of this
Offering.
1.7 Certain
Reports Filed Under the Securities Exchange Act of 1934.
(a) Restatement of Financial
Statements for the year ended December 31, 2007. On March 31,
2009, the Company filed with the U.S. Securities and Exchange Commission (the
“SEC”) a
Current Report on Form 8-K (the “Restatement Form
8-K”) and subsequently filed with the SEC on April 1, 2009 an amendment
to its Annual Report on Form 10-KSB for the year ended December 31, 2007 (the
“2007
Amendment”). The Restatement Form 8-K and the 2007 Amendment were filed
in order for the Company to restate its consolidated financial statements and
related financial information for the year ended December 31, 2007 in order to
correct an error in the Company’s accounting and disclosures for its convertible
debentures and options and warrants. The 2007 Amendment (and Restatement Form
8-K) restates (i) the Company’s consolidated balance sheets at
December 31, 2007 and December 31, 2006, and (ii) the Company’s
consolidated statements of operations and cash flows for the year ended
December 31, 2007, and the notes related thereto. The significant effects
of the restatement are as follows: (a) to debit debt conversion expense in an
amount of $3,371,964 and to credit additional paid in capital by $3,371,964
related to the Company’s accounting for the beneficial conversion feature of
convertible debentures that were amended to reduce the conversion rate; (b) to
credit to its profit and loss statement in the amount of $69,525 in order to
properly reflect on its financial statements the stock compensation expense that
the Company incurred in fiscal 2007 in accordance with SFAS 123R; and (c)
reflect a reclassification of the Company’s expense incurred in connection with
its private placement of securities in 2007 to credit “general and
administrative” expense on the Company’s statement of operations by an amount of
$435,749 and debit to additional paid in capital of an equivalent amount. Due to
these adjustments, the Company’s net loss for 2007 was impacted by $3,371,964
and increased to $5,698,643.
(b) Annual Report on Form 10-K
for the year ended December 31, 2008. On April 7, 2009, the Company filed
its Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Annual Report”)
with the SEC.
5
(c) Quarterly Reports on Form
10-Q. On May 15, 2009, the Company filed its Quarterly Report on Form
10-Q for the quarter ended March 31, 2009, and on August 14, 2009, the Company
filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (the
“2009 Quarterly
Reports”) with the SEC.
(d) Current Reports on Form
8-K. The Company has filed Current Reports on Form 8-K with the SEC on
the following dates during the current fiscal year: January 15, 2009, February
6, 2009, March 31, 2009, May 4, 2009, May 27, 2009, May 28, 2009, July 7, 2009,
July 13, 2009 and July 22, 2009 (excluding Current Reports on Form 8-K deemed to
have furnished rather than filed with the SEC, the “2009 Current
Reports”).
(e) Acknowledgement and
Confirmation. The undersigned hereby agrees and acknowledges that it has
been advised that the Company has filed with the SEC the 2007 Amendment, the
Restatement Form 8-K, the 2008 Annual Report, the 2009 Quarterly Reports and the
2009 Current Reports (collectively, the “SEC Reports”) and
that it has either obtained or has access to (through the public website of the
SEC or otherwise) the SEC Reports. The SEC Reports comprise an integral part of
this Agreement and each Subscriber is urged to read each such report in its
entirety. The undersigned further agrees that the SEC Reports are incorporated
herein by reference, that it has taken the opportunity to review such reports in
their entirety and that it has considered all factors that it deems material in
deciding on the advisability of investing in the Company’s
securities.
1.8
Subscriber Information
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(a)
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Name(s)
of
SUBSCRIBER(s):_____________________
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___________________________________
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___________________________________
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(b)
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Principal
Amount of Securities
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Subscribed
for:
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$__________
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(c)
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Accredited
Investor Status
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The Subscriber acknowledges and agrees
that the offering and sale of the Securities are intended to be exempt from
registration under the Securities Act, by virtue of Section 4(2) thereof and/or
Regulation D promulgated thereunder. In accordance therewith and in
furtherance thereof, the Subscriber represents and warrants to and agrees with
the Company as follows [Please check statements applicable to the
Subscriber]:
The Subscriber is an Accredited
Investor because the Subscriber is (check appropriate item):
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a
bank as defined in Section 3(a)(2) of the Securities
Act;
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a
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act;
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a
broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934 as amended (the “Exchange
Act”);
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an
insurance company as defined in Section 2(13) of the Securities
Act;
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an
investment company registered under the Investment Company Act of 1940, as
amended or a business development company as defined in Section 2(a)(48)
of such act;
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¨
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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;
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¨
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an
employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, as amended, if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of such
Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan
has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited
investors;
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¨
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a
private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940, as
amended;
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¨
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an
organization described in Section 501(c)(3) of the Internal Revenue Code,
a corporation, Massachusetts or similar business trust, or partnership,
not formed for the specific purpose of acquiring the securities offered,
with total assets in excess of
$5,000,000;
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a
natural person whose individual net worth or joint net worth with that
person's spouse, at the time of his purchase exceeds
$l,000,000;
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a
natural person who had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation
of reaching the same income level in the current
year;
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a
trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii) of
the Exchange Act; or
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an
entity in which all of the equity owners are accredited
investors. (If this alternative is checked, the Subscriber must
identify each equity owner and provide statements signed by each
demonstrating how each qualifies as an accredited
investor.)
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a
plan established and maintained by a state, its political subdivisions, or
any agency or instrumentality thereof, for the benefit of its employees,
if such plan has total assets in excess of
$5,000,000
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a
director or officer of the Company.
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(d)
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Additional
Information.
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The Subscriber has completed the
signature page to this Subscription Agreement and the Questionnaire annexed at
Exhibit A to
this Subscription Agreement.
7
1.9 Risks
Factors
Investing
in our Securities involves risks and our operating results and financial
condition have varied in the past and may in the future vary significantly
depending on a number of factors. You should consider the following risk factors
in evaluating whether to invest in our Securities. However, the risks described
below are not the only risks facing the Company. In addition to these risk
factors and other risks described elsewhere in this Agreement, you should
carefully consider the risk factors described in our SEC Reports, each of which
has been filed with the Securities and Exchange Commission and which are all
incorporated by reference in this Agreement. These risks could have a material
adverse effect on our business, results of operations, financial condition or
liquidity and cause our actual operating results to materially differ from those
contained in forward-looking statements made in this Agreement, in our SEC
Reports and elsewhere by management. Before making an investment decision, you
should carefully consider these risks as well as other information contained or
incorporated by reference in this Agreement. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating
results.
General
Risks Related to the Company’s Business
The
Company has a history of operating losses. If it continues to incur operating
losses, it eventually may have insufficient working capital to maintain
operations.
As of
December 31, 2008, the Company had an accumulated deficit of $22,229,657, of
which $14,234,212 is directly related to the development of Skinny Nutritional
products. For the years ended December 31, 2008 and December 31, 2007, the
Company incurred losses from operations of $6,232,123 and $5,698,643,
respectively. Further, the Company has incurred a net loss of $2,105,721 for the
six month period ending June 30, 2009. If the Company is not able to begin to
earn an operating profit at some point in the future, it will eventually have
insufficient working capital to maintain its operations as it presently intends
to conduct them.
The
Company recently restated its financial statements for the fiscal year ended
December 31, 2007.
In its
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 (the
“2007 Form
10-KSB”), the Company reported an accumulated deficit of $13,127,636.
Further, the Company had also reported in its 2007 Form 10-KSB that for the
years ended December 31, 2007 and 2006, it incurred losses from operations
of $2,828,745 and $2,303,446 respectively. Following its reassessment of its
accounting of the beneficial conversion feature of its then outstanding
convertible debentures and its valuation of outstanding stock options and
warrants, the Company filed an amendment to the 2007 Form 10-KSB on April 1,
2009 to restate (i) the Company’s consolidated balance sheets at
December 31, 2007 and December 31, 2006, and (ii) the Company’s
consolidated statements of operations and cash flows for the year ended
December 31, 2007, and the notes related thereto. The significant effects
of the restatement are as follows: (a) to debit debt conversion expense in an
amount of $3,371,964 and to credit additional paid in capital by $3,371,964
related to the Company’s accounting for the beneficial conversion feature of
convertible debentures that were amended to reduce the conversion rate; (b) to
credit to its profit and loss statement in the amount of $69,525 in order to
properly reflect on its financial statements the stock compensation expense that
the Company incurred in fiscal 2007 in accordance with SFAS 123R; and (c)
reflect a reclassification of the Company’s expense incurred in connection with
its private placement of securities in 2007 to credit “general and
administrative” expense on the Company’s statement of operations by an amount of
$435,749 and debit to additional paid in capital of an equivalent amount. Due to
these adjustments, the Company’s net loss for 2007 was impacted by $3,371,964
and increased to $5,698,643.
8
The
Company has been reliant on capital raised from private placements of its
securities to fund operations and its independent auditors have included a
“going concern” opinion in their report included in the Company’s Annual
Report.
The
Company has been substantially reliant on capital raised from private placements
of its securities, in addition to a revolving line of credit, to fund its
operations. The Company has an immediate need for cash to fund its working
capital requirements and business model objectives. The Company, however,
currently has no firm agreements with any third-parties for such transactions
and no assurances can be given that it will be successful in raising sufficient
capital from any proposed financings. At June 30, 2009, the Company’s cash and
cash equivalents were approximately $158,847.
During
the 2008 fiscal year, the Company raised approximately $5,200,000 from the sale
of securities to accredited investors in private transactions pursuant to
Rule 506 of Regulation D under the Securities Act of 1933, as amended. Further,
during the current fiscal year, the Company has raised an aggregate of
$2,035,000 from the sale of securities to accredited investor in previous
private placements under Rule 506. Our independent auditors have included a
“going concern” explanatory paragraph in their report to our financial
statements for the year ended December 31, 2008, citing recurring losses from
operations. Our capital needs in the future will depend upon factors such as
market acceptance of our products and any other new products we launch, the
success of our independent distributors and our production, marketing and sales
costs. None of these factors can be predicted with certainty. The Company must
satisfy its future cash needs by further developing a market for its products,
selling additional securities in private placements or by negotiating for an
extension of credit from third party lenders.
If the
Company is unable to achieve sufficient levels of sales, it will need
substantial additional debt or equity financing in the future for which it
currently has no commitments or arrangement. No assurances can be given that any
additional financing, if required, will be available or, even if it is available
that it will be on acceptable terms. If the Company raises additional funds by
selling common stock or convertible securities, the ownership of our existing
shareholders will be diluted. If additional funds are raised though the issuance
of equity or debt securities, such additional securities may have powers,
designations, preferences or rights senior to our currently outstanding
securities. Any inability to obtain required financing on sufficiently favorable
terms could have a material adverse effect on our business, results of
operations and financial condition. If the Company is unsuccessful in raising
additional capital and increasing revenues from operations, it will need to
reduce costs and operations substantially. Further, if expenditures required to
achieve plans are greater than projected or if revenues are less than, or are
generated more slowly than, projected, the Company will need to raise a greater
amount of funds than currently expected.
Risks
Related to this Offering
This
Offering may result in dilution to our common shareholders.
Dilution
of the per share value of our Common Shares could result from the issuance of
the Common Shares in this Offering. If this Offering is fully subscribed, the
Company will issue an aggregate of 41,666,667 additional Common Shares. The
issuance of a substantial number of our Common Shares will dilute the equity
interests of the Company’s current stockholders.
The
Securities offered hereby are “restricted securities” and may not be transferred
or resold absent registration or an exemption therefrom.
The
Securities offered hereby will be issued pursuant to an exemption from
registration under the Securities Act and therefore have not been and will not
be registered under that act or any applicable state securities laws.
Consequently, the Securities may be sold, transferred, or otherwise disposed of
by the Purchasers hereunder only if, among other things, the Common Shares
are registered or, in the opinion of counsel acceptable to us, registration is
not required under the Securities Act or any applicable state securities
laws.
9
Purchasers
of our Common Shares must be aware of the long-term nature of their
investment and be able to bear the economic risks of their investment for an
indefinite period of time. The Common Shares have not been registered under the
Securities Act or the securities or “blue sky” laws of any state. The right of
any Subscriber to sell, transfer, pledge or otherwise dispose of the Securities
offered herein will be limited by the Securities Act and state securities laws
and the regulations promulgated thereunder. Accordingly, under the Securities
Act, the Securities offered herein may not be resold unless a registration
statement is filed and becomes effective or an exemption from registration is
available. The Company is not under any affirmative obligation to file a
registration statement covering the Securities and there can be no assurance
that any registration statement the Company may file covering such securities
will be effective. Further, there can be no assurance that a liquid market for
our Common Stock will be sustained. Rule 144 promulgated under the Securities
Act requires, among other conditions, a holding period prior to the resale of
securities acquired in a non-public offering without having to satisfy the
registration requirements of the Securities Act. There can be no assurance that
we will fulfill in the future any reporting requirements under the Exchange Act,
or disseminate to the public any current financial or other information
concerning the Company, as required by Rule 144 as one of the conditions of its
availability.
No
assurances that enough Common Shares will be sold to pursue business
strategies.
No person or entity is committed to
purchase any of the Common Shares offered pursuant to this Offering, and no
assurance is or can be given that all or any of the Common Shares offered
hereunder will be sold. No escrow account for the subscription amounts from
investors is maintained and no minimum amounts of Common Shares are required to
be sold. Proceeds received from the Offering will be available to the
Company upon receipt, which the Company intends to promptly utilize in
accordance with the terms of the “Use of Proceeds” section of this Subscription
Agreement. In the event that the Company is unable to sell all of the Common
Shares pursuant to the Offering, the Company may have insufficient capital after
making the aforesaid payments to proceed with the Company’s business strategies
and thus may be forced to seek additional capital sooner than would have been
the case had the Offering been fully subscribed. There can be no assurance that
such additional funds will be available to the Company when required on terms
acceptable to the Company.
No
independent counsel for Purchasers.
The Company has employed its own legal
counsel in connection with this Offering. The Purchasers have not been
represented by independent counsel in connection with the preparation of this
Subscription Agreement or the terms of this Offering and no investigation of the
merits or fairness of this Offering has been conducted on behalf of the
Purchasers. Counsel has not conducted due diligence on behalf of the Purchasers
and is not opining with respect to any matters contained herein. Prospective
investors should consult with their own legal, tax and financial advisors with
respect to the Offering made hereby.
Availability
of Securities Act exemption.
The
Securities are being offered pursuant to various available exemptions from
registration from U.S. federal and state securities law registration
requirements. Compliance with such laws, which must be met in order for such
exemptions to be available to us, is highly technical and to some extent
involves elements beyond our control. If the proper exemptions do not ultimately
prove to be available, we could be subject to the claims of all or only some of
our shareholders for violations of federal or state securities laws, which could
materially adversely affect our profitability or operations or make an
investment in the Securities worthless.
10
Risks
Related to the Company’s Securities
The
equity interests of Purchasers are subject to substantial dilution.
The Company may, at any time after
consummation or termination of this Offering, offer and sell additional
securities of the Company upon such terms and conditions as the Board believes
to be in the best interests of the Company. The Company may seek to engage in
future offerings of its securities so as to sustain the operations and business
activities of the Company. The sale of additional equity securities will dilute
or reduce the percentage of ownership interests of the Purchasers.
In
addition, upon the closing of its private offering of Series A Preferred Stock,
the Company issued 20,350 shares of Series A Convertible Preferred Stock. On
July 6, 2009, the Company filed with the Secretary of State of the State of
Nevada a Certificate of Amendment to its Articles of Incorporation increasing
its number of authorized shares of Common Stock, and the shares of Series A
Preferred Stock automatically were converted into an aggregate of 33,916,667
Common Shares at a conversion rate of $0.06 per share. The issuance of these
Common Shares resulted in substantial dilution to stockholders who held our
common stock prior to the private placement. The market price of our Common
Shares could fall due to an increase in the number of shares available for sale
in the public market.
Exercise
of outstanding options and warrants will dilute stockholders and could decrease
the market price of our common stock.
As of
August 14, 2009, we had issued and outstanding options to purchase 29,481,250
shares of common stock and warrants to purchase an aggregate of 23,575,723
additional shares of common stock To the extent that these securities are
exercised or converted, dilution to our shareholders will occur. The exercise of
these securities by the holders may adversely affect the market price of the
Company’s Common Shares and the terms under which we could obtain additional
equity capital.
We
do not anticipate paying dividends in the foreseeable future, and the lack of
dividends may have a negative effect on the price of our Common
Stock.
We
currently intend to retain our future earnings, if any, to support operations
and to finance expansion and therefore, we do not anticipate paying any cash
dividends on our Common Stock in the foreseeable future.
Our
Common Stock is traded on the OTC Bulletin Board, which may be detrimental to
investors.
Our
Common Shares are currently traded on the OTC Bulletin Board. Stocks traded on
the OTC Bulletin Board generally have limited trading volume and exhibit a wide
spread between the bid/ask quotations. We cannot predict whether a more active
market for our Common Shares will develop in the future. In the absence of an
active trading market investors may have difficulty buying and selling our
Common Shares or obtaining market quotations; market visibility for our Common
Shares may be limited; and a lack of visibility for our Common
Shares may have a depressive effect on the market price for our Common
Shares.
Our
Common Shares are subject to restrictions on sales by broker-dealers and
xxxxx stock rules, which may be detrimental to investors.
Our
Common Shares are subject to Rules 15g-1 through 15g-9 under the Exchange
Act, which imposes certain sales practice requirements on broker-dealers who
sell our Common Shares to persons other than established customers and
“accredited investors” (as defined in Rule 501(c) of the Securities Act). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s
written consent to the transaction prior to the sale. This rule adversely
affects the ability of broker-dealers to sell our Common Shares and
purchasers of our Common Shares to sell their shares of our Common
Shares.
11
Additionally,
our Common Shares are subject to SEC regulations applicable to “xxxxx
stocks.” Xxxxx stocks include any non-Nasdaq equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. The
regulations require that prior to any non-exempt buy/sell transaction in a xxxxx
stock, a disclosure schedule proscribed by the SEC relating to the xxxxx stock
market must be delivered by a broker-dealer to the purchaser of such xxxxx
stock. This disclosure must include the amount of commissions payable to both
the broker-dealer and the registered representative and current price quotations
for our Common Shares. The regulations also require that monthly statements be
sent to holders of a xxxxx stock that disclose recent price information for the
xxxxx stock and information of the limited market for xxxxx stocks. These
requirements adversely affect the market liquidity of our Common
Shares.
Preferred
Stock as an anti-takeover device.
The
Company is authorized to issue 1,000,000 shares of preferred stock, $0.001 par
value. Presently, the Company does not have any shares of preferred stock
outstanding. The preferred stock may be issued in series from time to
time with such designation, voting and other rights, preferences and limitations
as our Board of Directors may determine by resolution. Unless the nature of a
particular transaction and applicable statutes require such approval, the Board
of Directors has the authority to issue these shares without stockholder
approval subject to approval of the holders of our preferred stock. The issuance
of preferred stock may have the effect of delaying or preventing a change in
control of the Company without any further action by our
stockholders.
Forward
Looking Statements
This Agreement and the exhibits annexed
hereto contain certain forward looking information within the meaning of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended. These statements relate to future events or future predictions,
including events or predictions relating to our future financial performance,
and are generally identifiable by use of the use of forward-looking terminology
such as “believes”, “expects”, “may”, “will”, “should”, “plan”, “intend”, or
“anticipates” or the negative thereof or other variations thereon or comparable
terminology, or by discussion of strategy that involve risks an uncertainties.
Management wishes to caution each Subscriber that these forward-looking
statements and other statements contained herein regarding matters that are not
historical facts, are only predictions and estimates regarding future events and
circumstances and involve known and unknown risks, uncertainties and other
factors, including the risks described under “Risk Factors” that may cause the
Company’s or its industry’s actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. This information is based on various assumptions by
the management which may not prove to be correct.
In
addition to the risks described in Risk Factors, important factors to consider
and evaluate in such forward-looking statements include: (i) changes in the
external competitive market factors which might impact the Company’s results of
operations; (ii) unanticipated working capital or other cash requirements
including those created by the failure of the Company to adequately anticipate
the costs associated with clinical trials, manufacturing and other critical
activities; (iii) changes in the Company’s business strategy or an inability to
execute its strategy due to the occurrence of unanticipated events; (iv) the
inability or failure of the Company’s management to devote sufficient time and
energy to the Company’s business; and (v) the failure of the Company to complete
any or all of the transactions described herein on the terms currently
contemplated. In light of these risks and uncertainties, there can be no
assurance that the forward-looking statements contained or incorporated by
reference in this Agreement will in fact transpire.
12
All of
these assumptions are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of our Company. Although the
Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. Accordingly, there can be no assurance
that actual results will meet expectations or will not be materially lower than
the results contemplated in this Agreement. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this document or, in the case of documents referred to or incorporated by
reference, the dates of those documents. The Company does not undertake any
obligation to release publicly any revisions to these forward-looking statements
to reflect events or circumstances after the date of this document or to reflect
the occurrence of unanticipated events, except as may be required under
applicable U.S. securities law.
Article
II
REPRESENTATIONS AND
WARRANTIES OF COMPANY
The Company hereby represents and
warrants to the Purchasers as of the date of this Agreement as
follows:
(A) The
Company is duly organized, validly existing and in good standing under the laws
of its state of incorporation, with all requisite power and authority to own,
lease, license, and use its properties and assets and to carry out the business
in which it is engaged, except where the failure to have or be any of the
foregoing may not be expected to have a material adverse effect on the Company’s
presently conducted businesses. The Company is not in violation of
any of the provisions of its articles of incorporation, bylaws or other
organizational or charter documents. The Company is duly qualified to transact
the business in which it is engaged and is in good standing as a foreign
corporation in every jurisdiction in which its ownership, leasing, licensing or
use of property or assets or the conduct of its business make such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, have or reasonably
be expected to result in (i) a material and adverse effect on the legality,
validity or enforceability of this Agreement, (ii) a material and adverse effect
on the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company, taken as a whole, or (iii) an adverse
impairment to the Company’s ability to perform on a timely basis its obligations
hereunder (any of (i), (ii) or (iii), a “Material Adverse
Effect”).
(B) The
Company is currently authorized to issue 500,000,000 shares of Common Stock,
$0.001 par value per share and 1,000,000 shares of Preferred Stock, $0.001 par
value per share. Except as may be described in this Agreement, no securities of
the Company are entitled to preemptive or similar rights, and no entity or
person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by this
Agreement unless any such rights have been waived. The issue and sale of the
Securities will not (except pursuant to their terms thereunder), immediately or
with the passage of time, obligate the Company to issue shares of Common Stock
or other securities to any entity or person and will not result in a right of
any holder of Company securities to adjust the exercise, conversion, exchange or
reset price under such securities.
(C) The
Company has the requisite corporate power and authority to enter into, deliver
and consummate the transactions contemplated by this Agreement, to issue and
sell the Securities and deliver the Common Shares, and otherwise to carry out
its obligations hereunder. The execution and delivery of this Agreement and the
consummation by it of the transactions contemplated thereby have been duly
authorized by the Company and no further action is required by the Company in
connection therewith. When executed and delivered by the Company, this Agreement
will constitute the legal, valid and binding obligation of the Company,
enforceable as to the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance or transfer, moratorium or other laws or
court decisions, now or hereinafter in effect, relating to or affecting the
rights of creditors generally and as may be limited by general principles of
equity and the discretion of the court having jurisdiction in an enforcement
action (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
13
(D) The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other person or
entity in connection with the execution, delivery and performance by the Company
of this Agreement or the issuance, sale or delivery of the Securities other than
(i) any filings required by state securities laws, (ii) the filing of a Notice
of a Sale of Securities on Form D with the Commission under Regulation D of the
Securities Act, (iii) those that have been made or obtained prior to or
contemporaneously with the date of this Agreement, and (iv) filings pursuant to
the Exchange Act.
(E) The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby in
accordance with the terms and conditions described herein do not and will not:
(i) conflict with or violate any provision of the Company’s certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) violate, conflict with, or constitute a default or breach (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company debt or
otherwise) or other understanding to which the Company is a party or by which
any property or asset of the Company is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected; except in the
case of each of clauses (ii) and (iii), such as could not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
(F) The
Common Shares have been duly authorized and, when issued and paid for in
accordance with this Agreement, will be duly and validly issued, fully paid and
nonassessable and will be issued free and clear of all liens and encumbrances,
other than restrictions on transfer under applicable securities
laws.
(G) Except
as disclosed in the SEC Reports, there is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under this Agreement, and
all other agreements entered into by the Company relating hereto. Except as
disclosed in the SEC Reports, there is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates which litigation if adversely determined could
have a material adverse effect on the Company.
(H) The
Company has no liabilities or obligations which are material, individually or in
the aggregate, which are not disclosed in the SEC Reports, other than those
incurred in the ordinary course of the Company’s businesses and which,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the Company’s financial condition.
Article
III
REPRESENTATIONS AND
WARRANTIES OF PURCHASERS
By signing this Agreement, each
undersigned Purchaser hereby represents and warrants to the Company as follows
as an inducement to the Company to accept the subscription of the
Purchaser:
14
(A) The
Purchaser acknowledges and agrees that (i) the offering and sale of the
Securities are intended to be exempt from registration under the Securities Act
by virtue of Section 4(2) of the Securities Act and/or Regulation D promulgated
thereunder, (ii) the Securities have not been registered under the Securities
Act and (iii) that the Company has represented to the Purchaser (assuming the
veracity of the representations of the Purchaser made herein and in the
Questionnaire annexed hereto at Exhibit A) that the
Securities have been offered and sold by the Company in reliance upon an
exemption from registration provided in Section 4(2) of the Securities Act and
Regulation D thereunder. In accordance therewith and in furtherance thereof, the
Purchaser represents and warrants to and agrees with the Company that it is an
accredited investor (as defined in Rule 501 promulgated under the Securities
Act) for the reason indicated in Article I of this Subscription
Agreement.
(B) The
Purchaser hereby represents and warrants that the Purchaser is acquiring the
Securities hereunder for its own account for investment and not with a view to
distribution, and with no present intention of distributing the Securities or
selling the Securities for distribution. The Purchaser understands that the
Securities are being sold to the Purchaser in a transaction which is exempt from
the registration requirements of the Securities Act. Accordingly, the
Purchaser acknowledges that it has been advised that the Securities have not
been registered under the Securities Act and are being sold by the Company in
reliance upon the veracity of the Purchaser’s representations contained herein
and upon the exemption from the registration requirements provided by the
Securities Act and the securities laws of all applicable states. The Purchaser’s
acquisition of the Securities shall constitute a confirmation of the foregoing
representation and warranty and understanding thereof.
(C) The
Purchaser (or its “Purchaser
Representative”, if any) has such knowledge and experience in financial
and business matters as is required for evaluating the merits and risks of
making this investment, and the Purchaser or its Purchaser Representative(s) has
received such information requested by the Purchaser concerning the business,
management and financial affairs of the Company in order to evaluate the merits
and risks of making this investment. Further, the Purchaser acknowledges that
the Purchaser has had the opportunity to ask questions of, and receive answers
from, the officers of the Company concerning the terms and conditions of this
investment and to obtain information relating to the organization, operation and
business of the Company and of the Company's contracts, agreements and
obligations or needed to verify the accuracy of any information contained herein
or any other information about the Company. Except as set forth in
this Agreement, no representation or warranty is made by the Company to induce
the Purchaser to make this investment, and any representation or warranty not
made herein or therein is specifically disclaimed and no information furnished
to the Purchaser or the Purchaser’s advisor(s) in connection with the sale were
in any way inconsistent with the information stated herein. The Purchaser
further understands and acknowledges that no person has been authorized by the
Company to make any representations or warranties concerning the Company,
including as to the accuracy or completeness of the information contained in
this Agreement.
(D) The
Purchaser is making the foregoing representations and warranties with the intent
that they may be relied upon by the Company in determining the suitability of
the sale of the Securities to the Purchaser for purposes of federal and state
securities laws. Accordingly, each Purchaser represents and warrants that the
information stated herein is true, accurate and complete, and agrees to notify
and supply corrective information promptly to the Company as provided above if
any of such information becomes inaccurate or incomplete. The Purchaser has
completed this Agreement and Questionnaire, has delivered it herewith and
represents and warrants that it is accurate and true in all respects and that it
accurately and completely sets forth the financial condition of the Purchaser on
the date hereof. The Purchaser has no reason to expect there will be any
material adverse change in its financial condition and will advise the Company
of any such changes occurring prior to the closing or termination of the
Offering.
(E) The
Purchaser is not subscribing for any of the Securities as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, any seminar or meeting, or any solicitation of a
subscription by a person not previously known to the Purchaser in connection
with investments in Securities generally.
15
(F) The
Purchaser has received or obtained access to certain information regarding the
Company, including this Agreement, the SEC Reports and other accompanying
documents of the Company receipt of which is hereby acknowledged. The Purchaser
has carefully reviewed all information provided to it and has carefully
evaluated and understands the risks described therein related to the Company and
an investment in the Company, and understands and has relied only on the
information provided to it in writing by the Company relating to this
investment. No agent prepared any of the information to be delivered to
prospective investors in connection with this transaction. Prospective investors
are advised to conduct their own review of the business, properties and affairs
of the Company before subscribing to purchase the Securities.
(G) The
Purchaser also understands and agrees that, although the Company will use its
best efforts to keep the information provided in this Agreement strictly
confidential, the Company or its counsel may present this Agreement and the
information provided in answer to it to such parties as they may deem advisable
if called upon to establish the availability under any federal or state
securities laws of an exemption from registration of the private placement or if
the contents thereof are relevant to any issue in any action, suit or proceeding
to which the Company or its affiliates is a party, or by which they are or may
be bound or as otherwise required by law or regulatory authority.
(H) The
individual signing below on behalf of any entity hereby warrants and represents
that he/she is authorized to execute this Agreement on behalf of such entity. If
an individual, the Purchaser has reached the age of majority in the state in
which the Purchaser resides. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all requisite action, if any, in respect thereof on the part of
Purchasers and no other proceedings on the part of Purchasers are necessary to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Purchasers and constitutes a valid and
binding obligation of Purchasers, enforceable against Purchasers in accordance
with its terms (subject to applicable bankruptcy, insolvency and similar laws
affecting creditors’ rights generally and subject, as to enforceability, to
general principles of equity (whether applied in a proceeding in equity or at
law)).
(I)
The Purchaser is aware that the offering of the
Securities involves securities for which only a limited trading market exists,
thereby requiring any investment to be maintained for an indefinite period of
time. The purchase of the Securities involves risks which the
Purchaser has evaluated, and the Purchaser is able to bear the economic risk of
the purchase of such Securities and the loss of its entire investment. The
undersigned is able to bear the substantial economic risk of the investment for
an indefinite period of time, has no need for liquidity in such investment and
can afford a complete loss of such investment. The Purchaser’s overall
commitment to investments that are not readily marketable is not, and his
acquisition of the Securities will not cause such overall commitment to become,
disproportionate to his net worth and the Purchaser has adequate means of
providing for its current needs and contingencies.
(J) The
Purchaser acknowledges and agrees that there is no “minimum” offering amount for
the Securities offered hereby. The Purchaser acknowledges and agrees that funds
may be immediately released to the Company.
(K) In
entering into this Agreement and in purchasing the Securities, the Purchaser
further acknowledges that:
(i) The Company has informed
the Purchaser that the Securities have not been offered for sale by means of
general advertising or solicitation and the Purchaser acknowledges that it has
either a pre-existing personal or business relationship with either the Company
or any of its officers, directors or controlling person, of a nature and
duration such as would enable a reasonable prudent investor to be aware of the
character, business acumen, and general business and financial circumstances of
the Company and an investment in the Securities.
16
(ii) Neither the Securities
nor any interest therein may be resold by the Purchaser in the absence of a
registration under the Securities Act or an exemption from registration. In
particular, the Purchaser is aware that all of the foregoing described
Securities will be “restricted securities”, as such term is defined in Rule 144
promulgated under the Securities Act (“Rule 144”), and they
may not be sold pursuant to Rule 144, unless the conditions thereof are met.
Other than set forth in this Agreement, the Company has no obligation to
register any securities purchased or issuable hereunder.
(iii) The following legends
(or similar language) shall be placed on the certificate(s) or other instruments
evidencing the Securities:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER
SUCH NOTES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR
OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH NOTES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH NOTES
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
(iv) The Company may at any
time place a stop transfer order on its transfer books against the Securities.
Such stop order will be removed, and further transfer of the Securities will be
permitted, upon an effective registration of the respective Securities, or the
receipt by the Company of an opinion of counsel satisfactory to the Company that
such further transfer may be effected pursuant to an applicable exemption from
registration.
(L) The
Company has employed its own legal counsel in connection with the Offering. The
Purchasers have not been represented by independent counsel in connection with
the preparation of this Agreement or the terms of this Offering and no
investigation of the merits or fairness of the Offering has been conducted on
behalf of the Purchasers. Prospective Purchasers should consult with
their own legal, tax and financial advisors with respect to the Offering made
pursuant to this Agreement.
(M) __________
(insert name of Purchaser Representative: if none leave
blank) has acted
as the Purchaser’s Purchaser Representative for purposes of the private
placement exemption under the Act. If the Purchaser has appointed a
Purchaser Representative (which term is used herein with the same meaning as
given in Rule 501(h) of Regulation D), the Purchaser has been advised by his
Purchaser Representative as to the merits and risks of an investment in the
Company in general and the suitability of an investment in the Securities for
the Purchaser in particular.
(N) The
undersigned hereby acknowledges that officers, affiliates, employees and
directors of the Company and/or the Selling Agents may purchase Securities in
the Offering.
(O) It
never has been represented, guaranteed or warranted by the Company, any of the
officers, directors, stockholders, partners, employees or agents of the Company,
or any other persons, whether expressly or by implication, that: (i) the Company
or the Purchasers will realize any given percentage of profits and/or amount or
type of consideration, profit or loss as a result of the Company’s activities or
the Purchaser’s investment in the Company; or (ii) the past performance or
experience of the management of the Company, or of any other person, will in any
way indicate the predictable results of the ownership of the Securities or of
the Company’s activities.
17
(P) The
Purchaser acknowledges that any delivery to it of this Agreement relating to the
Securities prior to the determination by the Company of its suitability as a
Purchaser shall not constitute an offer of the Securities until such
determination of suitability shall be made, and the Purchaser hereby agrees that
it shall promptly return this Agreement and the other Offering documents to the
Company upon request. The Purchaser understands that the Company shall have the
right to accept or reject this subscription in whole or in part. Unless this
subscription is accepted in whole or in part by the Company this subscription
shall be deemed rejected in whole.
Article
IV
INDEMNIFICATION
4.1 Indemnification by the
Company. The Company agrees to defend, indemnify and hold harmless the
Purchasers and shall reimburse Purchasers for, from and against each claim,
loss, liability, cost and expense (including without limitation, interest,
penalties, costs of preparation and investigation, and the reasonable fees,
disbursements and expenses of attorneys, accountants and other professional
advisors) (collectively, “Losses”) directly or
indirectly relating to, resulting from or arising out of any untrue
representation, misrepresentation, breach of warranty or non-fulfillment of any
covenant, agreement or other obligation by or of the Company contained herein or
in any certificate, document, or instrument delivered to Purchasers pursuant
hereto.
4.2 Indemnification by Purchasers.
Purchasers agrees to defend, indemnify and hold harmless the Company and shall
reimburse the Company for, from and against all Losses directly or indirectly
relating to, resulting from or arising out of any untrue representation,
misrepresentation, breach of warranty or non-fulfillment of any covenant,
agreement or other obligation of the Purchasers contained herein or in any
certificate, document or instrument delivered to the Company pursuant
hereto.
4.3 Procedure. The indemnified
party shall promptly notify the indemnifying party of any claim, demand, action
or proceeding for which indemnification may be sought under Sections 4.1 or 4.2
of this Agreement, and, if such claim, demand, action or proceeding is a third
party claim, demand, action or proceeding (collectively, a “Claim”), the
indemnifying party will have the right at its expense to assume the defense
thereof using counsel reasonably acceptable to the indemnified party. The
indemnified party shall have the right to participate, at its own expense, with
respect to any such third party Claim. In connection with any such third party
Claim, Purchasers and the Company shall cooperate with each other and provide
each other with access to relevant books and records in their possession. No
such third party Claim shall be settled without the prior written consent of the
indemnified party, which shall not be unreasonably withheld. If a firm written
offer is made to settle any such third party Claim and the indemnifying party
proposes to accept such settlement and the indemnified party refuses to consent
to such settlement, then: (i) the indemnifying party shall be excused from, and
the indemnified party shall be solely responsible for, all further defense of
such third party Claim; and (ii) the maximum liability of the indemnifying party
relating to such third party Claim shall be the amount of the proposed
settlement if the amount thereafter recovered from the indemnified party on such
third party Claim is greater than the amount of the proposed
settlement.
ARTICLE
V
ADDITIONAL AGREEMENTS BY THE
PARTIES
Section
5.1 Registration Rights
The
Subscriber and the Company agree that the Subscriber shall be entitled to the
registration rights with respect to the Securities as set forth in this Section
5.1
(a) Definition of Registrable
Securities. As used in this Section 5.1, the term “Registrable Security”
means (i) each share of Common Stock issued under this Agreement; and (ii) any
securities issued upon any stock split or stock dividend in respect thereof;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination; (A) it has been effectively registered under the Securities Act
and disposed of pursuant thereto; (B) registration under the Securities Act is
no longer required for subsequent public distribution of such security; or (C)
it has ceased to be outstanding. The term “Registrable
Securities” means any and all of the securities falling within the
foregoing definition of “Registrable
Security.” In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of “Registrable Security”
as is appropriate to prevent any dilution or increase of the rights granted
pursuant to this Clause (a) as determined in good faith by the Board of
Directors.
18
(b) Registration by the
Company. Commencing on the Closing Date and for a period of three years
thereafter, in the event that the Company intends to file a registration
statement with the Securities and Exchange Commission under the Securities Act,
other than registration statement on Form S-4 or S-8, or successor forms
thereto, and registration statements filed but not effective prior to the
termination of this Offering, to register for sale any of its shares of Common
Stock, the Company will include for resale under the Securities Act in the
registration statement the Registrable Securities of the Holder in accordance
with this Section 5.1. The Company shall advise the Holder of the Registrable
Securities (such persons being collectively referred to herein as “Holders”) by written
notice at least 20 days prior to the filing by the Company with the Securities
and Exchange Commission of any other registration statement under the Act
covering shares of Common Stock of the Company, except on Forms S-4 or S-8 (or
similar successor form) or registration statements filed but not effective prior
to the termination of this Offering, and upon the request of any such Holder
within ten days after the date of such notice, include in any such registration
statement such information as may be required to permit a public offering of the
Holder’s Registrable Securities. Such Holders shall furnish information and
indemnification as set forth in elsewhere in this Section 5.1. For the purpose
of the foregoing, inclusion of the Registrable Shares by the Holder in a
Registration Statement pursuant to this Section 5.1 under a condition that the
offer and/or sale of such Registrable Shares not commence until a date not to
exceed 90 days from the effective date of such registration statement shall be
deemed to be in compliance with this Section 5.1. Further, the Company shall not
be required to register for resale any Registrable Securities if at the time of
such proposed registration, the Registrable Securities may be sold without any
limitation under Rule 144. The Company may withdraw the registration at any
time. Notwithstanding the foregoing, if the registration statement filed by the
Company is pursuant to an underwritten offering:
(A) if
the underwriter determines in good faith that marketing factors require the
exclusion of some or all of the Registrable Securities, then the Holders may
include in the registration statement no more than the maximum amount, if any,
of such Registrable Securities that the underwriter believes will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the Holders according to the total amount of
securities requested to be included therein owned by the Holders or in such
other proportions as shall mutually be agreed upon by such parties). The
Holders’ right to have Registrable Securities included in the first registration
statement filed by the Company shall be deferred to the second registration
statement filed by the Company, which deferral may be continued to the third or
subsequent registration statement so long as the registration statements are
pursuant to underwritten offerings and the underwriter determines in good faith
that marketing factors require exclusion of some or all of the Registrable
Securities held by the Holders; and
(B) each
Holder of Registrable Securities shall enter into an underwriting agreement in
customary form with the underwriter and provide such information regarding
Holder that the underwriter shall reasonably request in connection with the
preparation of the prospectus describing such offering, including completion of
FINRA Questionnaires.
(c)
Covenants with Respect
to Registration. In connection with the registration in which the
Registrable Securities are included, the Company covenants and agrees as
follows:
(A) The
Company shall use its best efforts to have the registration statement declared
effective as soon as possible after filing, and shall furnish each Holder of
Registrable Securities such number of prospectuses as shall reasonably be
requested. In addition, the Company shall file such amendments as may be
required from time to time, in order to keep any registration statement filed
under this section effective as provided herein. The registration statement
filed by the Company hereunder shall remain effective for the earlier of (i) 9
months or (ii) the date that the Registrable Securities may be sold without
volume limitation under SEC Rule 144.
19
(B) The
Company shall pay all costs (excluding fees and expenses of Holder(s) counsel
and any underwriting or selling commissions), fees and expenses in connection
with the registration statement filed pursuant hereto including, without
limitation, the Company's legal and accounting fees, printing expenses, blue sky
fees and expenses.
(C) The
Company will take all necessary action which may be required in qualifying or
registering the Registrable Securities included in the registration statement,
for offering and sale under the securities or blue sky laws of such states as
reasonably are requested by the Holder(s), provided that the Company shall not
be obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(D) The
Company shall indemnify each Holder of Registrable Securities to be sold
pursuant to the registration statement and each person, if any, who controls
such Holder within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended (“Exchange Act”),
against all loss, claim, damage, expense or liability (including reasonable
expenses reasonably incurred in investigating, preparing or defending against
any claim) to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, arising from such registration statement, except to
the extent arising under paragraph (E) below.
(E) Each
Holder of Registrable Securities to be sold pursuant to a registration
statement, and their successors and assigns, shall severally, and not jointly,
indemnify the Company, its officers and directors and any underwriter, and each
person, if any, who controls the Company or such underwriter within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or reasonable expense or liability (including expenses reasonably
incurred in investigating, preparing or defending against any claim) to which
they may become subject under the Securities Act, the Exchange Act or otherwise,
arising (I) from information furnished by or on behalf of such Holder, or their
successors or assigns, for inclusion in such registration statement, or (II) as
a result of use by the Holder of a registration statement that the Holder was
advised to discontinue; provided, however, that in no event shall any indemnity
hereunder exceed the net proceeds from the offering received by such
Holder.
(F) The
foregoing registration rights shall be contingent on the Holders furnishing the
Company with such appropriate information (relating to the intentions of such
Holders) as the Company shall reasonably request.
ARTICLE
VI
MISCELLANEOUS
6.1 Survival. The
representations and warranties set forth in Articles II and III hereof shall
survive the Closing. No investigation made by or on behalf of either
party shall affect the representations and warranties made pursuant to this
Agreement. No party makes any additional or implied representations other than
those set forth herein.
6.2 Expenses. Each
party hereto shall bear and pay all costs and expenses incurred by it in
connection with the transactions contemplated hereby, including fees and
expenses of its own brokers, finders, financial consultants, accountants and
counsel.
6.3 Entire Agreement. This
Agreement, including the Exhibits, contains the entire agreement and
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior arrangements and understandings between the parties, either
written or oral, with respect to its subject matter.
20
6.4 Binding Effect of
Subscription. The Purchaser hereby acknowledges and agrees, subject to
any applicable state securities laws that the subscription and application
hereunder are irrevocable, that the Purchaser is not entitled to cancel,
terminate or revoke this Agreement and that this Agreement shall survive the
death or disability of the Purchaser and shall be binding upon and inure to the
benefit of the Purchaser and his heirs, executors, administrators, successors,
legal representatives, and assigns. If the Purchaser is more than one
person, the obligations of the Purchaser hereunder shall be joint and several,
and the agreements, representations, warranties, and acknowledgments herein
contained shall be deemed to be made by and be binding upon each such person and
his heirs, executors, administrators, successors, legal representatives, and
assigns.
6.5 Captions. The table of
contents and captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
6.6 Amendments; Waivers. No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and the
Purchasers holding a majority of the Securities subscribed for in the Offering
or, in the case of a waiver, by the party against whom enforcement of any such
waiver is sought (in the case of the Purchasers, such waiver shall be in writing
and approved by a majority of the Purchasers). No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
6.7 Notices. Any
notice, demand or other communication which any party hereto may be required, or
may elect, to give to anyone interested hereunder shall be sufficiently given if
(a) deposited, postage prepaid, in a United States mail box, stamped, registered
or certified mail, return receipt requested, addressed to such address as may be
listed on the books of the Company, or, if to the Company, the Company’s
executive office, or (b) delivered personally at such
address.
6.8 Execution. This
Agreement may be executed through the use of separate signature pages or in any
number of counterparts, and each of such counterparts shall, or all purposes,
constitute one agreement binding on all parties, notwithstanding that all
parties are not signatories to the same counterpart.
6.9 Severability. Each
provision of this Agreement is intended to be severable from every other
provisions, and the invalidity or illegality of any portion hereof, shall not
affect the validity or legality of the remainder hereof.
6.10 Non-Assignment. This
Agreement is not transferable or assignable by the Purchaser except as may be
provided herein.
6.11 Governing Law. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Pennsylvania, without regard to the
principles of conflicts of law thereof. Each party agrees that all
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective Affiliates, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the State of Pennsylvania
(the “Pennsylvania
Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the Pennsylvania Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any proceeding, any claim that it is not personally subject to the jurisdiction
of any Pennsylvania Court, or that such proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby. If either party shall commence a
proceeding to enforce any provisions of this Agreement, then the prevailing
party in such proceeding shall be reimbursed by the other party for its
reasonable attorney’s fees and other reasonable costs and expenses incurred with
the investigation, preparation and prosecution of such
Proceeding.
21
6.12 Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the Company, the Purchasers and their respective successors and
permitted assigns.
Signature
pages to Subscription Agreement Follows
22
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT
IN WITNESS WHEREOF, the parties hereto
have executed or caused this Agreement to be executed by their signature as
natural persons or by individuals by their duly authorized officers as of the __
day of ____________, 2009.
|
THE
COMPANY:
|
|
Xxxxxx
X. Xxxxxx,
|
|
Chief
Executive
Officer
|
23
EXECUTION
BY AN INDIVIDUAL
(Not
applicable to entities)
|
IF
YOU ARE PURCHASING SECURITIES WITH YOUR SPOUSE, YOU MUST BOTH SIGN THIS
SIGNATURE
PAGE.
|
PLEASE
INDICATE DESIRED TYPE OF OWNERSHIP OF SECURITIES:
¨ Individual
¨ Joint
Tenants (rights of survivorship)
¨ Tenants
in Common (no rights of survivorship)
I
represent that the foregoing information is true and correct.
IN
WITNESS WHEREOF, the undersigned has duly executed this Subscription Agreement
and agrees to the terms hereof.
Dated:
__________________ ___, 2009
Subscription
Amount: $_____________
Number of
Shares of Common Stock to be purchased: _______________
|
(Name
of Investor - Please Print)
|
|
(Signature)
|
|
(Name
of co-Investor - Please Print)
|
|
(Signature
of
Co-Investor)
|
|
Exact name Shares are to be
issued under:
|
||
|
Address
for Delivery of Certificates
|
||
|
(if
not the same as in Questionnaire):
|
||
24
PARTNERSHIP
SIGNATURE PAGE
The
undersigned PARTNERSHIP hereby represents and warrants that the person signing
this Subscription Agreement on behalf of the PARTNERSHIP is a general partner of
the PARTNERSHIP, has been duly authorized by the PARTNERSHIP to acquire the
Securities and sign this Subscription Agreement on behalf of the PARTNERSHIP
and, further, that the undersigned PARTNERSHIP has all requisite authority to
purchase such Securities and enter into the Subscription Agreement.
IN
WITNESS WHEREOF, the undersigned has duly executed this Subscription Agreement
and agrees to the terms hereof.
Dated:
__________________ _____, 2009
Subscription
Amount: $_____________
Number of
Shares of Common Stock to be purchased: _______________
|
Name
of Partnership
|
|
|
(Please
Type or Print)
|
|
|
By:
|
|
|
(Signature)
|
|
|
Name:
|
|
|
(Please
Type or Print)
|
|
|
Title:
|
|
|
(Please
Type or
Print)
|
|
|
Exact name Shares are to be
issued under:
|
||
|
Address
for Delivery of Certificates
|
||
|
(if
not the same as in Questionnaire):
|
||
25
CORPORATION/LIMITED
LIABILITY COMPANY SIGNATURE PAGE
The
undersigned CORPORATION or LIMITED LIABILITY COMPANY hereby represents and
warrants that the person signing this Subscription Agreement on behalf of the
CORPORATION or LIMITED LIABILITY COMPANY has been duly authorized by all
requisite action on the part of the CORPORATION or LIMITED LIABILITY COMPANY to
acquire the Securities and sign this Subscription Agreement on behalf of the
CORPORATION or LIMITED LIABILITY COMPANY and, further, that the undersigned
CORPORATION or LIMITED LIABILITY COMPANY has all requisite authority to purchase
the Securities and enter into this Subscription Agreement.
IN
WITNESS WHEREOF, the undersigned has duly executed this Subscription
Agreement and agrees to the terms hereof.
Dated:
__________________ _____, 2009
Subscription
Amount: $_____________
Number of
Shares of Common Stock to be purchased: _______________
|
Name
of Corporation
|
|
|
Or
Limited Liability Company
|
|
|
(Please
Type or Print)
|
|
|
By:
|
|
|
Signature
|
|
|
Name:
|
|
|
(Please
Type or Print)
|
|
|
Title:
|
|
|
(Please
Type or
Print)
|
|
|
Exact name Shares are to be
issued under:
|
||
|
Address
for Delivery of Certificates
|
|
|
|
(if
not the same as in Questionnaire):
|
||
26
TRUST/RETIREMENT
PLAN SIGNATURE PAGE
The
undersigned TRUST or RETIREMENT PLAN hereby represents and warrants that the
persons signing this Subscription Agreement on behalf of the TRUST or RETIREMENT
PLAN are duly authorized to acquire the Securities and sign this Subscription
Agreement on behalf of the TRUST or RETIREMENT PLAN and, further, that the
undersigned TRUST or RETIREMENT PLAN has all requisite authority to purchase
such Securities and enter into the Subscription Agreement.
IN
WITNESS WHEREOF, the undersigned has duly executed this Subscription
Agreement and agrees to the terms hereof.
Dated:
__________________ _____, 2009
Subscription
Amount: $_____________
Number of
Shares of Common Stock to be purchased: _______________
|
Title
of Trust or Retirement Plan
|
|
|
(Please
Type or Print)
|
|
|
By:
|
|
|
Signature
of Trustee or
|
|
|
Authorized
Signatory
|
|
|
Name of Trustee:
|
|
|
(Please
Type or
Print)
|
|
By:
|
|
|
Signature
of Co-Trustee if applicable
|
|
Name of Co-Trustee:
|
|
|
(Please
Type or
Print)
|
|
Exact name Shares are to be
issued under:
|
||
|
Address
for Delivery of Certificates
|
||
|
(if
not the same as in Questionnaire):
|
||
27
