SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
dated
as of March 30, 2007, by and among Conspiracy Entertainment Holdings, Inc.,
a
Utah corporation (the “Company”),
and
the subscribers identified on the signature page hereto (each a “Subscriber”
and
collectively “Subscribers”).
WHEREAS,
the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “1933
Act”).
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided herein,
and the Subscribers, in the aggregate, shall subscribe to Eighty Thousand
Dollars ($80,000) (the "Purchase
Price")
of
promissory notes of the Company (“Note”
or
“Notes”),
a
form of which is annexed hereto as Exhibit
A,
convertible into shares of the Company's common stock, $0.001 par value (the
"Common
Stock")
at a
per share conversion price set forth in the Note (“Conversion
Price”).
The
Notes and the shares of Common Stock issuable upon conversion of the Notes
(the
“Shares”)
are
collectively referred to herein as the "Securities";
and
WHEREAS,
the
aggregate proceeds of the sale of the Notes contemplated hereby shall be held
in
escrow pursuant to the terms of a Funds Escrow Agreement to be executed by
the
parties substantially in the form attached hereto as Exhibit
B
(the
"Escrow
Agreement").
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:
1. Closing.
Subject
to the satisfaction or waiver of the terms and conditions of this Agreement,
on
the Closing Date, each Subscriber shall purchase and the Company shall sell
to
each Subscriber a Note in the principal amount designated on the signature
page
hereto for the purchase price set forth on the signature page hereto. The
consummation of the transactions contemplated herein shall take place at the
offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx,
Xxx Xxxx 00000, as soon as practicable following the satisfaction or waiver
of
all conditions to closing set forth in this Agreement (the “Closing
Date”).
2. Intentionally
Deleted.
3. Subscriber's
Representations and Warranties.
Such
Subscriber hereby represents and warrants to and agrees with the Company only
as
to such Subscriber that:
(a) Organization
and Standing of the Subscribers.
If the
Subscriber is an entity, such Subscriber is a corporation, partnership or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and
has
the requisite corporate power to own its assets and to carry on its
business.
(b) Authorization
and Power.
Each
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and to purchase the Notes being sold to it hereunder. The execution,
delivery and performance of this Agreement by such Subscriber and the
consummation by it of the transactions contemplated hereby and thereby have
been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or its Board of Directors,
stockholders, partners, members, as the case may be, is required. This Agreement
has been duly authorized, executed and delivered by such Subscriber and
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Subscriber enforceable against the Subscriber in
accordance with the term hereof.
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
such Subscriber of the transactions contemplated hereby or relating hereto
do
not and will not (i) result in a violation of such Subscriber’s charter
documents or bylaws or other organizational documents or (ii) conflict with,
or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Subscriber is a party or by which its
properties or assets are bound, or result in a violation of any law, rule,
or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Subscriber or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have
a
material adverse effect on such Subscriber). Such Subscriber is not required
to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or to purchase
the Notes in accordance with the terms hereof, provided that for purposes of
the
representation made in this sentence, such Subscriber is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Information
on Company.
The
Subscriber has been furnished with the audited financial statements of the
Company for the year ended December 31, 2005 (hereinafter referred to as the
"Reports").
Such
financial statements were prepared pursuant to General Accepted Accounting
Practices in the United States and fairly present in all material respects
the
financial position of the Company and its consolidated subsidiaries, if any,
as
of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject to normal, immaterial adjustments. In addition,
the Subscriber has received in writing from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested in writing (such other information is collectively,
the
"Other
Written Information"),
and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(e) Information
on Subscriber.
The
Subscriber is, and will be at the time of the conversion of the Notes, an
"accredited investor", as such term is defined in Regulation D promulgated
by
the Commission under the 1933 Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements
in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof. The information set forth on
the
signature page hereto regarding the Subscriber is accurate.
(f) Purchase
of Notes.
On the
Closing Date, the Subscriber will purchase the Notes as principal for its own
account for investment only and not with a view toward, or for resale in
connection with, the public sale or any distribution thereof, but Subscriber
does not agree to hold the Notes for any minimum amount of time.
(g) Compliance
with Securities Act.
The
Subscriber understands and agrees that the Securities have not been registered
under the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933
Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt
from such registration. Notwithstanding anything to the contrary contained
in
this Agreement, such Subscriber may transfer (without restriction and without
the need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an “accredited investor” under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an “Affiliate”
of
any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with
such
person or entity. Affiliate when employed in connection with the Company
includes each Subsidiary [as defined in Section 4(a)] of the Company. For
purposes of this definition, “control”
means
the power to direct the management and policies of such person or firm, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
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(h) Shares
Legend.
The
Shares shall bear the following or similar legend:
"THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW
OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO CONSPIRACY ENTERTAINMENT HOLDINGS,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(i) Note
Legend.
The
Note shall bear the following legend:
"THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CONSPIRACY ENTERTAINMENT HOLDINGS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(j) Communication
of Offer.
The
offer to sell the Securities was directly communicated to the Subscriber by
the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(k) Authority;
Enforceability.
This
Agreement and other agreements delivered together with this Agreement or in
connection herewith have been duly authorized, executed and delivered by such
Subscriber and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights generally and to general principles of equity;
and Subscriber has full corporate power and authority necessary to enter into
this Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Subscriber relating
hereto.
(l) No
Governmental Review.
Such
Subscriber understands that no United States federal or state agency or any
other governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the
offering of the Securities.
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(m) Correctness
of Representations.
Such
Subscriber represents that the foregoing representations and warranties are
true
and correct as of the date hereof and, unless such Subscriber otherwise notifies
the Company prior to the Closing Date shall be true and correct as of the
Closing Date.
(n) Survival.
The
foregoing representations and warranties shall survive the Closing Date until
three years after the Closing Date.
4. Company
Representations and Warranties.
The
Company represents and warrants to and agrees with each Subscriber that except
as set forth in the Reports or the Other Written Information and as otherwise
qualified in the Transaction Documents:
(a) Due
Incorporation.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
corporate power to own its properties and to carry on its business is disclosed
in the Reports.
The
Company is duly qualified as a foreign corporation to do business and is in
good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a “Material
Adverse Effect”
shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken individually, or in
the
aggregate, as a whole. For purposes of this Agreement, “Subsidiary”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by such
entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
4(a)
hereto.
(b) Outstanding
Stock.
All
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
(c) Authority;
Enforceability.
This
Agreement, the Note, the Escrow Agreement, and any other agreements delivered
together with this Agreement or in connection herewith (collectively
“Transaction
Documents”)
have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements enforceable against the Company in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into
and
deliver the Transaction Documents and to perform its obligations
thereunder.
(d) Additional
Issuances.
There
are no outstanding agreements or preemptive or similar rights affecting the
Company's or any of its Subsidiaries’ Common Stock or other equity and no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of any Common Stock or equity of the Company except as
described on Schedule
4(d).
The
Common Stock and all other equity of the Company and its Subsidiaries on a
fully
diluted basis outstanding as of the last trading day preceding the Closing
Date
is set forth on Schedule
4(d).
(e) Consents.
No
consent, approval, authorization or order of any court, governmental agency
or
body or arbitrator having jurisdiction over the Company, or any of its
Affiliates, any Principal Market (as defined in Section 9(b) of this Agreement),
nor the Company's shareholders is required for the execution by the Company
of
the Transaction Documents and compliance and performance by the Company of
its
obligations under the Transaction Documents, including, without limitation,
the
issuance and sale of the Securities.
4
(f) No
Violation or Conflict.
Assuming the representations and warranties of the Subscribers in Section 3
are
true and correct, neither the issuance and sale of the Securities nor the
performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default in any material respect) under (A) the articles
or certificate of incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency
or
body, or arbitrator having jurisdiction over the Company or over the properties
or assets of the Company or any of its Affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or
other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to
which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
or
(ii) result
in
the creation or imposition of any Lien (as defined in Section 9(r)(i)) upon
the
Securities or any of the assets of the Company or any of its Affiliates other
then Permitted Liens (as defined in Section 9(r)(i)); or
(iii) result
in
the activation of any anti-dilution rights or a reset or repricing of any debt
or security instrument of any other creditor or equity holder of the Company,
nor result in the acceleration of the due date of any obligation of the Company;
or
(iv) result
in
the activation of any piggy-back registration rights of any person or entity
holding securities or debt of the Company or having the right to receive
securities of the Company.
(g) The
Securities.
The
Securities upon issuance:
(i) are,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and
any
applicable state securities laws;
(ii) have
been, or will be, duly and validly authorized and on the date of issuance of
the
Shares, will be duly and validly issued, fully paid and nonassessable and,
if
registered pursuant to the 1933 Act and resold pursuant to an effective
registration statement, will be free trading and unrestricted except to the
extent of any restrictions pursuant to the 1933 Act or the Exchange Act that
may
be applicable to any Subscriber due to such Subscriber’s affiliate or insider
status with respect to the Company or such Subscriber’s possession of material
non-public information with respect to the Company;
(iii) will
not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
5
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders provided Subscriber’s representations herein are true and accurate and
Subscribers take no actions or fail to take any actions required for their
purchase of the Securities to be in compliance with all applicable laws and
regulations; and
(v) will
have
been issued in reliance upon an exemption from the registration requirements
of
and will not result in a violation of Section 5 under the 1933 Act provided
Subscriber’s representations herein are true and accurate and Subscribers take
no actions or fail to take any actions required for their purchase of the
Securities to be in compliance with all applicable laws and
regulations.
(h) Litigation.
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 of any of the Transaction Documents
or
the performance by the Company of its obligations under the Transaction
Documents. There is no pending or, to the best knowledge of the Company, basis
for or 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 would have
a
Material Adverse Effect.
(i) Reporting
Company.
The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13 of the Securities Exchange Act of 1934 (the “1934
Act”)
and
has a
class of common shares registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, the Company has timely filed all
reports and other materials required to be filed thereunder with the Commission
during the preceding thirty-six months.
(j) No
Market Manipulation.
The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock to
facilitate the sale or resale of the Securities or affect the price at which
the
Securities may be issued or resold, provided, however, that this provision
shall
not prevent the Company from engaging in investor relations/public relations
activities consistent with past practices.
(k) Information
Concerning Company.
The
Reports contain all material information relating to the Company and its
operations and financial condition as of their respective dates and all the
information required to be disclosed therein. Since the last day of the fiscal
year of the most recent audited financial statements included in the Reports
(“Latest
Financial Date”),
and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no Material Adverse Event relating to the Company's business,
financial condition or affairs not disclosed in the Reports. The Reports
including the financial statements therein do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of
the circumstances when made.
(l) Stop
Transfer.
The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Securities, except as may be required by any
applicable federal or state securities laws and unless contemporaneous notice
of
such instruction is given to the Subscriber.
(m) Defaults.
The
Company is not in violation of its certificate of incorporation or bylaws.
The
Company is (i) not in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect,
(ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under
any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority
which
violation would have a Material Adverse Effect.
6
(n) Not
an
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the OTC Bulletin Board (“Bulletin
Board”)
which
would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder. Nor will the Company
or
any of its Affiliates take any action or steps that would cause the offer or
issuance of the Securities to be integrated with other offerings which would
impair the exemptions relied upon in this Offering or the Company’s ability to
timely comply with its obligations hereunder. The Company will not conduct
any
offering other than the transactions contemplated hereby that will be integrated
with the offer or issuance of the Securities, which would impair the exemptions
relied upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder.
(o) No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 0000 Xxx)
in
connection with the offer or sale of the Securities.
(p) Listing.
The
Company's common stock is quoted on the Bulletin Board under the symbol CPYE.OB.
The Company has not received any oral or written notice that its common stock
is
not eligible nor will become ineligible for quotation on the Bulletin Board
nor
that its common stock does not meet all requirements for the continuation of
such quotation. The Company satisfies all the requirements for the continued
quotation of its common stock on the Bulletin Board.
(q) No
Undisclosed Liabilities.
The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company’s
businesses since the Latest Financial Date and which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse
Effect,
except
as disclosed on Schedule
4(q).
(r) No
Undisclosed Events or Circumstances.
Since
the Latest Financial Date, no event or circumstance has occurred or exists
with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has
not been so publicly announced or disclosed in the Reports.
(s) Capitalization.
The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and the Closing Date (not including the Securities) are set forth
on
Schedule
4(d).
Except
as set forth on Schedule
4(d),
there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company or any of its
Subsidiaries. All of the outstanding shares of Common Stock of the Company
have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) Dilution.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment
that
the issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Notes is binding upon the Company and enforceable against
the
Company regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company or parties entitled to receive
equity of the Company.
7
(u) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers, nor
have there been any such disagreements during the two years prior to the Closing
Date.
(v) Transfer
Agent/DTC Status.
The
Company’s transfer agent is a participant in and the Common Stock is eligible
for transfer pursuant to the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax number, contact
person and email address of the Company transfer agent is set forth on
Schedule
4(v)
hereto.
(w) Investment
Company.
Neither
the Company nor any Affiliate is an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.
(x) Subsidiary
Representations.
The
Company makes each of the representations contained in Sections 4(a), (b),
(c),
(d), (e), (f), (h), (k), (m), (q), (r), (u) and (w) of this Agreement, as same
relate to each Subsidiary of the Company.
(y) Company
Predecessor.
All
representations made by or relating to the Company of a historical or
prospective nature and all undertakings described in Sections 9(g) through
9(l)
shall relate, apply and refer to the Company and its predecessors, if
any.
(z) Solvency.
Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such amounts
are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).
(AA) Preservation
of Corporate Existence.
The
Company shall preserve and maintain its corporate existence, rights, privileges
and franchises in the jurisdiction of its incorporation, and qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its business or operations and where
the
failure to qualify or remain qualified might reasonably have a Material Adverse
Effect upon the financial condition, business or operations of the Company
and
its Subsidiaries taken as a whole.
(BB) Correctness
of Representations.
The
Company represents that the foregoing representations and warranties are true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to the Closing Date, shall
be
true and correct in all material respects as of the Closing Date.
(CC) Survival.
The
foregoing representations and warranties shall survive until three years after
the Closing Date.
8
5. Regulation
D Offering.
The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder. On the Closing Date, the Company will provide an opinion
reasonably acceptable to Subscriber from the Company's legal counsel opining
on
the availability of an exemption from registration under the 1933 Act as it
relates to the offer and issuance of the Securities and other matters reasonably
requested by Subscribers. A form of the legal opinion is annexed hereto as
Exhibit
C.
At the
Company’s option, the Company will provide, at the Company's expense or
reimburse Subscribers, such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Notes pursuant to an effective registration statement, Rule
144 under the 1933 Act or an exemption from registration.
6.1. Conversion
of Note.
(a) Upon
the
conversion of a Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue
stock
certificates in the name of Subscriber (or its permitted nominee) or such other
persons as designated by Subscriber and in such denominations to be specified
at
conversion representing the number of shares of Common Stock issuable upon
such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company's
Common Stock and that the certificates representing such shares shall contain
no
legend other than the usual 1933 Act restriction from transfer legend. If and
when the Subscriber sells the Shares, assuming (i) the Registration Statement
(as defined below) is effective and the prospectus, as supplemented or amended,
contained therein is current and (ii) the Subscriber confirms in writing to
the
transfer agent that the Subscriber has complied with the prospectus delivery
requirements, the restrictive legend can be removed and the Shares will be
free
trading, and freely transferable. In the event that the Shares are sold in
a
manner that complies with an exemption from registration, the Company will
promptly instruct its counsel to issue to the transfer agent an opinion
permitting removal of the legend (indefinitely, if pursuant to Rule 144(k)
of
the 1933 Act).
(b) Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, any sum due to the Subscriber under the Transaction Documents or
part
thereof by telecopying an executed and completed Notice
of Conversion
(a form
of which is annexed as Exhibit
A
to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement. The Subscriber will not be
required to surrender the Note
until
the Note has been fully converted or satisfied. Each date on which a Notice
of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion
Date.
The
Company will itself or cause the Company’s transfer agent to transmit the
Company's Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt by
such
Subscriber within four (4) business days after receipt by the Company of the
Notice of Conversion (such fourth day being the "Delivery
Date").
In
the event the Shares are electronically transferable, then delivery of the
Shares must
be made
by electronic transfer provided request for such electronic transfer has been
made by the Subscriber
and the Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation,
the
prospectus delivery requirements. A Note representing the balance of the Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided the Subscriber delivers the
original Note to the Company. In the event that a Subscriber elects not to
surrender a Note for reissuance upon partial payment or conversion, the
Subscriber hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note. “Business
day”
and
“trading
day”
as
employed in the Transaction Documents is a day that the New York Stock Exchange
is open for trading for three or more hours.
(c) The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 6.1 hereof, or the Mandatory Redemption Amount
described in Section 6.2 hereof, respectively after the Delivery Date or the
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty)
to
the Subscriber for late issuance of Shares in the form required pursuant to
Section 6.1 hereof upon Conversion of the Note in the amount of $100 per
business day after the Delivery Date for each $10,000 of Note principal amount
being converted of the corresponding Shares which are not timely delivered.
The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Subscriber, in the event that the Company fails
for any reason to effect delivery of the Shares by the Delivery Date or make
payment by the Mandatory Redemption Payment Date, the Subscriber may revoke
all
or part of the relevant Notice of Conversion or rescind all or part of the
notice of Mandatory Redemption by delivery of a notice to such effect to the
Company whereupon the Company and the Subscriber shall each be restored to
their
respective positions immediately prior to the delivery of such notice, except
that the liquidated damages described above shall be payable through the date
notice of revocation or rescission is given to the Company.
9
(d) Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed by
the
Company to the Subscriber and thus refunded to the Company.
6.2. Mandatory
Redemption at Subscriber’s Election.
In the
event (i) the Company is prohibited from issuing Shares, (ii) the Company fails
to timely deliver Shares on a Delivery Date, (iii) upon the occurrence of any
other Event of Default (as defined in the Note or in this Agreement), any of
the
foregoing that continues for more than twenty (20) business days, (iv) a Change
in Control (as defined below), or (v) of the liquidation, dissolution or winding
up of the Company, then at the Subscriber's election, the Company must pay
to
the Subscriber ten (10) business days after request by the Subscriber
(“Calculation
Period”),
a sum
of money determined by multiplying up to the outstanding principal amount of
the
Note designated by the Subscriber by 120%, together with accrued but unpaid
interest thereon ("Mandatory
Redemption Payment").
The
Mandatory Redemption Payment must be received by the Subscriber on the same
date
as the Shares otherwise deliverable or within ten (10) business days after
request, whichever is sooner ("Mandatory
Redemption Payment Date").
Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 6.1(c) hereof, that have been paid or accrued
for
the ten day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment. For purposes of this Section 6.2, “Change
in Control”
shall
mean (i) the Company no longer having a class of shares publicly traded,
included for quotation or listed on a Principal Market, (ii) the Company
becoming a Subsidiary of another entity (other than a corporation formed by
the
Company for purposes of reincorporation in another U.S. jurisdiction), (iii)
a
majority of the board of directors of the Company as of the Closing Date no
longer serving as directors of the Company except due to natural causes, (iv)
the sale, lease or transfer of substantially all the assets of the Company
or
Subsidiaries, (v) if the holders of the Company’s Common Stock as of the Closing
Date beneficially own at any time after the Closing Date less than forty percent
of the Common Stock owned by them on the Closing Date, or (vi) if the Chief
Executive Officer of the Company, as of the Closing Date, no longer serves
as
Chief Executive Officer of the Company.
6.3. Maximum
Conversion.
The
Subscriber shall not be entitled to convert on a Conversion Date that amount
of
the Note in connection with that number of shares of Common Stock which would
be
in excess of the sum of (i) the number of shares of common stock beneficially
owned by the Subscriber and its Affiliates on a Conversion Date, and (ii) the
number of shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Subscriber
and its Affiliates of more than 4.99% of the outstanding shares of common stock
of the Company on such Conversion Date. Beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate exercises which would result in
the
issuance of more than 4.99%. The
restriction described in this paragraph may be waived, in whole or in part,
upon sixty-one (61) days prior notice from the Subscriber to the Company to
increase such percentage to up to 9.99%, but not in excess of 9.99%. The
Subscriber may decide whether to convert a Convertible Note to achieve an actual
4.99% or up to 9.99% ownership position as described above, but not in excess
of
9.99%.
10
6.4. Injunction
Posting of Bond.
In the
event a Subscriber shall elect to convert a Note or part thereof, the Company
may not refuse conversion based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of such Note shall have
been sought and obtained by the Company
or at
the Company’s request or with the Company’s assistance, and
the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the outstanding principal and interest of the Note, or
aggregate purchase price of the Shares which are sought to be subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor.
6.5. Buy-In.
In
addition to any other rights available to the Subscriber, if the Company fails
to deliver to the Subscriber such shares issuable upon conversion of a Note
by
the Delivery Date and if after seven (7) business days after the Delivery Date
the Subscriber or a broker on the Subscriber’s behalf, purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "Buy-In"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall
be
paid as liquidated damages and not as a penalty). For
example, if the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of note principal and/or interest, the Company shall
be
required to pay the Subscriber $1,000,
plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
6.6. Adjustments.
The
Conversion Price and amount of Shares issuable upon conversion of the Notes
shall be adjusted as described in this Agreement and the Notes.
6.7. Redemption.
The
Note shall not be redeemable or mandatorily convertible except as described
in
the Note.
7. Finder/Due
Diligence Fee.
(a) Finder’s
Commission.
The
Company on the one hand, and each Subscriber (for himself only) on the other
hand, agrees to indemnify the other against and hold the other harmless from
any
and all liabilities to any persons claiming brokerage commissions or similar
fees other than the party identified on Schedule
8
hereto
(the “Finder”)
on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party’s actions. Anything in this
Agreement to the contrary notwithstanding, each Subscriber is providing
indemnification only for such Subscriber’s own actions and not for any action of
any other Subscriber. Each Subscriber’s liability hereunder is several and not
joint. The Company agrees that it will pay the Finder on the Closing Date
directly out of the funds held pursuant to the Escrow Agreement (“Finder’s
Fees”)
as
more fully described on Schedule
8
hereto.
The Company represents that there are no other parties entitled to receive
fees,
commissions, or similar payments in connection with the Offering.
11
(b) Due
Diligence Fee.
The
Company will pay a due diligence fee (“Due
Diligence Fee”)
described on Schedule
8 hereto
to
the parties identified on Schedule
8
hereto
(“Due
Diligence Fee Recipient”).
8. Legal
Fees.
The
Company shall pay to Grushko & Xxxxxxx, P.C., a cash fee of $5,000
(“Legal
Fees”)
as
reimbursement for services rendered to the Subscribers in connection with this
Agreement and the purchase and sale of the Notes (the “Offering”).
The
Legal Fees and reimbursement for estimated UCC searches, if any (less any
amounts paid prior to a Closing Date), and estimated printing and shipping
costs
for the closing statements to be delivered to Subscribers, will be payable
on
the Closing Date out of funds held pursuant to the Escrow
Agreement.
9. Covenants
of the Company.
The
Company covenants and agrees with the Subscribers as follows:
(a) Stop
Orders.
The
Company will advise the Subscribers, within two hours after the Company receives
notice of issuance by the Commission, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale
in
any jurisdiction, or the initiation of any proceeding for any such
purpose.
(b) Listing.
The
Company shall promptly secure the listing or the inclusion for quotation of
the
shares of Common Stock upon each national securities exchange, or electronic
or
automated quotation system upon which they are or become eligible for listing
or
quotation and shall maintain such listing or quotation so long as any Notes
are
outstanding. The Company will maintain the listing or quotation of its Common
Stock on the American Stock Exchange, Nasdaq Capital Market, Nasdaq National
Market System, Bulletin Board, Pink Sheets or New York Stock Exchange (whichever
of the foregoing is at the time the principal trading exchange or market for
the
Common Stock (the “Principal
Market”)),
and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting or exclusion from
quotation of the Common Stock from any Principal Market. As of the date of
this
Agreement, the Bulletin Board is the Principal Market.
(c) Market
Regulations.
The
Company shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to Subscriber.
(d) Filing
Requirements.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares have been resold or transferred
by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company will (A) cause its Common
Stock to continue to be registered under Section 12(b) or 12(g) of the 1934
Act,
(B) comply in all respects with its reporting and filing obligations under
the
1934 Act, (C) voluntarily comply with all reporting requirements that are
applicable to an issuer with a class of shares registered pursuant to Section
12(g) of the 1934 Act, if Company is not subject to such reporting requirements,
and (D) comply with all requirements related to any registration statement
filed
pursuant to this Agreement. The Company will use its best efforts not to take
any action or file any document (whether or not permitted by the 1933 Act or
the
1934 Act or the rules thereunder) to terminate or suspend such registration
or
to terminate or suspend its reporting and filing obligations under said acts
until two (2) years after the Closing Date. Until the earlier of the resale
of
the Shares by each Subscriber or two (2) years after the Closing Date, the
Company will use its best efforts to continue the listing or quotation of the
Common Stock on a Principal Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of
the Principal Market. The Company agrees to timely file a Form D with respect
to
the Securities if required under Regulation D and to provide a copy thereof
to
each Subscriber promptly after such filing.
12
(e) Use
of
Proceeds.
The
proceeds of the Offering will be employed by the Company for the purposes set
forth on Schedule
9(e)
hereto.
Except as set forth on Schedule
9(e),
the
Purchase Price may not and will not be used for accrued and unpaid officer
and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company, litigation related expenses or
settlements, brokerage fees, nor non-trade obligations outstanding on a Closing
Date.
(f) Reservation.
Prior
to the Closing Date, the Company undertakes to reserve, pro rata,
on
behalf of the Subscribers from its authorized but unissued common stock, a
number of common shares equal to 150%
of
the amount of Common Stock necessary to allow each Subscriber to be able to
convert all Notes issuable pursuant to this Agreement and interest thereon.
Failure to have sufficient shares reserved pursuant to this Section 9(f) shall
be a material default of the Company’s obligations under this Agreement and an
Event of Default under the Note.
(g) Taxes.
From
the date of this Agreement and until the conversion or satisfaction of the
Note,
in its entirety, the Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall
have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
(h) Insurance.
From
the date of this Agreement and until the conversion or satisfaction of the
Note,
in its entirety, the Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss
or
damage by fire, explosion and other risks customarily insured against by
companies in the Company’s line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured less
reasonable deductible amounts; and the Company will maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner customary
for
companies in similar businesses similarly situated and to the extent available
on commercially reasonable terms.
(i) Books
and Records.
From the
date of this Agreement and until the conversion or satisfaction of the Note,
in
its entirety, the Company will keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions
in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.
(j) Governmental
Authorities.
From the
date of this Agreement and until the conversion or satisfaction of the Note,
in
its entirety, the Company shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to
the
conduct of its business or to its properties or assets.
(k) Intellectual
Property.
From
the date of this Agreement and until the conversion or satisfaction of the
Note,
in its entirety, the Company shall maintain in full force and effect its
corporate existence, rights and franchises and all licenses and other rights
to
use intellectual property owned or possessed by it and reasonably deemed to
be
necessary to the conduct of its business, unless it is sold for
value.
13
(l) Properties.
From the
date of this Agreement and until the conversion or satisfaction of the Note,
in
its entirety, the Company will keep its properties in good repair, working
order
and condition, reasonable wear and tear excepted, and from time to time make
all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a Material Adverse
Effect.
(m) Confidentiality/Public
Announcement.
From the
date of this Agreement and until the sooner of (i) three (3) years after the
Closing Date, or (ii) until all the Shares have been resold or transferred
by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company agrees that except in
connection with a Form 8-K or the Registration Statement or as otherwise
required in any other Commission filing, it will not disclose publicly or
privately the identity of the Subscribers unless expressly agreed to in writing
by a Subscriber, only to the extent required by law and then only upon five
days
prior notice to Subscriber. In any event and subject to the foregoing, the
Company shall file
a
Form 8-K or make a public announcement describing the Offering not later than
the first business day after the Closing Date. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of common stock
outstanding immediately after the Closing. A form of the proposed Form 8-K
or
public announcement to be employed in connection with the Closing is annexed
hereto as Exhibit
D.
(n) Further
Registration Statements.
Except
for a registration statement filed on behalf of the Subscribers pursuant to
Section 11 of this Agreement and registration of the Company’s securities issued
under certain Securities Purchase Agreements dated as of August 31, 2004,and
January 31, 2005, as amended pursuant to an Amendment, Modification and Consent
to Transaction Documents Agreement, dated as of August 5,2005 and further
amended pursuant to the Second Amendment, Modification and Consent to
Transaction Documents Agreement, dated as of August 11, 2006, the Company will
not file with the Commission or with state regulatory authorities, any
registration statements including but not limited to Forms S-8, or amend any
already filed registration statement to increase the amount of Common Stock
registered therein, or reduce the price of which such Common Stock is registered
therein without the consent of the Subscriber until the expiration of the
“Exclusion
Period”,
which
shall be defined as the first to occur of (i) the Registration Statement having
been current and available for use in connection with the resale of all of
the
Registrable Securities (as defined in Section 11.1(i)) for a period of 365
days,
(ii) until all the Shares have been resold or transferred by the Subscribers
pursuant to the Registration Statement or Rule 144, without regard to volume
limitations, or (iii) the satisfaction of the Notes. The Exclusion Period will
be tolled during the pendency of an Event of Default as defined in the
Note.
(o) Non-Public
Information.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf will provide any Subscriber or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber shall
be
relying on the foregoing representations in effecting transactions in securities
of the Company. The Company will offer to the Subscriber an opportunity to
review and comment on the Registration Statement thereto between three and
five
business days prior to the proposed filing date thereof.
(p) Additional
Negative Covenants.
So long
as the Notes are outstanding and during the pendency of an Event of Default
(as
defined in the Note), without the consent of the Subscribers, the Company will
not and will not permit any of its Subsidiaries to directly or
indirectly:
(i) create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”)
upon
any of its property, whether now owned or hereafter acquired except for (i)
the
Excepted Issuances, (ii) (a) Liens imposed by law for taxes that are not yet
due
or are being contested in good faith and for which adequate reserves have been
established in accordance with generally accepted accounting principles; (b)
carriers’, warehousemen’s, mechanics’, material men’s, repairmen’s and other
like Liens imposed by law, arising in the ordinary course of business and
securing obligations that are not overdue by more than 30 days or that are
being
contested in good faith and by appropriate proceedings; (c) pledges and deposits
made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or
regulations; (d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; (e) Liens created with respect to the financing of the purchase of
new
property in the ordinary course of the Company’s business up to the amount of
the purchase price of such property, or (f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property (each of (a) through (g), a “Permitted
Lien”)
and
(iii) indebtedness for borrowed money which is not senior or pari passu in
right
of payment to the payment of the Notes;
14
(ii) amend
its
certificate of incorporation or bylaws so as to adversely affect any rights
of
the Subscriber;
(iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents;
(iv) prepay
any financing related or other outstanding debt obligations; or
(v) engage
in
any transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $10,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
for
other employee benefits, including stock option agreements under any stock
option plan of the Company.
10. Covenants
of the Company and Subscriber Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation
by
Company or material breach of any warranty by Company in this Agreement or
in
any Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any material
breach or default in performance by the Company of any covenant or undertaking
to be performed by the Company hereunder, or any other agreement entered into
by
the Company and Subscriber relating hereto.
(b) Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, Affiliates, control
persons against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the
Company or any such person which results, arises out of or is based upon (i)
any
material misrepresentation by such Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any material
breach or default in performance by such Subscriber of any covenant or
undertaking to be performed by such Subscriber hereunder, or any other agreement
entered into by the Company and Subscribers, relating hereto.
15
(c) In
no
event shall the liability of any Subscriber or permitted successor hereunder
or
under any Transaction Document or other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber upon the sale of Registrable Securities
(as
defined herein).
(d) The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Sections 10(a) and 10(b) above.
11.1. Registration
Rights.
The
Company hereby grants the following registration rights to holders of the
Securities. If the Company at any time proposes to file a registration statement
to register any of its securities under the 1933 Act for sale to the public,
whether for its own account or for the account of other security holders or
both, except with respect to registration statements on Forms X-0, X-0 or
another form not available for registering other shares of Common Stock held
by
or purchasable by Subscriber as set forth on Schedule
11.1
(“Registrable
Securities”),
provided the Registrable Securities are not otherwise registered for resale
by
the Subscribers or Holder pursuant to an effective registration statement,
each
such time it will give at least fifteen (15) days' prior written notice to
the
record holder of the Registrable Securities of its intention so to do. Upon
the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested
to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the “Seller”
or
“Sellers”).
Unless instructed in writing to the contrary, the Subscribers hereby
automatically exercise the registration rights granted in this Section 11.1.
The
Seller is hereby given the same rights and benefits as any other party
identified in such registration. In the event that any registration pursuant
to
this Section 11.1 shall be, in whole or in part, an underwritten public offering
of common stock of the Company, the number of shares of Registrable Securities
to be included in such an underwriting may be reduced by the managing
underwriter if and to the extent that the Company and the underwriter shall
reasonably be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the foregoing provisions, or Section 11.4 hereof,
the
Company may withdraw or delay or suffer a delay of any registration statement
referred to in this Section 11.1 without thereby incurring any liability to
the
Seller due to such withdrawal or delay.
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 11.1 to effect
the
registration of any Registrable Securities under the 1933 Act, the Company
will,
as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect to
such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of
the
Registrable Securities copies of all filings and Commission letters of comment
and notify Subscribers (by telecopier and by e-mail addresses provided by
Subscribers) and Grushko & Xxxxxxx, P.C. (by telecopier and by email to
Xxxxxxxxx@xxx.xxx)
on or
before the first business day thereafter that the Company receives notice that
(i) the Commission has no comments or no further comments on the Registration
Statement, and (ii) the registration statement has been declared effective
(failure to timely provide notice as required by this Section 11.2(a) shall
be a
material breach of the Company’s obligation and an Event of Default as defined
in the Notes
and
a Non-Registration Event as defined in Section 11.4 of this Agreement);
16
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with
the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
(c) furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;
(d) use
its
commercially
reasonable best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or “blue sky” laws
of New York and such jurisdictions as the Sellers shall request in writing,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service
of
process in any such jurisdiction;
(e) if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) notify
the Subscribers within two hours of the Company’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act,
of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the Registrable
Securities;
(g) provided
same would not be in violation of the provision of Regulation FD under the
1934
Act, make available for inspection by the Sellers, and any attorney, accountant
or other agent retained by the Seller or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents
and
properties of the Company, and cause the Company's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the seller, attorney, accountant or agent in connection
with such registration statement; and
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto
five
business days prior to the filing thereof with the Commission.
11.3. Provision
of Documents.
In
connection with each registration described in this Section 11, each Seller
will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
11.4. Non-Registration
Events.
The
Company and the Subscribers agree that the Sellers will suffer damages if the
Company does not comply with its obligations set forth in Section
11.1.
11.5. Expenses.
All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky” laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
and registrars, costs of insurance and fee of one counsel for all Sellers are
called “Registration
Expenses.”
All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any additional
counsel to the Seller, are called "Selling
Expenses."
The
Company will pay all Registration Expenses in connection with the registration
statement under Section 11. Selling Expenses in connection with each
registration statement under Section 11 shall be borne by the Seller and may
be
apportioned among the Sellers in proportion to the number of shares sold by
the
Seller relative to the number of shares sold under such registration statement
or as all Sellers thereunder may agree.
17
11.6. Indemnification
and Contribution.
(a) In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions
of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
to
the Seller to the extent that any such damages arise out of or are based upon
an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by
the
Company to the Seller with or prior to the delivery of written confirmation
of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement
or
alleged untrue statement or such omission or alleged omission, or (iii) to
the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller,
or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In
the
event of a registration of any of the Registrable Securities under the 1933
Act
pursuant to Section 11, each Seller severally but not jointly will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage
or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability
of
the Seller hereunder shall be limited to the net proceeds actually received
by
the Seller from the sale of Registrable Securities covered by such registration
statement.
18
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 11.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake
the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.6(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
11.6 but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may
be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6;
then, and in each such case, the Company and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will not
be
required to contribute any amount in excess of the public offering price of
all
such securities sold by it pursuant to such registration statement; and (z)
no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the 0000 Xxx) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery
of Unlegended Shares.
(a) Within
three (3) business days (such third business day being the “Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a representation that
the
prospectus delivery requirements, or the requirements of Rule 144, as applicable
and if required, have been satisfied, and (ii) the original share certificates
representing the shares of Common Stock that have been sold, and (iii) in the
case of sales under Rule 144, customary representation letters of the Subscriber
and/or Subscriber’s broker regarding compliance with the requirements of Rule
144, the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver to its transfer agent (with copies
to
Subscriber) an appropriate instruction and opinion of such counsel, directing
the delivery of shares of Common Stock without any legends including the legend
set forth in Section 4
above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the
1933
Act (the “Unlegended
Shares”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted Shares certificate, if any, to the Subscriber at the address specified
in the notice of sale, via express courier, by electronic transfer or otherwise
on or before the Unlegended Shares Delivery Date.
19
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, if
the
Company’s transfer agent is participating in the Depository Trust Company
(“DTC”)
Fast
Automated Securities Transfer program, upon request of a Subscriber, so long
as
the certificates therefor do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the
Company must cause its transfer agent to electronically transmit the Unlegended
Shares by crediting the account of Subscriber’s prime Broker with DTC through
its Deposit Withdrawal Agent Commission system. Such delivery must be made
on or
before the Unlegended Shares Delivery Date.
(c) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof after the Unlegended Shares Delivery Date could
result in economic loss to Subscriber. As compensation to Subscriber for such
loss, the Company agrees to pay late payment fees (as liquidated damages and
not
as a penalty) to the Subscriber for late delivery of Unlegended Shares in the
amount of $100 per business day after the Delivery Date for each $10,000 of
Purchase Price of the Unlegended Shares subject to the delivery default. If
during any 360 day period, the Company fails to deliver Unlegended Shares as
required by this Section 11.7 for an aggregate of thirty (30) days, then each
Subscriber or assignee holding Securities subject to such default may, at its
option, require the Company to redeem all or any portion of the Shares subject
to such default at a price per share equal to 120% of the Purchase Price of
such
Shares (“Unlegended
Redemption Amount”).
(d) In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"), then
the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of common stock so purchased exceeds (B) the aggregate purchase
price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares
together
with interest thereon at a rate of 15% per annum, accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000,
plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
(e) In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 11.7 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or
for
any other reason, unless, an injunction or temporary restraining order from
a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares shall have been sought and obtained by the Company or at the Company’s
request or with the Company’s assistance, and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount
of
the aggregate purchase price of the Common Stock which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber’s favor.
20
12. (a) Favored
Nations Provision.
Except
in
connection with (i) full or partial consideration in connection with a strategic
merger, acquisition, consolidation or purchase of substantially all of the
securities or assets of corporation or other entity provided such issuances
are
not for the purpose of raising capital which holders of such securities or
debt
are not at any time granted registration rights, (ii)
the
Company’s issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital and which
holders of such securities or debt are not at any time granted registration
rights,
(iii)
the Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock pursuant to stock option plans and employee stock purchase
plans described on Schedule
4(d)
hereto
at prices equal to or higher than the closing price of the Common Stock on
the
issue date of any of the foregoing, (iv) as a result of the conversion of Notes
which are granted or issued pursuant to this Agreement or that have been issued
prior to the Closing Date, the issuance of which has been disclosed in a Report
filed not less than five (5) days prior to the Closing Date, and (v) the payment
of any interest on the Notes and Liquidated Damages pursuant to the Transaction
Documents (collectively
the foregoing are “Excepted
Issuances”),
if at
any time while Notes are outstanding the Company shall offer, issue or agree
to
issue any common stock or securities convertible into or exercisable for shares
of common stock (or modify any of the foregoing which may be outstanding) to
any
person or entity at a price per share or conversion or exercise price per share
which shall be less than the Conversion Price in respect of the Shares, without
the consent of each Subscriber holding Notes or Shares, then the Company shall
issue, for each such occasion, additional shares of Common Stock to each
Subscriber so that the average per share purchase price of the shares of Common
Stock issued to the Subscriber (of only the Common Stock still owned by the
Subscriber) is equal to such other lower price per share and the Conversion
Price shall automatically be adjusted as provided in the Notes. The delivery
to
the Subscriber of the additional shares of Common Stock shall be not later
than
two (2) business days after the closing date of the transaction giving rise
to
the requirement to issue additional shares of Common Stock. The Subscriber
is
granted the registration rights described in Section 11 hereof in relation
to
such additional shares of Common Stock except that the Filing Date and Effective
Date vis-à-vis such additional common shares shall be, respectively, the
thirtieth (30th)
and
ninetieth (90th)
date
after the closing date giving rise to the requirement to issue the additional
shares of Common Stock. For purposes of the issuance and adjustment described
in
this paragraph, the issuance of any security of the Company carrying the right
to convert such security into shares of Common Stock or of any warrant, right
or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the sooner of the agreement to or actual issuance
of
such convertible security, warrant, right or option and again at any time upon
any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price in effect upon such issuance. The rights of the Subscriber
set
forth in this Section 12 are in addition to any other rights the Subscriber
has
pursuant to this Agreement, the Note, any Transaction Document, and any other
agreement referred to or entered into in connection herewith. The Subscriber
is
also given the right to elect to substitute any term or terms of any other
offering in connection with which the Subscriber has rights as described in
Section 12(a), for any term or terms of the Offering in connection with
Securities owned by Subscriber as of the date the notice described in Section
12(a) is required to be given to Subscriber.
(b) Maximum
Exercise of Rights.
In the
event the exercise of the rights described in Section 12(a) would
result in the issuance of an amount of common stock of the Company that would
exceed the maximum amount that may be issued to a Subscriber calculated in
the
manner described in Section 7.3 of this Agreement, then the issuance of such
additional shares of common stock of the Company to such Subscriber will be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such common stock without exceeding the maximum amount set
forth calculated in the manner described in Section 7.3 of this Agreement.
The
determination of when such common stock may be issued shall be made by each
Subscriber as to only such Subscriber.
21
13. Security
Interest.
On or
about August 31, 2004 and January 31, 2005, the Subscribers were granted a
security interest in assets of the Company, as amended pursuant to the Amendment
and Security Interest Agreements on August 5, 2005 and August 11, 2006. The
security interest was memorialized in Security Agreements. The Company will
execute such other agreements, documents and financing statements reasonably
requested by Subscribers to affirm such security agreement, which will be filed
at the Company’s expense with such jurisdictions, states and counties designated
by the Subscribers. The
Company will also execute all such documents reasonably necessary in the opinion
of Subscribers to memorialize and further protect the security interest
described herein. The Subscribers appointed a Collateral Agent to represent
them
collectively in connection with the security interest. The appointment was
pursuant to a Collateral Agent Agreement. The Notes and all sums due under
the
Notes and the Transaction Documents are included in the term “Obligations”
as
defined in the Security Agreements and are secured by the Collateral (as defined
in the Security Agreements) in the same manner and having the same priority
as
granted to the Subscribers pursuant to the Security Agreements.
14. Miscellaneous.
(a) Notices.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: Conspiracy
Entertainment Holdings, Inc., 000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx Xxxxxx, XX
00000, Attn: Xxxxx Xxxxxx, CFO, telecopier: (000) 000-0000, with a copy by
telecopier only to: Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP, 0000 Xxxxxx xx Xxxxxxxx, 00xx
Xxxxx,
Xxx Xxxx, XX 00000, Attn: Xxxx X. Xxxx, Esq., telecopier:
(000) 000-0000, and (ii) if to the Subscriber, to: the one or more addresses
and
telecopier numbers indicated on the signature pages hereto, with an additional
copy by telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier: (000) 000-0000.
(b) Entire
Agreement; Assignment.
This
Agreement and other documents delivered in connection herewith represent the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No right
or obligation of the Company shall be assigned without prior notice to and
the
written consent of the Subscribers.
(c)
Counterparts/Execution.
This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d) Law
Governing this Agreement.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to conflicts
of laws
principles that would result in the application of the substantive laws of
another jurisdiction. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought
only
in the civil or state courts of New York or in the federal courts located in
New
York County. The
parties and the individuals executing this Agreement and other agreements
referred to herein or delivered in connection herewith on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by
jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
22
(e) Specific
Enforcement, Consent to Jurisdiction.
To the
extent permitted by law, the Company and Subscriber acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to one or more preliminary and final injunctions to prevent or cure breaches
of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any
of
them may be entitled by law or equity. Subject to Section 14(d) hereof, each
of
the Company, Subscriber and any signator hereto in his personal capacity hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction in New York of
such
court, that the suit, action or proceeding is brought in an inconvenient forum
or that the venue of the suit, action or proceeding is improper. Nothing in
this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
(f) Damages.
In the
event the Subscriber is entitled to receive any liquidated damages pursuant
to
the Transactions, the Subscriber may elect to receive the greater of actual
damages or such liquidated damages.
(g) Independent
Nature of Subscribers.
The
Company acknowledges that the obligations of each Subscriber under the
Transaction Documents are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The
Company acknowledges that each Subscriber has represented that the decision
of
each Subscriber to purchase Securities has been made by such Subscriber
independently of any other Subscriber and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company which may have been made or given by
any
other Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The
Company acknowledges that nothing contained in any Transaction Document, and
no
action taken by any Subscriber pursuant hereto or thereto (including, but not
limited to, the (i) inclusion of a Subscriber in the Registration Statement
and
(ii) review by, and consent to, such Registration Statement by a Subscriber)
shall be deemed to constitute the Subscribers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to
such
obligations or the transactions contemplated by the Transaction Documents.
The Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for
any other Subscriber to be joined as an additional party in any proceeding
for
such purpose. The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience
of
the Company and not because Company was required or requested to do so by the
Subscribers. The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
23
(h) Consent.
As used
in the Agreement, “consent of the Subscribers” or similar language means the
consent of holders of not less than 75% of the total of the Shares issued and
issuable upon conversion of outstanding Notes owned by Subscribers on the date
consent is requested.
(i) Equal
Treatment.
No
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of the Transaction Documents unless
the
same consideration is also offered and paid to all the parties to the
Transaction Documents.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
24
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (A)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
CONSPIRACY
ENTERTAINMENT HOLDINGS, INC.
a
Utah corporation
|
||
| |
|
|
| By: | ||
|
Name:
Title:
Dated:
March ____, 2007
|
||
|
SUBSCRIBER
|
NOTE
PRINCIPAL AND
PURCHASE
PRICE
|
|
ALPHA
CAPITAL ANSTALT
Pradafant
7
9490
Furstentums
Vaduz,
Lichtenstein
Fax:
000-00-00000000
________________________________________
(Signature)
By:
|
$40,000.00
|
25
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (B)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
CONSPIRACY
ENTERTAINMENT HOLDINGS, INC.
a
Utah corporation
|
||
| |
|
|
| By: | ||
|
Name:
Title:
Dated:
March ____, 2007
|
||
|
SUBSCRIBER
|
NOTE
PRINCIPAL AND
PURCHASE
PRICE
|
|
WHALEHAVEN
CAPITAL FUND LIMITED
0xx
Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx,
Xxxxxxx XX00
Fax:
(000) 000-0000
________________________________________
(Signature)
By:
|
$40,000.00
|
26
LIST
OF EXHIBITS AND SCHEDULES
|
Exhibit
A
|
Form
of Note
|
|
Exhibit
B
|
Escrow
Agreement
|
|
Exhibit
C
|
Form
of Legal Opinion
|
|
Exhibit
D
|
Form
of Form 8-K or Public Announcement
|
|
Schedule
4(a)
|
Subsidiaries
|
|
Schedule
4(d)
|
Additional
Issuances / Capitalization
|
|
Schedule
4(q)
|
Undisclosed
Liabilities
|
|
Schedule
4(v)
|
Transfer
Agent
|
|
Schedule
8
|
Finder/Due
Diligence Fee
|
|
Schedule
9(e)
|
Use
of Proceeds
|
|
Schedule
11.1
|
Other
Registrable Securities
|
SCHEDULES
| Schedule 4(a) |
Subsidiaries
|
NONE
| Schedule 4(d) |
Additional
Issuances / Capitalization
|
Capital
Stock
100,000,000
shares of common stock authorized, [37,785,509] issued and
outstanding
Convertible
Securities
|
Investor
|
Note
Amount
|
|
A
Warrants
|
|
Exp
Date
|
|
B
Warrants
|
|
Exp
Date
|
|||||||
|
Xxxxxxxxxxx
Limited Partnership
|
350,000
|
7,000,000
|
08/31/2009
|
7,000,000
|
expired
|
|||||||||||
|
Whalehaven
Fund Limited
|
100,000
|
2,000,000
|
08/31/2009
|
2,000,000
|
expired
|
|||||||||||
|
Whalehaven
Capital LP
|
100,000
|
2,000,000
|
08/31/2009
|
2,000,000
|
expired
|
|||||||||||
|
Alpha
Capital LG
|
500,000
|
10,000,000
|
08/31/2009
|
10,000,000
|
expired
|
|||||||||||
|
Whalehaven
Capital LP
|
50,000
|
1,000,000
|
08/31/2009
|
1,000,000
|
expired
|
|||||||||||
|
Xxxxxxxxxxx
Limited Partnership
|
150,000
|
3,000,000
|
02/28/2010
|
3,000,000
|
expired
|
|||||||||||
|
Whalehaven
Capital Fund Ltd
|
250,000
|
5,000,000
|
02/28/2010
|
5,000,000
|
expired
|
|||||||||||
|
Alpha
Capital LG
|
250,000
|
5,000,000
|
02/28/2010
|
5,000,000
|
expired
|
|||||||||||
|
Whalehaven
Capital Fund Ltd
|
111,800
|
none
|
none
|
|||||||||||||
|
Alpha
Capital Aktiengselleschaft
|
111,800
|
none
|
none
|
|||||||||||||
|
Alpha
Capital Anstalt
|
123,500
|
none
|
none
|
|||||||||||||
|
Whalehaven
Capital Fund Ltd
|
123,500
|
none
|
none
|
|||||||||||||
| Schedule 4(q) |
Undisclosed
Liabilities
|
NONE
| Schedule 4(v) |
Transfer
Agent
|
Xxxxxxx
Xxxxxxxx
Madison
Stock Transfer, Inc.
XX
Xxx
000-000
Xxxxxxxx,
XX 00000
P:
718-627-4453
F:
000-000-0000
| Schedule8 |
Finder/Due
Diligence Fee
|
NONE
| Schedule 9(e) |
Use
of Proceeds
|
$67,500 Investor
Relations
| Schedule 11.1 |
Other
Registrable Securities
|
Pursuant
to the terms under
certain Securities Purchase Agreements dated as of August 31, 2004,and January
31, 2005, as amended pursuant to an Amendment, Modification and Consent to
Transaction Documents Agreement, dated as of August 5,2005 and further amended
pursuant to the Second Amendment, Modification and Consent to Transaction
Documents Agreement, dated as of August 11, 2006, the Company has granted
registration rights to Alpha Capital Anstalt, Whalehaven Fund Limited,
Whalehaven Capital Fund Ltd., Xxxxxxxxxxx Limited Partnership and Whalehaven
Capital LP in connection with the issuance of the Company’s securities.
See
Schedule 4(d) above for a list of such securities.
