SUBSCRIPTION AGREEMENT
EXHIBIT
10.1
THIS
SUBSCRIPTION AGREEMENT (this “Agreement”), is dated as
of December 5, 2007, by and among Rim Semiconductor Company, 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 purchase for up to $6,000,000
(the
“Purchase Price”) up to $6,666,666.67 (the “Principal
Amount”) of principal amount 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”); and share purchase warrants (the “Warrants”),
in the form annexed hereto as Exhibit B, to purchase shares of
Common Stock (the “Warrant Shares”). The Notes,
shares of Common Stock issuable upon conversion of the Notes (the
“Shares”), the Warrants and the Warrant Shares are collectively
referred to herein as the “Securities”; and
WHEREAS,
the aggregate proceeds of the sale of the Notes and the Warrants 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 C (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
Date. The “Closing Date” shall be the date that
the Purchase Price is transmitted by wire transfer or otherwise credited to
or
for the benefit of the Company. 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, upon the
satisfaction or waiver of all conditions to closing set forth in this
Agreement. 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 indicated
thereon, and Warrants as described in Section 2 of this
Agreement. The Company shall have up to twenty (20) additional days
after the first Closing to close on the balance of the Purchase Price in one
or
more Closings. The Notes and Warrants to be issued on the additional
closing dates will have the same Maturity Dates and exercise periods,
respectively, as the Notes and Warrants issued on the First Closing
Date. The first such Closing Date shall be the Closing Date for all
amounts representing the Closing Purchase Price.
2. Warrants. On
the Closing Date, the Company will issue and deliver Class A Warrants to the
Subscribers. One Class A Warrant will be issued for each Share which
would be issued on the Closing Date assuming the complete conversion of the
Note
on the Closing Date at the Conversion Price set forth in Section 2.1 of the
Note. The exercise price to acquire a Warrant Share upon exercise of
a Class A Warrant shall be equal to $0.10, subject to reduction as described
in
the Class A Warrant. The Class A Warrants shall be exercisable until
five years after the issue date of the Class A Warrants.
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3. Security
Interest. The Subscribers will be granted a security interest in
the assets of the Company, including ownership of the Subsidiaries (as defined
in Section 5(a) of this Agreement) and in the assets of the Subsidiaries,
which security interest will be memorialized in a “Security
Agreement,” a form of which is annexed hereto as Exhibit
D. The Subsidiaries will guaranty the Company’s obligations under the
Transaction Documents [as defined in Section 5(c)]. Such guarantys
will be memorialized in a “Subsidiary Guaranty”, the form of
which is annexed hereto as Exhibit E. The Company
will execute such other agreements, documents and financing statements
reasonably requested by the Subscribers, which will be filed at the Company’s
expense with the jurisdictions, states and counties designated by the
Subscribers. The Company will also execute all such documents
reasonably necessary in the opinion of the Subscribers to memorialize and
further protect the security interest described herein. The
Subscribers will appoint a Collateral Agent to represent them collectively
in
connection with the security interests to be granted to the Subscribers. The
appointment of the Collateral Agent in connection with the Security Agreement
will be pursuant to a “Collateral Agent Agreement,” a form of
which is annexed hereto as Exhibit F.
4. Subscriber
Representations and Warranties. Each 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 such 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.
(b) Authorization
and Power. Such Subscriber has the requisite power and authority
to enter into and perform this Agreement and the other Transaction Documents
and
to purchase the Notes and Warrants being sold to it hereunder. The
execution, delivery and performance of this Agreement and the other Transaction
Documents 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 and the other Transaction
Documents have been duly authorized, executed and delivered by such Subscriber
and each constitutes, or shall constitute when executed and delivered, a valid
and binding obligation of such Subscriber enforceable against such Subscriber
in
accordance with the terms thereof.
(c) No
Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation by such
Subscriber of the transactions contemplated hereby and thereby 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 and the other
Transaction Documents or to purchase the Securities 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.
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(d) Information
on Company. Such Subscriber has been furnished with or has
had access at the XXXXX Website of the Commission to the Company’s Form 10-KSB
filed on February 5, 2007 for the fiscal year ended October 31, 2006, and the
financial statements included therein for the year ended October 31, 2006,
the
Company’s 10-QSB filed on March 14, 2007 and the financial statements included
for the quarter ended January 31, 2007, the Company’s 10-QSB filed on June 13,
2007 and the financial statements included for the quarter ended April 30,
2007,
the Company’s 10-QSB filed on September 14, 2007 and the financial
statements included for the quarter ended July 31, 2007, and the Company’s
definitive proxy statement filed on April 2, 2007, together with all subsequent
filings made with the Commission available at the XXXXX website (hereinafter
referred to collectively as the “Reports”). In
addition, such Subscriber may have received in writing from the Company such
other information concerning its operations, financial condition and other
matters as such Subscriber has requested in writing, identified thereon as
OTHER
WRITTEN INFORMATION (such other information is collectively, the “Other
Written Information”), and considered all factors such Subscriber deems
material in deciding on the advisability of investing in the
Securities.
(e) Information
on Subscriber. Such Subscriber is, and will be at the time of the
conversion of the Notes and exercise of the Warrants, 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 such 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. Such
Subscriber has the authority and is duly and legally qualified to purchase
and
own the Securities. Such 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 such Subscriber is accurate.
(f) Purchase
of Notes and Warrants. On the Closing Date, such Subscriber will
purchase the Notes and Warrants 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.
(g) Compliance
with Securities Act. Such 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 such 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. Such Subscriber will comply with all
applicable rules and regulations in connection with the sales of the Securities
including laws relating to short sales.
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(h) Shares
Legend. The Shares, and the Warrant Shares shall bear the
following or similar legend:
“THE
ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
NOR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”
(i) Warrants
Legend. The Warrants shall bear the following or similar
legend:
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”
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(j) Note
Legend. The Note shall bear the following legend:
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED
BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”
(k) Communication
of Offer. The offer to sell the Securities was directly
communicated to such Subscriber by the Company. At no time was such
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.
(l) 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 such Subscriber has full 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 such Subscriber relating hereto.
(m) Restricted
Securities. Such Subscriber understands that the Securities have
not been registered under the 1933 Act and such Subscriber will not sell, offer
to sell, assign, pledge, hypothecate or otherwise transfer any of the Securities
unless pursuant to an effective registration statement under the 1933 Act,
or
unless an exemption from registration is available. 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, such
Affiliate agrees to be bound by the terms and conditions of this Agreement,
and
written notice of such transfer is provided the Company within five (5) business
days of said transfer. 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
includes each Subsidiary 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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(n) Intentionally
Deleted.
(o) 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.
(p) Correctness
of Representations. Such Subscriber represents as to such
Subscriber 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.
(q) Survival. The
foregoing representations and warranties shall survive the Closing
Date.
5. Company
Representations and Warranties. The Company represents and
warrants to and agrees with each Subscriber that:
(a) Due
Incorporation. The Company is a corporation 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 properties and to carry on its business as presently
conducted. 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 purposes of this Agreement, a
“Material Adverse Effect” shall mean a material adverse effect
on the financial condition, results of operations, prospects, properties or
business of the Company and its Subsidiaries taken 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 30% 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. The Company’s Subsidiaries as of the Closing Date are set
forth on Schedule 5(a).
(b) Outstanding
Stock. All issued and outstanding shares of capital stock of the
Company and Subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable.
(c) Authority;
Enforceability. This Agreement, the Note, the Warrants, the
Security Agreement, Subsidiary Guaranty, Escrow Agreement, Lockup 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 Subsidiaries (as
applicable) and are valid and binding agreements of the Company 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. The Company has full corporate power and authority
necessary to enter into and deliver the Transaction Documents and to perform
its
obligations thereunder.
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(d) Additional
Issuances. There are no outstanding agreements or preemptive or
similar rights affecting the Company’s Common Stock or 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 shares of Common Stock or equity of the Company or Subsidiaries
or other equity interest in the Company except as described on Schedule
5(d). The Common Stock of the Company on a fully diluted
basis outstanding as of the last Business Day preceding the Closing Date is
set
forth on Schedule 5(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, the OTC Bulletin Board (the “Bulletin Board”) or
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. The Transaction Documents and
the Company’s performance of its obligations thereunder has been unanimously
approved by the Company’s Board of Directors.
(f) No
Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 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) except
as set forth on Schedule 5(f), 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) 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, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except
as described herein; or
(iii) except
as described on Schedule
5(f), 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) except
as described on Schedule 5(f), result in the triggering of any
piggy-back registration rights of any person or entity holding securities 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;
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(ii) have
been, or will be, duly and validly authorized and on the date of issuance of
the
Shares upon conversion of the Notes and the Warrant Shares and upon exercise
of
the Warrants, the Shares and Warrant Shares will be duly and validly issued,
fully paid and non-assessable and if registered pursuant to the 1933 Act and
resold pursuant to an effective registration statement will be free trading
and
unrestricted;
(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;
(iv) will
not subject the holders thereof to personal liability by reason of being such
holders; and
(v) assuming
the representations and warranties of the Subscribers as set forth in Section
4
hereof are true and correct, will not result in a violation of Section 5 under
the 1933 Act.
(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 or the performance by the Company
of
its obligations under the Transaction Documents. Except as disclosed
in the Reports, 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) Intentionally
Deleted.
(j) Information
Concerning Company. The Reports and Other Written Information
contain all material information relating to the Company and its operations
and
financial condition as of their respective dates which information is required
to be disclosed therein. Since the date of the financial
statements included in the Reports, 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 and Other Written Information 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, taken as a whole,
not misleading in light of the circumstances when made.
(k) 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.
(l) Defaults. The
Company is not in violation of its articles of incorporation or
bylaws. Except as set forth on Schedule 5(l), 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) not in
violation of any statute, rule or regulation of any governmental authority
which
violation would have a Material Adverse Effect.
8
(m) No
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 Bulletin Board which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder. Neither the Company nor any of its Affiliates will 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 that would impair the exemptions relied upon in
this
Offering or the Company’s ability to timely comply with its obligations
hereunder.
(n) 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.
(o) No
Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, other than
those incurred in the ordinary course of the Company businesses since October
31, 2006 and which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, except as disclosed in the Reports
or on Schedule 5(o).
(p) No
Undisclosed Events or Circumstances. Since October 31, 2006, 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.
(q) Capitalization. The
authorized and outstanding capital stock of the Company and Subsidiaries as
of
the date of this Agreement and the Closing Date (not including the Securities)
are set forth in the Reports or on Schedule
5(d). Except as set forth on Schedule 5(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.
(r) 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, and the Warrant Shares upon
exercise of the Warrants, is binding upon the Company and enforceable 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.
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(s) No
Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by
the
Company to arise between the Company and the accountants and lawyers 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.
(t) Investment
Company. Neither the Company nor any Affiliate of the Company is
an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.
(u) Foreign
Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has
(i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf
of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.
(v) Reporting
Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act
of
1934, as amended (the “1934 Act”) and has a class of Common
Stock registered pursuant to Section 12(g) of the 1934 Act. Pursuant
to the provisions of the 1934 Act, the Company has filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve months.
(w) Listing. The
Company’s Common Stock is quoted on the Bulletin Board under the symbol
RSMI.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.
(x) [Reserved].
(y) 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 Notes
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, after
the
receipt of proceeds from the sale of the Notes hereunder; 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).
10
(z) Company
Subsidiaries. Except as provided in Schedule
5(a), the Company makes each of the representations contained in
Sections 5(a), (b), (c), (d), (e), (f), (h), (j), (l), (o), (p), (q), (s),
(t)
and (u) of this Agreement, as same relate to the Subsidiary of the
Company. 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. The Company represents that it owns 100% of the
outstanding equity of the Subsidiaries and rights to receive equity of the
Subsidiaries free and clear of all liens, encumbrances and claims, except as
set
forth on Schedule 5(d). No person or entity other
than the Company has the right to receive any equity interest in the
Subsidiaries.
(AA) 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; provided, that, if such representation or warranty is
made
as of a different date in which case such representation or warranty shall
be
true in all material respects as of such date.
(BB) The
Company agrees and acknowledges that for purposes of Rule 144, the holding
period of all of the securities issued in the Bridge Loan Transaction with
Double U Master Fund LP and Professional Offshore Opportunity Fund Ltd., as
amended, modified and/or extended, commenced on its funding date, July 27,
2007,
respectively.
(CC) Survival. The
foregoing representations and warranties shall survive the Closing
Date.
6. Regulation
D Offering/Legal Opinion. 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 the Subscribers 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 G. The Company will
provide, at the Company’s expense, such other legal opinions, if any, as are
reasonably necessary in each Subscriber’s opinion for the issuance
and resale of the Common Stock issuable upon conversion of the Notes and
exercise of the Warrants pursuant to an effective registration statement, Rule
144 under the 1933 Act or an exemption from registration.
7.1. 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 a 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) such Subscriber
or its agent confirms in writing to the transfer agent that such Subscriber
has
complied with the prospectus delivery requirements, the Company will reissue
the
Shares without restrictive legend 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, or for ninety (90) days if pursuant to the other provisions of
Rule 144 of the 1933 Act, provided that Subscriber delivers all reasonably
requested representations in support of such opinion).
11
(b) A
Subscriber will give notice of its decision to exercise its right to convert
the
Note, interest, or part thereof by telecopying, or otherwise delivering a
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. Such
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
by 6 PM Eastern Time (“ET”) (or if received by the Company
after 6 PM ET then the next business day) 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 such Subscriber via express
courier for receipt by such Subscriber within three (3) business days after
receipt by the Company of the Notice of Conversion (such third 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. A Note representing the balance of the Note not so
converted will be provided by the Company to such Subscriber if requested by
Subscriber, provided such 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 of a Note, such
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.
(c) The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
described in Section 7.2 hereof, respectively later than the Delivery Date
or
the Mandatory Redemption Payment Date (as hereinafter defined) could result
in
economic loss to the Subscriber. As compensation to a Subscriber for
such loss, the Company agrees to pay (as liquidated damages and not as a
penalty) to such Subscriber for late issuance of Shares in the form required
pursuant to Section 7.1 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 (and proportionately for other amounts) 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 within seven (7) business days
after the Delivery Date or make payment within seven (7) business days after
the
Mandatory Redemption Payment Date (as defined in Section 7.2 below), such
Subscriber will be entitled to 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
such 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.
(d) The
Company agrees and acknowledges that despite the pendency of a not yet effective
Registration Statement which includes for registration the Registrable
Securities (as defined in Section 11.1(iv)), a Subscriber is permitted to and
the Company will issue to such Subscriber Shares upon conversion of the Note
and
Warrant Shares upon exercise of the Warrants. Such Shares will, if
required by law, bear the legends described in Section 4 above and if the
requirements of Rule 144 under the 1933 Act are satisfied, be resalable
thereunder.
12
7.2. Mandatory
Redemption at Subscriber’s Election. In the event
(i) the Company is prohibited from issuing Shares, (ii) upon the occurrence
of
any other Event of Default (as defined in the Note or in this Agreement) that
continues for more than twenty (20) business days, (iii) a Change in
Control (as defined below), or (iv) of the liquidation, dissolution or winding
up of the Company, then at the Subscriber’s election, the Company must pay to
each Subscriber ten (10) business days after request by each Subscriber
(“Calculation Period”), a sum of money determined by
multiplying up to the outstanding principal amount of the Note designated by
each such Subscriber by 120%, plus accrued but unpaid interest
(“Mandatory Redemption Payment”). The Mandatory
Redemption Payment must be received by each 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 7.1(c)
hereof, that have been paid or accrued for the ten (10) day period prior to
the
actual receipt of the Mandatory Redemption Payment by a Subscriber shall be
credited against the Mandatory Redemption Payment. For purposes of this
Section 7.2, “Change in Control” shall mean (i) the Company no
longer having a class of shares publicly traded 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) Xxx Xxxxxxxxxx, Xx. and Xxxx Xxxxx no longer serve
as
directors of the Company except due to natural causes (which shall include,
termination of such directors by the holders of more than 50% of the equity
outstanding as of the Closing Date), and (iv) the sale, lease or transfer of
substantially all the assets of the Company or its Subsidiaries.
7.3. Maximum
Conversion. No Subscriber shall 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 such 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 such Subscriber and its Affiliates of more than 4.99% of the outstanding
shares of Common Stock of the Company on such Conversion Date. For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Rule 13d-3 thereunder. Subject
to the foregoing, the Subscriber shall not be limited to aggregate conversions
of only 4.99% and aggregate conversions by the Subscriber may exceed
4.99%. The Subscriber may increase the permitted beneficial ownership
amount up to 9.99% upon and effective after sixty-one (61) days’ prior written
notice to the Company. Such Subscriber may allocate which of the
equity of the Company deemed beneficially owned by such Subscriber shall be
included in the 4.99% amount described above and which shall be allocated to
the
excess above 4.99%.
7.4. Injunction
Posting of Bond. In the event a Subscriber shall elect to convert
a Note or part thereof, the Company may not refuse conversion or exercise 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.
13
7.5. Buy-In. In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber such shares issuable upon conversion of a Note by the
Delivery Date and if after seven (7) business days after the Delivery Date
such
Subscriber or a broker on such 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 such Subscriber was entitled
to receive upon such conversion (a “Buy-In”), then the Company
shall pay in cash to such Subscriber (in addition to any remedies available
to
or elected by the Subscriber) the amount by which (A) such 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, or the maximum amount legally
allowed under the jurisdiction in which the subscriber resides, 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 an attempted conversion of $10,000
of
note principal and/or interest, the Company shall be required to pay such
Subscriber $1,000 plus interest. Such Subscriber shall provide the
Company written notice and evidence indicating the amounts payable to such
Subscriber in respect of the Buy-In.
7.6 Adjustments. The
Conversion Price, Warrant exercise price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be equitably adjusted
and as otherwise described in this Agreement, the Notes and
Warrants.
7.7. Redemption. The
Notes shall not be redeemable or prepayable except as described in the
Notes.
8. Finder
Fee/Due Diligence Fee/Legal Fees.
(a) Finder’s
Fee/Due Diligence Fee. 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 Finder’s Fee/Due Diligence Fee other than the one or more entities
identified on Schedule 8 hereto, (each a
“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 the fees set forth on
Schedule 8 hereto (“Finder/Due Diligence
Fees”). The Company represents that there are no other
parties entitled to receive fees, commissions, or similar payments in connection
with the offering described in this Agreement except the Finder.
(b) Subscriber’s
Legal Fees. The Company shall pay to Grushko & Xxxxxxx, P.C.,
a fee of $25,000 (“Subscriber’s
Legal Fees”) as
reimbursement for services rendered to
the Subscribers in connection with this Agreement and the purchase and sale
of
the Notes and Warrants (the “Offering”). The
Subscriber’s Legal Fees and expenses will be payable out of funds held pursuant
to the Escrow Agreement. Grushko & Xxxxxxx, P.C. will be
reimbursed at Closing for all lien searches, filing fees, and printing and
shipping costs for the closing statements to be delivered to
Subscribers.
9. Covenants
of the Company. The Company covenants and agrees with the
Subscribers as follows:
14
(a) Stop
Orders. The Company will advise the Subscribers, within
twenty-four (24) hours after it 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/Quotation. The
Company shall promptly secure the quotation or listing of the Shares and Warrant
Shares upon each national securities exchange, or automated quotation system
upon which they are or become eligible for quotation or listing (subject to
official notice of issuance) and shall maintain same so long as any Warrants
are
outstanding. The Company will maintain the quotation or listing of its Common
Stock on the American Stock Exchange, Nasdaq Capital Market, Nasdaq Global
Market, Nasdaq Global Select Market, Bulletin Board, 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
of the Common Stock from any Principal Market. As of the date of this Agreement
and the Closing Date, the Bulletin Board is and will be 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 the
Subscribers.
(d) Filing
Requirements. From the date of this Agreement and until the last
to occur of (i) two (2) years after the Closing Date, (ii) until all the Shares
and Warrant 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 or (iii) the Notes are no longer outstanding (the date
of
occurrence of the last such event being the “End Date”), the
Company will (A) cause its Common Stock 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 the End Date. Until the
End Date, the Company will 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.
(e) Use
of Proceeds. The proceeds of the Offering will be employed
by the Company as described on Schedule 9(e). 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 nor non-trade obligations outstanding on a Closing
Date. For so long as any Notes are outstanding, except as otherwise
permitted hereunder, the Company will not prepay any financing related debt
obligations nor redeem any equity instruments of the Company.
15
(f) Reservation. Prior
to the Closing Date, and at all times thereafter, the Company shall have
reserved, pro rata, on behalf of each holder of a Note or
Warrant, from its authorized but unissued Common Stock, a number of common
shares equal to 125% of the amount of Common Stock necessary to allow each
holder of a Note to be able to convert all such outstanding Notes and interest
(if any) and reserve the amount of Warrant Shares issuable upon exercise of
the
Warrants.
(g) [Reserved].
(h) Taxes. From
the date of this Agreement and until the End Date, 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.
(i) Insurance. From
the date of this Agreement and until the End Date, 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 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.
(j) Books
and Records. From the date of this Agreement and until the End
Date, 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.
(k) Governmental
Authorities. From the date of this Agreement and until the End
Date, 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.
(l) Intellectual
Property. From the date of this Agreement and until the End Date,
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.
(m) Properties. From
the date of this Agreement and until the End Date, 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.
16
(n) Confidentiality/Public
Announcement. From the date of this Agreement and until the End
Date, the Company agrees that except in connection with a Form 8-K and the
registration statement or statements regarding the Subscribers’ securities or in
correspondence with the SEC regarding same, it will not disclose publicly or
privately the identity of the Subscribers unless expressly agreed to in writing
by a Subscriber or only to the extent required by law and then only upon not
less than two (2) days prior notice to Subscriber. In any event and
subject to the foregoing, the Company undertakes to file a Form 8-K or make
a
public announcement describing the Offering not later than the business day
after the Closing Date. Prior to filing or announcement, such Form
8-K or public announcement will be provided to Subscribers for their review
and
approval, which will not be unreasonably withheld, delayed or
conditioned. In the Form 8-K or public announcement, the Company will
specifically disclose the amount of Common Stock outstanding immediately after
the Closing. Upon delivery by the Company to the Subscribers after
the Closing Date of any notice or information, in writing, electronically or
otherwise, and while a Note, Shares, Warrants, or Warrant Shares are held by
such Subscribers, unless the Company has in good faith determined that the
matters relating to such notice do not constitute material, nonpublic
information relating to the Company or Subsidiaries, the Company shall within
one (1) business day after any such delivery publicly disclose such material,
nonpublic information on a Report on Form 8-K or
otherwise. In the event that the Company believes that a
notice or communication to a Subscriber contains material, nonpublic
information, relating to the Company or Subsidiaries, the Company shall so
indicate to such Subscriber contemporaneously with delivery of such notice
or
information. In the absence of any such indication, such Subscriber
shall be allowed to presume that all matters relating to such notice and
information do not constitute material, nonpublic information relating to the
Company or its Subsidiaries.
(o) Non-Public
Information. The Company covenants and agrees that except for the
Reports, Other Written Information and schedules and exhibits to this Agreement,
which information the Company undertakes to publicly disclose not later than
the
sooner of the required or actual filing date of the Form 8-K described in
Section 9(n) above, neither it nor any other person acting on its behalf will
at
any time 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 keep such
information in confidence. The Company understands and confirms that
each Subscriber shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
(p) Negative
Covenants. So long as a Note is outstanding, 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: (A) the Excepted
Issuances (as defined in Section 12 hereof), and (B) (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 thirty (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; and
(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 (f), a “Permitted
Lien”);
17
(ii) amend
its certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscriber (an increase in
the
amount of authorized shares and an increase in the number of directors will
not
be deemed adverse to the rights of the Subscribers);
(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) 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 $100,000
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; and
(v) prepay
or redeem any financing related debt or past due obligations outstanding as
of
the Closing Date except as described on Schedule
9(e).
(q) Further
Registration Statements. Except for a registration statement
filed on behalf of the Subscribers pursuant to Section 11 of this Agreement,
and
as set forth on Schedule 11.1 hereto, the Company will not,
without the consent of the Subscribers, file with the Commission or with state
regulatory authorities any registration statements 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,
(including but not limited to Forms S-8), until the expiration of the
“Exclusion Period,” which shall be defined as the sooner 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 one hundred eighty (180) days, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by the
Subscribers pursuant to the Registration Statement or Rule 144, without regard
to volume limitations. The Exclusion Period will be tolled or
reinstated, as the case may be, during the pendency of an Event of Default
as
defined in the Note.
(r) Blackout. The
Company undertakes and covenants that, until the end of the Exclusion Period,
the Company will not enter into any acquisition, merger, exchange or sale or
other transaction or fail to take any action that could have the effect of
delaying the effectiveness of any pending Registration Statement or causing
an
already effective Registration Statement to no longer be effective or current
for a period of forty-five (45) or more days in the aggregate during any three
hundred sixty-five (365) day period.
18
(s) Offering
Restrictions. Until the effectiveness of the Registration
Statement and/or during the pendency of an Event of Default, except for the
Excepted Issuances, the Company will not enter into an agreement to issue nor
issue any equity, convertible debt or other securities convertible into Common
Stock or equity of the Company nor modify any of the foregoing which may be
outstanding at anytime, without the prior written consent of the Subscriber,
which consent may be withheld for any reason. Until the later of (i)
one year after the Effective Date of the Registration Statement, and (ii) such
time as less than 25% of the principal amount of the Notes are outstanding,
the
Company will not enter into any Equity Line of Credit or similar agreement,
nor
issue nor agree to issue any floating or Variable Priced Equity Linked
Instruments nor any of the foregoing or equity with price reset rights
(collectively, the “Variable Rate
Restrictions”). For purposes hereof, “Equity Line of
Credit” shall include any transaction involving a written agreement
between the Company and an investor or underwriter whereby the Company has
the
right to “put” its securities to the investor or underwriter over an agreed
period of time and at an agreed price or price formula, and “Variable
Priced Equity Linked Instruments” shall include: (A) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or
carry
the right to receive additional shares of Common Stock either (1) at any
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at any time
after the initial issuance of such debt or equity security, or (2) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, and (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required or has
the
option to (or any investor in such transaction has the option to require the
Company to) make such amortization payments in shares of Common Stock which
are
valued at a price that is based upon and/or varies with the trading prices
of or
quotations for Common Stock at any time after the initial issuance of such
debt
or equity security (whether or not such payments in stock are subject to certain
equity conditions). The only officer, director, employee and
consultant stock option or stock incentive plans currently in effect or
contemplated by the Company are described on Schedule
5(d).
(t) Limited
Standstill. The Company will deliver to the Subscribers on or
before the Closing Date and enforce the provisions of an irrevocable lockup
agreement (“Lockup Agreement”) in the form annexed hereto as
Exhibit H, with the persons identified on Schedule
9(t).
(u) Seniority. Except
for Permitted Liens and as otherwise provided for herein, until the Notes are
fully satisfied or converted, the Company shall not grant nor allow any security
interest to be taken in the assets of the Company or any Subsidiary; nor issue
any debt, equity or other instrument which would give the holder thereof
directly or indirectly, a right in any assets of the Company or any Subsidiary,
superior to any right of the holder of a Note in or to such assets.
(v) Notices. For
so long as the Subscribers hold any Securities, the Company will maintain a
United States address and United States fax number for notices purposes under
the Transaction Documents.
(w) 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.
19
10. Covenants
of the Company Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers’ officers, directors, agents, Affiliates, members,
managers, 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 breach of any representation or 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 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) The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Section 10(a).
11.1. Registration
Rights. The Company hereby grants the following registration
rights to holders of the Securities.
(i) On
one occasion, for a period commencing one hundred twenty-one (121) days after
the Closing Date, but not later than two years after the Closing Date, upon
a
written request therefor from any record holder or holders of more than 50%
of
the Shares issued and issuable upon conversion of the outstanding Notes and
outstanding Warrant Shares, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the
Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
subject of such request for unrestricted public resale by the holder
thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable
Securities shall not include Securities which are (A) registered for resale
in
an effective registration statement, (B) included for registration in a pending
registration statement, (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act
or
(D) which may be resold under Rule 144(k) or Rule 144 without volume
limitations. Upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include
in
such registration statement Registrable Securities for which it has received
written requests within ten (10) days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section
11.1(i).
(ii) If
the Company at any time proposes 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
the
Registrable Securities for sale to the public, 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 ten (10) 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”).
In the event that any registration pursuant
to this Section 11.1(ii) 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(ii)
without thereby incurring any liability to the Seller.
20
(iii) If,
at the time any written request for registration is received by the Company
pursuant to Section 11.1(i), the Company has determined to proceed with the
actual preparation and filing of a registration statement under the 1933 Act
in
connection with the proposed offer and sale for cash of any of its securities
for the Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of
the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv) The
Company shall file with the Commission a Form SB-2 registration statement (the
“Registration Statement”) (or such other form that it is
eligible to use) in order to register the Registrable Securities for resale
and
distribution under the 1933 Act within forty-five (45) calendar days after
the
Closing Date (the “Filing Date”), and cause the Registration
Statement to be declared effective not later than one hundred fifty (150)
calendar days after the Closing Date (the “Effective
Date”). The Company will register not less than a number of
shares of common stock in the aforedescribed registration statement that is
equal to 125% of the Shares issued and issuable upon conversion of all of the
Notes (collectively the “Registrable Securities”).
The Registrable Securities shall be reserved and set aside
exclusively for
the benefit of each Subscriber, pro rata, and not issued,
employed or reserved for anyone other than each such Subscriber. The
Registration Statement will be immediately be amended or additional
registration statements will be immediately filed by the Company as necessary
to
register additional shares of Common Stock to allow the public resale of all
Common Stock included in and issuable by virtue of the Registrable
Securities. Except with the written consent of the Subscribers, no
securities of the Company other than the Registrable Securities will be included
in the Registration Statement. It shall be deemed a Non-Registration
Event if at any time after the date the Registration Statement is declared
effective by the Commission (“Actual Effective Date”) the
Company has registered for unrestricted resale on behalf of the Subscribers
fewer than 120% of the amount of Common Shares issuable upon full conversion
of
all sums due under the Notes (“Shortfall”). The
foregoing notwithstanding, the Company must take all actions necessary to cause
at least 120% of the amount of shares of Common Stock issuable upon full
conversion of all sums due under the Notes to be registered within sixty (60)
days after the date the Shortfall occurs. Provided a Subscriber has
not noticed the Company that an Event of Default has occurred and the Company
has timely eliminated the Shortfall within the sixty (60) day period, the
Shortfall will be deemed to have not occurred. Except for
Common Stock described on Schedule 11.1, no other securities of
the Company will be included in the Registration Statement other than the
Registrable Securities.
(v) The
amount of Registrable Securities required to be included in the Registration
Statement as described in Section 11.1(iv) (“Initial Registrable
Securities”) shall be limited to not less than 100% of the maximum
amount (“Rule 415 Amount”) of Common Stock which may be
included in a single Registration Statement without exceeding registration
limitations imposed by the Commission pursuant to Rule 415 of the 1933 Act
but
in any event not less than 135,000,000 shares of Common Stock. In the
event that less than all of the Initial Registrable Securities are included
in
the Registration Statement as a result of the limitation described in this
Section 11.1(v), then the Company will file additional Registration Statements
each registering the Rule 415 Amount (each such Registration Statement a
“Subsequent Registration Statement”), seriatim, until
all of the Initial Registrable Securities have been registered. The
Filing Date and Effective Date of each such additional Registration Statement
shall be, respectively, fourteen (14) and forty-five (45) days after the first
day such Subsequent Registration Statement may be filed without objection by
the
Commission based on Rule 415 of the 1933 Act. The Subscribers agree
and acknowledge that notwithstanding anything contained herein to the contrary,
the Registration Statement will include for registration on behalf of the
Subscribers not fewer than 135,000,000 shares of Common Stock for the Shares
issuable upon conversion of the Notes and thereafter may include, at the
Company’s discretion, up to zero shares of Common Stock on behalf of the holders
thereof (“Other Holders”) described on Schedule
11.1. In the event for any reason the amount of Common Stock
to be registered must be reduced, then such reduction must come entirely from
the Common Stock being registered on behalf of the Other Holders and not the
Subscribers.
21
(vi) Unless
otherwise instructed in writing by a holder of Registrable Securities and only
if the initial Registration Statement does not include all of the Registrable
Securities, the Registrable Securities will be registered on behalf of each
such
holder in the Registration Statements based in the following order and
priority:
(A) Shares.
(B) Conversion
Shares issued and issuable upon conversion of the Notes (based on the multiple
set forth above).
11.2. Registration
Procedures. If and whenever the Company is required by the provisions of
Sections 11.1(i), 11.1(ii) or 11.1(iv) 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 the Subscribers (by telecopier and by e-mail addresses provided
by
the Subscribers) and Grushko & Xxxxxxx, P.C. (by telecopier and by email to
Xxxxxxxxx@xxx.xxx) on or before the second 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);
(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 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;
22
(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 twenty-four 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 during reasonable business
hours, 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
at
such requesting Seller’s expense; and
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto
three (3) business days prior to the filing thereof with the
Commission. Any Subscriber’s failure to comment on any Registration
Statement or other document provided to a Subscriber or its counsel shall not
be
construed to constitute approval thereof nor the accuracy thereof.
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 agrees that the Sellers will suffer damages
if the Registration Statement is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any registration
statement required under Section 11.1(i) or 11.1(ii) is not filed within sixty
(60) days after written request and declared effective by the Commission within
one hundred twenty (120) days after such request, and maintained in the manner
and within the time periods contemplated by Section 11 hereof, and it would
not
be feasible to ascertain the extent of such damages with
precision. Accordingly, if (A) the Registration Statement is not
filed on or before the Filing Date, (B) the Registration Statement is not
declared effective on or before the required Effective Date, (C) due to the
action or inaction of the Company the Registration Statement is not declared
effective within three (3) business days after receipt by the Company or its
attorneys of a written or oral communication from the Commission that the
Registration Statement will not be reviewed or that the Commission has no
further comments, (D) if the registration statement described in Sections
11.1(i) or 11.1(ii) is not filed within sixty (60) days after such written
request, or is not declared effective within one hundred twenty (120) days
after
such written request, or (E) any registration statement described in Sections
11.1(i), 11.1(ii) or 11.1(iv) is filed and declared effective but shall
thereafter cease to be effective without being succeeded within twenty-five
(25)
business days by an effective replacement or amended registration statement
or
for a period of time which shall exceed forty-five (45) days in the aggregate
per year (defined as every rolling period of three hundred sixty-five (365)
consecutive days commencing on the Actual Effective Date (each such event
referred to in clauses A through E of this Section 11.4 is referred to herein
as
a “Non-Registration Event”), then the Company shall deliver,
pari passu, to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to 2% for each thirty (30) days (or such
lesser pro-rata amount for any period of less than thirty (30) days) of the
principal amount of the outstanding Notes and purchase price of Shares and
Warrant Shares issued upon conversion of Notes and exercise of Warrants held
by
Subscriber which are subject to such Non-Registration Event. The Company
may pay the Liquidated Damages in cash, or in registered shares of Common Stock
valued at 75% of the average of the closing bid prices of the Common Stock
for
the five (5) trading days preceding such payment. The Liquidated
Damages must be paid within ten (10) days after the end of each thirty (30)
day
period or shorter part thereof for which Liquidated Damages are payable. In
the event a Registration Statement is filed by the Filing Date but is withdrawn
prior to being declared effective by the Commission, then such Registration
Statement will be deemed to have not been filed and Liquidated Damages will
be
calculated accordingly. All oral or written comments received from
the Commission relating to the Registration Statement must be satisfactorily
responded to within fifteen (15) business days after receipt of comments from
the Commission. Failure to timely respond to Commission comments is a
Non-Registration Event for which Liquidated Damages shall accrue and be payable
by the Company to the holders of Registrable Securities at the same rate and
amounts set forth above calculated from the date the response was required
to
have been made.
23
11.5. Expenses. All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses (if
required), 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
FINRA, transfer taxes, and fees of transfer agents and registrars, are called
“Registration Expenses.” All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities 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.
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 of the officers, directors, agents,
Affiliates, members, managers, control persons, and principal
shareholders 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 was 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
in
writing 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 pursuant to such registration statement.
24
(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.
(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
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 indemnifying party shall
have reasonably concluded that there may be reasonable defenses available to
indemnified party 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, reasonably satisfactory to the indemnified and indemnifying party,
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.
25
(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 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 pursuant to
such
Registration Statement.
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 notice that Shares or Warrant Shares or any other Common Stock
held by a Subscriber have been sold pursuant to the Registration Statement
or
Rule 144 under the 1933 Act, (ii) a representation that the prospectus delivery
requirements, or the requirements of Rule 144, as applicable and if required,
have been satisfied, and (iii) the original share certificates representing
the
shares of Common Stock that have been sold, and (iv) in the case of sales under
Rule 144, customary representation letters of the Subscriber and/or a
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(i) above (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 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.
(b) In
lieu of delivering physical certificates representing the Unlegended Shares,
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 shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in
such
DWAC system. Such delivery must be made on or before the Unlegended
Shares Delivery Date.
26
(c) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof later than two (2) business days after the
Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a 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 three hundred sixty (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 and Warrant Shares subject to such default at a price per share
equal
to the greater of (i) 120%, or (ii) a fraction in which the numerator is the
highest closing price of the Common Stock during the aforedescribed thirty
(30)
day period and the denominator of which is the lowest conversion price during
such thirty (30) day period, multiplied by the Purchase Price of such Common
Stock and exercise price of such Warrant Shares (“Unlegended Redemption
Amount”). The Company shall pay any payments incurred under
this Section in immediately available funds upon demand.
(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 or Warrant Shares upon exercise of Warrants and the Company
is
required to deliver such Unlegended Shares pursuant to Section 11.7 or the
Warrant Shares pursuant to the Warrants, the Company may not refuse to deliver
Unlegended Shares or Warrant 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 or exercise of all or part of said Warrant 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 and Warrant Shares 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.
27
12. (a) Right
of First Refusal. Until the later of (i) one year after the
Effective Date of the Registration Statement, and (ii) such time as less than
25% of the principal amount of the Notes are outstanding, the Subscribers shall
be given not less than ten (10) business days prior written notice of any
proposed sale by the Company of its Common Stock or other securities or equity
linked debt obligations, 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 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 to employees, directors, and consultants,
pursuant to plans described on Schedule 5(d), (iv) as a result
of the exercise of Warrants or conversion of Notes which are granted or issued
pursuant to this Agreement on the terms described in the Transaction Documents
as of 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”). The Subscribers
who exercise their rights pursuant to this Section 12(a) shall have the right
during the ten (10) business days following receipt of the notice to purchase
in
cash or by using the outstanding balance including principal, interest,
liquidated damages and any other amount then owing to such Subscriber by the
Company, in the aggregate up to all of such offered Common Stock, debt or other
securities in accordance with the terms and conditions set forth in the notice
of sale in the same proportion to each other as their purchase of Notes in
the
Offering. In the event such terms and conditions are modified during
the notice period, the Subscribers shall be given prompt notice of such
modification and shall have the right during the ten (10) business days
following the notice of modification to exercise such right. The
Subscribers who exercise their rights pursuant to this Section 12(a) shall
have
the right during the ten (10) business days following receipt of the notice
to
participate in such offered Common Stock, debt or other securities in accordance
with the terms and conditions set forth in the notice of sale by using the
outstanding balance including principal, interest, liquidated damages and any
other amount then owing to such Subscriber by the Company, to pay for such
participation.
(b) Favored
Nations Provision. Other than in connection with the
Excepted Issuances, if at any time the Notes or Warrants are outstanding, the
Company shall agree to or issue (the “Lower Price Issuance”) 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, or if less than the Warrant
exercise price in respect of the Warrant Shares, without the consent of each
Subscriber, then the Company shall issue, for each such occasion, additional
shares of Common Stock to each Subscriber respecting those Notes, Warrants
and
Shares that remain outstanding at the time of the Lower Price Issuance so that
the average per share purchase price of the shares of Common Stock issued to
each Subscriber (of only the Common Stock or Warrant Shares still owned by
a
Subscriber) is equal to such other lower price per share and the Conversion
Price and Warrant exercise price shall automatically be reduced to such other
lower price. The average Purchase Price of the Shares and average
exercise price in relation to the Warrant Shares shall be calculated separately
for the Shares and Warrant Shares. The foregoing calculation and
issuance shall be made separately for Shares received upon conversion of the
Notes and separately for Warrant Shares. The delivery to a Subscriber
of the additional shares of Common Stock shall be not later than the closing
date of the transaction giving rise to the requirement to issue additional
shares of Common Stock. Each Subscriber is granted the registration
rights described in Section 11 hereof in relation to such 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 or Warrant exercise price in effect upon such
issuance. The rights of each 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 or to which such Subscriber and
Company are parties. Each Subscriber is also given the right to elect
to substitute any term or terms of any other offering in connection with which
such Subscriber has rights as described in Section 12(a), for any term or terms
of the Offering in connection with Securities owned by such Subscriber as of
the
date the notice described in Section 12(a) is required to be given to such
Subscriber.
28
(c) Maximum
Exercise of Rights. In the event the exercise of the rights
described in Sections 12(a) and 12(b) would or could 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 applicable 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.
13. 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: Rim
Semiconductor Company, 000 XX 000xx Xxxxxx,
Xxxxx 000,
Xxxxxxxx, Xxxxxx 00000, Attn: Xxxx Xxxxx, CEO, telecopier: (000) 000-0000,
with
a copy, which shall not constitute notice, by telecopier only to: Xxxxxxxx
X.
Xxxxxxx, Esq., Munck Xxxxxx Xxxxxx, P.C., 600 Banner Place, 00000 Xxxx Xxxx,
Xxxxxx, Xxxxx 00000, telecopier: (000) 000-0000, (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, and (iii) if to the Finder, to: the address and
telecopier number set forth on Schedule 8 hereto.
(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.
29
(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
principles of conflicts of laws. Any action brought by either party against
the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located
in
the state and county of New York. The parties to this Agreement
hereby irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non
conveniens. The parties executing this Agreement and
other agreements referred to herein or delivered in connection herewith on
behalf of the Company agree to submit to the in personam jurisdiction of such
courts and hereby irrevocably 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. Each party hereby irrevocably waives
personal service of process and consents to process being served in any suit,
action or proceeding in connection with this Agreement or any other Transaction
Document by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect
for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law.
(e) Specific
Enforcement, Consent to Jurisdiction. 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 seek an injunction or 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 13(d) hereof, the Company hereby
irrevocably 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) 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.
30
(g) 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.
(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 Subscribers and their permitted successors and assigns.
(j) Maximum
Payments. 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.
(k) Calendar
Days. All references to “days” in the
Transaction Documents shall mean calendar days unless otherwise
stated. The terms “business days” and
“trading days” shall mean days that the New York Stock
Exchange
is open for trading for three or more hours. Time periods shall be
determined as if the relevant action, calculation or time period were occurring
in New York City. Any deadline that falls on a non-business day in
any of the Transaction Documents shall be automatically extended to the next
business day and interest, if any, shall be calculated and payable through
such
extended period.
(l) Acts
Prohibited. Notwithstanding anything to the contrary in this
Agreement or the Transaction Documents, nothing in the Transaction Documents
will require the Company to take, and the Company will not be liable hereunder
for failing to take, any action prohibited by law, applicable securities
regulation or any governmental authority.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
31
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT
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.
RIM
SEMICONDUCTOR COMPANY
a
Utah
corporation
By: _______________________________________________
Name:
Title:
Dated:
December 5, 2007
|
SUBSCRIBER
|
PURCHASE
PRICE
|
PRINCIPAL
AMOUNT
OF NOTE
|
CLASS
A WARRANTS
|
|
Name
of Subscriber:
_____________________________________________________
Address:
_____________________________________________________
_____________________________________________________
Fax
No.:
_____________________________________________________
Taxpayer
ID# (if applicable):
_____________________________________________________
_____________________________________________________
(Signature)
By: __________________________________________________
|
32
LIST
OF EXHIBITS AND SCHEDULES
|
Exhibit
A
|
Form
of Note
|
|
Exhibit
B
|
Form
of Class A Warrant
|
|
Exhibit
C
|
Escrow
Agreement
|
|
Exhibit
D
|
Form
of Security Agreement
|
|
Exhibit
E
|
Form
of Subsidiary Guaranty
|
|
Exhibit
F
|
Form
of Collateral Agent Agreement
|
|
Exhibit
G
|
Form
of Legal Opinion
|
|
Exhibit
H
|
Form
of Lockup Agreement
|
|
Schedule
5(a)
|
Subsidiaries
|
|
Schedule
5(d)
|
Additional
Issuances / Capitalization / Reset Rights
|
|
Schedule
5(f)
|
Outstanding
Registration Rights
|
|
Schedule
5(o)
|
Undisclosed
Liabilities
|
|
Schedule
5(x)
|
Transfer
Agent
|
|
Schedule
8
|
Finder/Due
Diligence Fee
|
|
Schedule
9(e)
|
Use
of Proceeds
|
|
Schedule
9(p)
|
Permitted
Payments
|
|
Schedule
9(t)
|
Lockup
Agreement Providers
|
|
Schedule
11.1
|
Other
Registrable Shares
|
33
EXHIBIT
I
LOCKUP
AGREEMENT
This
AGREEMENT (the “Agreement”) is
made as of the 5th day of December, 2007, by ______ (“Holder”), maintaining an
address at c/o Rim Semiconductor Company, 000 XX 000xx Xxxxxx,
Xxxxx 000,
Xxxxxxxx, Xxxxxx 00000, telecopier: (000) 000-0000, in connection with his
ownership of shares of Rim Semiconductor Company, a Utah corporation (the
“Company”).
NOW,
THEREFORE, for good and valuable
consideration, the sufficiency and receipt of which consideration are hereby
acknowledged, Holder agrees as follows:
1. Background.
a. Holder
is the beneficial owner of the amount of shares of the Common Stock, $.001
par
value, of the Company (“Common Stock”) designated on the signature page
hereto.
x. Xxxxxx
acknowledges that the Company has entered into or will enter into at or about
the date hereof agreements with subscribers to the Company’s Notes, convertible
into Common Stock and Warrants (the “Subscribers”). Holder
understands that, as a condition to proceeding with the Offering, the
Subscribers have required, and the Company has agreed to obtain on behalf of
the
Subscribers an agreement from the Holder to refrain from selling any securities
of the Company from the date of the Subscription Agreement until one year after
the Actual Effective Date (as defined in the Subscription Agreement) (the
“Restriction Period”).
2. Sale
Restriction.
a. Holder
hereby agrees that during the Restriction Period, the Holder will not sell,
transfer or otherwise dispose of any shares of Common Stock or any options,
warrants or other rights to purchase shares of Common Stock or any other
security of the Company which Holder owns or has a right to acquire as of the
date hereof, other than in connection with an offer made to all shareholders
of
the Company in connection with merger, consolidation or similar transaction
involving the Company. Holder further agrees that the Company is
authorized to and the Company agrees to place “stop orders” on its books to
prevent any transfer of shares of Common Stock or other securities of the
Company held by Holder in violation of this Agreement. The Company
agrees not to allow to occur any transaction inconsistent with this
Agreement.
b. Any
subsequent issuance to and/or acquisition by Holder of Common Stock or options
or instruments convertible into Common Stock will be subject to the provisions
of this Agreement.
c. Notwithstanding
the foregoing restrictions on transfer, the Holder may, at any time and from
time to time during the Restriction Period, exercise options, warrants or other
rights to purchase securities of the Company, and may transfer the Common Stock
(i) as bona fide gifts or transfers by will or intestacy, (ii) to any trust
for
the direct or indirect benefit of the undersigned or the immediate family of
the
Holder, provided that any such transfer shall not involve a disposition for
value, (iii) to a partnership which is the general partner of a partnership
of
which the Holder is a general partner, provided, that, in the case of any gift
or transfer described in clauses (i), (ii) or (iii), each donee or transferee
agrees in writing to be bound by the terms and conditions contained herein
in
the same manner as such terms and conditions apply to the undersigned. For
purposes hereof, “immediate family” means any relationship by blood, marriage or
adoption, not more remote than first cousin.
34
3. Miscellaneous.
a. At
any time, and from time to time, after the signing of this Agreement Holder
will
execute such additional instruments and take such action as may be reasonably
requested by the Subscribers to carry out the intent and purposes of this
Agreement.
b. This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to principles of conflicts of
laws. Any action brought by either party against the other concerning
the transactions contemplated by this Agreement shall be brought only in the
state courts of New York or in the federal courts located in the state of New
York. The parties to this Agreement hereby irrevocably waive any
objection to jurisdiction and venue of any action instituted hereunder and
shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens. The parties executing this
Agreement and other agreements referred to herein or delivered in connection
herewith agree to submit to the in personam jurisdiction of such courts and
hereby irrevocably 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. Notices hereunder shall be given in the same manner as set
forth in the Subscription Agreement. Each party hereby irrevocably
waives personal service of process and consents to process being served in
any
suit, action or proceeding in connection with this Agreement or any other
Transaction Document by mailing a copy thereof via registered or certified
mail
or overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by
law. Holder irrevocably appoints Rim Semiconductor Company its true
and lawful agent for service of process upon whom all processes of law and
notices may be served and given in the manner described above; and such service
and notice shall be deemed valid personal service and notice upon Holder with
the same force and validity as if served upon Holder.
c. The
restrictions on transfer described in this Agreement are in addition to and
cumulative with any other restrictions on transfer otherwise agreed to by the
Holder or to which the Holder is subject to by applicable law.
d. This
Agreement shall be binding upon Holder, its legal representatives, successors
and assigns.
e. This
Agreement may be signed and delivered by facsimile and such facsimile signed
and
delivered shall be enforceable.
f. The
Company agrees not to take any action or allow any act to be taken which would
be inconsistent with this Agreement.
g. The
Holder acknowledges that this Lockup Agreement is being entered into for the
benefit of the Subscribers identified in the Subscription Agreement dated
December 5, 2007 among the Company and the Subscribers, may be enforced by
the
Subscribers and may not be amended without the consent of the Subscribers (as
the term “consent of the Subscribers” is defined in the Subscription Agreement),
which may be withheld for any reason.
35
IN
WITNESS WHEREOF, and intending to be
legally bound hereby, Holder has executed this Agreement as of the day and
year
first above written.
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HOLDER:
___________________________________________
(Signature
of Holder)
___________________________________________ (Print
Name of Holder)
___________________________________________ Number
of Shares of Common Stock
Beneficially
Owned
COMPANY:
RIM
SEMICONDUCTOR COMPANY
By: ________________________________________
Name: ______________________________________
Title: _______________________________________
|
36
SCHEDULES
TO
by
and among
RIM
SEMICONDUCTOR COMPANY
and
THE
SUBSCRIBERS IDENTIFIED THEREIN
37
Schedule
5(a)
Subsidiaries
The
following companies are wholly-owned subsidiaries of Rim Semiconductor
Company:
Impact
Multimedia, Inc., a Nevada
corporation
NV
Entertainment, Inc., a California
corporation
Infinity
Vision Entertainment, Inc.,
a California corporation
Siliwood
Entertainment, Inc., a
California corporation
Intelecon
Acquisition Corporation, a
Delaware corporation
0X0Xxx.xxx,
Inc., a Nevada
corporation
Xxxxxxxxxx.xxx,
Inc. a Delaware
corporation
NV
Entertainment, Inc. owns a 50% interest in Top Secret Productions, LLC, a
California limited liability company.
NV
Entertainment, Inc. is the only active subsidiary listed above. None of the
other subsidiaries listed above have any assets or engage in active business
operations. No representations are made by or with respect to any above listed
subsidiary other than NV Entertainment, Inc. With respect to representations
set
forth in Section 5(z) in the Subscription Agreement (and specifically its
reference to the representations in Section 5(a) as they pertain to the
Subsidiary), Rim Semiconductor Company makes no representations as to the valid
existence or good standing of NV Entertainment, Inc. under the laws of the
jurisdiction of its incorporation.
38
Schedule
5(d)
Purchase
Rights, Options, Warrants and Convertible Debt
As
of
December 5, 2007, the Company had outstanding warrants (“Warrants”) for the
purchase of up to 127,712,937 shares of the Company’s Common Stock, par value
$.001 per share (“Common Stock”). The Warrants are exercisable at prices ranging
from $0.05 to $0.3094 per share. Additional information regarding the Warrant
agreements is available in the Company’s Reports (as defined in the Subscription
Agreement).
As
of
December 5, 2007, the Company had outstanding options (“Options”) for the
purchase of up to 39,043,750 shares of the Company’s Common Stock. The Options
are exercisable at prices ranging from $0.027 to $3.920 per share. Additional
information regarding the Option agreements is available in the Company’s
Reports.
The
Company currently has $75,000 of three-year 7% Convertible Debentures (the
“2003
Debentures”) outstanding. Under the agreements with the purchasers of the 2003
Debentures the Company is obligated to pay to the 2003 Debenture holders
liquidated damages associated with the late filing of the Registration Statement
and a missed Registration Statement required effective date. At their option,
the 2003 Debenture holders are entitled to be paid such amount in cash or shares
of Common Stock at a per share rate equal to the effective conversion price
of
the 2003 Debentures. The 2003 Debentures are convertible into shares of Common
Stock at a conversion rate equal to $0.15 per share. This conversion price
is
subject to adjustment if there are certain capital adjustments or similar
transactions, such as a stock split or merger. Additional information regarding
the 2003 Debentures is available in the Company’s Reports.
The
Company currently has $4,280 of three-year 7% Senior Secured Convertible
Debentures (the “2005 Debentures”) outstanding. Interest on the 2005 Debentures
is payable at the option of the Company, either in cash or in shares of Common
Stock. The 2005 Debentures are convertible into shares of Common Stock at a
conversion price equal to 70% of the 5 day volume weighted average price of
the
Company’s Common Stock immediately prior to conversion. Additional information
regarding the 2005 Debentures is available in the Company’s
Reports.
The
Company currently has $652,000 of two-year 7% Senior Secured Convertible
Debentures (the "2006 Debentures") outstanding. Interest is payable, at the
option of the Company, either in cash, or in shares of Common Stock at the
then
applicable conversion price. The 2006 Debentures are convertible into shares
of
Common Stock at the conversion price for any such conversion equal to 70% of
the
volume weighted average price ("VWAP") of the Common Stock for the twenty days
ending on the trading day immediately preceding the conversion date. Additional
information regarding the 2006 Debentures is available in the Company’s
Reports.
Pursuant
to the terms of a Bridge Loan Agreement dated as of July 26, 2007, if prior
to
the payment in full of certain Senior Secured Promissory Notes issued pursuant
thereto, the Company offers any new transaction for the issuance of shares
of
the Company’s Common Stock or securities convertible into or exercisable for
shares of Common Stock (each such transaction, a “New Equity Transaction,”) to
any third party (each, a “New Party”), where the aggregate purchase price of all
New Parties for such securities is $2,000,000 or more, the Company is obligated
to provide three (3) trading days’ notice thereof and give the opportunity to
subscribe to the New Equity Transaction on the same terms as any other New
Party, except that the holders of the Senior Secured Promissory Notes
(the “Lenders”) may elect to make all or a portion of the Lender’s
payment therefor by an offset against all or a portion of the amount due to
the
Lender from the Company under the Transaction Agreements. Additional information
regarding this bridge loan and the related agreements is available in the
Company’s Reports.
Common
Stock Outstanding On a Fully Diluted Basis
The
number of shares of the Company’s Common Stock, par value $.001 per share,
outstanding on a fully diluted basis as of December 5,
2007, was 663,220,710. The foregoing includes 127,712,937 shares
issuable upon exercise of outstanding warrants, 39,043,750 shares issuable
upon
exercise of outstanding options, 27,577,833 shares issuable upon conversion
of
convertible debt principal and interest, and 468,886,190 currently issued
and
outstanding shares.
39
Authorized
and Outstanding Capital Stock of the Company
As
of December 5, 2007:
Common
stock - $0.001 par value; Authorized - 900,000,000 shares; Outstanding –
468,886,190 shares
Preferred
stock - $0.01 par value; Authorized - 15,000,000 shares; Issued - 0 shares;
Outstanding - 0 shares
Authorized
and Outstanding Capital Stock of NV Entertainment,
Inc.
As
of
December 5, 2007:
Common
stock - no par value; Authorized – 1,000 shares; Outstanding – 1,000
shares
Outstanding
Equity and Rights to Receive Equity of Subsidiaries Not Held 100% By the
Company
NV
Entertainment, Inc. only owns a 50% interest in Top Secret Productions, LLC,
a
California limited liability company.
Stock
Option or Stock Incentive Plans
The
Company currently has four compensation plans (excluding individual stock option
grants outside of such plans) under which equity securities are authorized
for
issuance to employees, directors and consultants in exchange for
services:
|
|
·
|
The
2000 Omnibus Securities Plan (the “2000
Plan”);
|
|
|
·
|
The
2001 Stock Incentive Plan (the “2001
Plan”);
|
|
|
·
|
The
2003 Consultant Stock Plan (the “Consultant Plan”);
and
|
|
|
·
|
The
2006 Stock Incentive Plan (the “2006
Plan”).
|
The
2000
Plan was adopted on April 20, 2000 by the Company’s Board of Directors, and
subsequently approved by the shareholders of the Company on May 31, 2000. The
2000 Plan authorizes the granting of incentive stock options, non-qualified
stock options or stock awards. A total of 2,500,000 shares of common stock
are
reserved for issuance under the 2000 Plan.
The
2001
Plan was adopted August 30, 2001, and subsequently approved by the shareholders
of the Company on July 2, 2002. The 2001 Plan authorizes the issuance of
incentive stock options, non-qualified stock options, stock awards, dividend
equivalent rights, and stock appreciation rights to directors, officers,
employees and certain consultants to the Company. A total of 2,500,000 shares
of
common stock were initially reserved for issuance under the 2001
Plan.
The
Consultant Plan was adopted in January 2003 and subsequently approved by
the
shareholders of the Company on May 2, 2007. The Consultant Plan authorizes
the
issuance of up to 6,000,000 non-qualified stock options or stock awards to
consultants to the Company. Directors, officers and employees are not
eligible to participate in the Consultant Plan.
The
2006
Plan was adopted in November 2006 and subsequently approved by the shareholders
of the Company on May 2, 2007. The 2006 Plan authorizes the issuance of up
to
30,000,000 incentive stock options, non-qualified stock options or stock awards
to directors, officers, employees and certain consultants to the
Company.
40
Schedule
5(f)
Potential
Violations, Conflicts, Breaches, or Defaults
Except
to
the extent that any of the Company’s outstanding convertible securities, or
convertible securities to be issued under the Transaction Documents (as defined
in the Subscription Agreement) may require reservation or issuance of shares
in
excess of the 900,000,000 shares of common stock currently authorized, no
violation, conflict, breach, default (or any event which with the giving of
notice or the lapse of time or both would reasonably likely constitute a
default) would be caused by the proposed transaction documentation under (A)
the
articles or certificate of incorporation, charter or bylaws of the Company,
(B)
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 (as defined in the Subscription
Agreement), (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 (as defined in the Subscription
Agreement).
Potential
Anti-dilution, Reset, Repricing or Acceleration Rights
Common
Stock Purchase Warrants issued in connection with the Company’s Bridge Loan
agreement dated March 26, 2007 are subject to exercise price adjustment in
the
event that the (1) purchase price, (2) conversion price, (3) put or call price,
or (4) exercise price applicable to warrants, option or similar instruments
for
of shares of Common Stock in a new transaction is lower than the effective
Exercise Price of such warrants, which was $0.10 per share upon issuance of
such
warrants.
Piggy-Back
Registration Rights
No
person
or entity holding securities of the Company or having the right to receive
securities of the Company has any piggy-back registration rights that would
be
triggered by the transaction.
41
Schedule
5(l)
Defaults
The
Company is currently in default on its Convertible Promissory Note dated May
24,
2007 made in favor of The Xxxxxxx X. Xxxx Trust (the “Cono Note”). The Company
plans to pay all outstanding obligations due on the Cono Note from the proceeds
of the Notes, as described on Schedule 9(e).
42
Schedule
5(o)
Certain
Material Liabilities and Obligations of the Company
None
43
Schedule
8
FINDER:
BLUMFIELD INVESTMENTS
Cash
Fee. The Company agrees that it will pay the Finder, on the
Closing Date a fee of ten percent (10%) of the Purchase Price (“Finder’s Cash
Fee”). The Company represents that there are no other parties
entitled to receive fees, commissions, or similar payments in connection with
the Offering except the Finder.
Warrant
Exercise Compensation. The Finder will also be paid by the
Company ten percent (10%) of the cash proceeds received by the Company from
exercise of the Warrants (“Warrant Exercise Compensation”). The
Warrant Exercise Compensation must be paid by the Company to the Finder within
five (5) days after each receipt by the Company of Warrant Exercise cash
proceeds.
Finder’s
Warrants. On the Closing Date, the Company will issue to the
Finder, ten (10) Warrants for each one hundred (100) Shares and Warrants
issuable on the Closing Date to the Subscribers (“Finder’s Warrants”) similar to
and carrying the same rights as the Class A Warrants issuable to the Subscribers
except that Warrant Exercise Compensation will not be payable in connection
with
such Finder’s Warrants.
All
the
representations, covenants, warranties, undertakings, remedies, liquidated
damages, indemnification, and other rights including but not limited to
reservation requirements and registration rights made or granted to or for
the
benefit of the Subscribers are hereby also made and granted to and for the
benefit of the Finder in respect of the Finder’s Warrants and the Warrant Shares
issuable upon exercise of the Finder’s Warrants.
44
Schedule
9(e)
Use
of Proceeds
The
proceeds of the Offering will be employed by the Company as
follows:
1. To
satisfy the following payment obligations under the Transaction
Documents:
a. Payment
of ten percent (10%) of the Purchase Price to the Finder(s) (as defined in
the
Subscription Agreement) on the Closing Date;
|
b.
|
Payment
of $25,000 to Grushko & Xxxxxxx, P.C., as reimbursement for services
rendered to the Subscribers on the Closing
Date;
|
2. Payment
of all outstanding obligations in the amount of $421,480 under that certain
Convertible Promissory Note dated May 24, 2007 made by the Company in favor
of
The Xxxxxxx X. Xxxx Trust;
3. Payment
of all outstanding obligations in the amount of
$1,100,000 under those certain Senior Secured Promissory
Notes issued pursuant to a Bridge Loan Agreement dated as of July 26, 2007
by
and between Rim Semiconductor Company and the Lenders parties
thereto;
4. Payment
of accrued and unpaid Officer and Director Salaries in the aggregate amount
of $81,625.02.
5. For
working capital and general corporate purposes, including liabilities reflected
in the Company’s most recent balance sheet included in its Reports or incurred
in the ordinary course of business (other than accrued and unpaid Officer and
Director salaries not specifically listed in this Schedule 9(e))
.
45
Schedule
9(t)
Lockup
Agreements
The
Company will deliver to the Subscribers on or before the Closing Date an
irrevocable lockup agreement in the form annexed to the Subscription Agreement
as Exhibit H, with Xxxx Xxxxx and Xxx Xxxxxxxxxx, Xx.
46
Schedule
11.1
Registration
of Additional Common Stock
None
47
