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EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Voiceflash
Networks, Inc., a Florida corporation (the "Company") hereby agrees to issue and
to sell to the Subscriber, 7% Convertible Notes (the "Notes") convertible in
accordance with the terms thereof into shares of the Company's $.001 par value
common stock (the "Company Shares") for the aggregate consideration as set forth
on the signature page hereof ("Purchase Price"). The form of Convertible Note is
annexed hereto as Exhibit A. (The Company Shares included in the Securities (as
hereinafter defined) are sometimes referred to herein as the "Shares" or "Common
Stock"). (The Notes, the Company Shares, Common Stock Purchase Warrants
("Warrants") issuable to the Subscribers, and the Common Stock issuable upon
exercise of the Warrants are collectively referred to herein as, the
"Securities"). Upon acceptance of this Agreement by the Subscriber, the Company
shall issue and deliver the Note and Warrants against payment, by federal funds
wire transfer of the Purchase Price.
The following terms and conditions shall apply to this
subscription.
1. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) INFORMATION ON COMPANY. The Subscriber has been
furnished with the Company's Form 10-KSB for the year ended July 31, 2000 as
filed with the Securities and Exchange Commission (the "Commission") together
with all subsequently filed forms 10-QSB, and other publicly available filings
made with the Commission (hereinafter referred to as the "Reports"). In
addition, the Subscriber has received from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested in writing (such information in writing is
collectively, the "Other Written Information"), and considered all factors the
Subscriber deems material in deciding on the advisability of investing in the
Securities.
(b) INFORMATION ON SUBSCRIBER. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (the "1933 Act"), is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a speculative
investment. The Subscriber has the authority and is duly and legally qualified
to purchase and own the Securities. The Subscriber is able to bear the risk of
such investment for an indefinite period and to afford a complete loss thereof.
The information set forth on the signature page hereto regarding the Subscriber
is accurate.
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(c) PURCHASE OF NOTE. On the Closing Date, the
Subscriber will purchase the Note for its own account and not with a view to any
distribution thereof.
(d) COMPLIANCE WITH SECURITIES ACT. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act, by reason of their issuance in a transaction that does not require
registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and that such
Securities must be held unless a subsequent disposition is registered under the
1933 Act or is exempt from such registration. The Subscriber understands and
agrees that the Subscriber must comply with all applicable laws relating to
"short-sales" of the Company Shares.
(e) COMPANY SHARES LEGEND. The Company Shares, and
the shares of Common Stock issuable upon the exercise of the Warrants, shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO VOICEFLASH NETWORKS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) WARRANTS LEGEND. The Warrants shall bear the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
VOICEFLASH NETWORKS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(g) NOTE LEGEND. The Note shall bear the following
legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO VOICEFLASH
NETWORKS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
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(h) COMMUNICATION OF OFFER. The offer to sell the
Securities was directly communicated to the Subscriber. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(i) CORRECTNESS OF REPRESENTATIONS. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing Date (as hereinafter defined), shall be true and
correct as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
2. COMPANY REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to and agrees with the Subscriber that:
(a) DUE INCORPORATION. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
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 on the business, operations or financial condition of the
Company.
(b) OUTSTANDING STOCK. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable.
(c) AUTHORITY; ENFORCEABILITY. This Agreement has
been duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its 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 the Company has full
corporate power and authority necessary to enter into this Agreement and to
perform its obligations hereunder and all other agreements entered into by the
Company relating hereto.
(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 other equity interest in any of the
subsidiaries of the Company except as described in the Reports or Other Written
Information.
(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 NASD, NASDAQ or the
Company's Shareholders is required for execution of this Agreement, and all
other agreements entered into by the Company relating thereto, including,
without limitation issuance and sale of the Securities, and the performance of
the Company's obligations hereunder, except as described in Section 7(g) of this
Agreement. Prior to the delivery of this Agreement and prior to the Closing
Date, the Company shall have timely given to NASDAQ the required notice, if any,
of the transactions described herein and no objection to the terms of the
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Agreement and the transactions described herein shall have been made by NASDAQ
or if made not complied with to NASDAQ's satisfaction. Notice of any objection
by NASDAQ shall have been communicated in writing by the Company to Subscriber.
(f) NO VIOLATION OR CONFLICT. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this Agreement,
neither the issuance and sale of the Securities nor the performance of its
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a
breach of, or constitute a default (or an event which with the giving of notice
or the lapse of time or both would be reasonably likely to constitute a default)
under (A) the 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 any of its
affiliates 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 which could have a
material adverse effect on the Company; 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.
(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 State laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Note is converted, and the Warrants are exercised, the
Securities will be duly and validly issued, fully paid and nonassessable (and if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted, provided that the
Subscriber complies with the Prospectus delivery requirements);
(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; and
(iv) will not subject the holders thereof to
personal liability by reason of being such holders.
(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 this
Agreement, and all other agreements entered into by the Company relating hereto.
Except as disclosed in the Reports or Other Written Information, 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
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arbitrator having jurisdiction over the Company, or any of its affiliates which
litigation if adversely determined could have a material adverse effect on the
Company.
(i) REPORTING COMPANY/S-3 ELIGIBILITY. The Company is
a publicly-held company subject to reporting obligations pursuant to Sections
15(d) and 13 of the Securities Exchange Act of 1934, as amended (the "1934 Act")
and has a class of common shares registered pursuant to Section 12(g) of the
1934 Act. The Company's common stock is trading on the NASDAQ SmallCap System
("SmallCap"). Pursuant to the provisions of the 1934 Act, the Company has filed
all reports and other materials required to be filed thereunder with the
Securities and Exchange Commission during the preceding twelve months except as
set forth in the Reports. The Company meets the requirements to use Form S-3 to
register for resale the Company Shares issuable upon Conversion of the Notes and
exercise of the Warrants.
(j) NO MARKET MANIPULATION. The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued.
(k) INFORMATION CONCERNING COMPANY. The Reports
contain all material information relating to the Company and its operations and
financial condition as of their respective dates 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
Schedule hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact in light of the circumstances when made required to be stated
therein or necessary to make the statements therein not misleading.
(l) DILUTION. The number of Shares issuable upon
conversion of the Note may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the trading
price of the Common Stock declines prior to conversion of the Note. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Note and exercise of the Warrants is
binding upon the Company and enforceable, except as otherwise described in this
Subscription Agreement or the Note, regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
(m) STOP TRANSFER. The Securities are restricted
securities as of the date of this Agreement. The Company will not issue any stop
transfer order or other order impeding the sale and delivery of the Securities,
except as may be required by federal securities laws.
(n) DEFAULTS. Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation or ByLaws.
Neither the Company nor any of its subsidiaries is (i) 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 on the Company, (ii) 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
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antitrust, monopoly, restraint of trade, unfair competition or similar matters,
or (iii) to its knowledge in violation of any statute, rule or regulation of any
governmental authority which violation would have a material adverse effect on
the Company.
(o) 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 offering 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 SmallCap nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings. The Company has not conducted
and will not conduct any offering other than the transactions contemplated
hereby that will be integrated with the issuance of the Securities for purposes
of Rule 4310 of the NASDAQ Stock Market, Inc.'s Marketplace Rules.
(p) 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 Act) in connection with the offer
or sale of the Securities.
(q) LISTING. The Company's common stock is quoted on,
and listed for trading on SmallCap. Except as disclosed in the Other Written
Information, the Company has not received any oral or written notice from NASDAQ
that its Common Stock will be delisted from SmallCap or that the Common Stock
does not meet all requirements for the continuation of such listing.
(r) NO UNDISCLOSED LIABILITIES. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written Information, other than
those incurred in the ordinary course of the Company's businesses since July 31,
2000 and which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company's financial condition.
(s) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since
July 31, 2000, 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.
(t) CAPITALIZATION. The authorized and outstanding
capital stock of the Company as of the date of this Agreement and the Closing
Date are set forth on Schedule 2(t) hereto. Except as set forth in the Reports
and Other Written Information, 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. All of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable.
(u) 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, will be true and correct
as of the Closing Date in all material respects, and, unless the Company
otherwise notifies the Subscriber prior to the Closing Date, shall be true and
correct in all material respects as of the Closing Date. The foregoing
representations and warranties shall survive the Closing Date.
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3. REGULATION D OFFERING. This Offering is being made pursuant
to the exemption from the registration provisions of the Securities Act of 1933,
as amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of the
Regulation D exemption as it relates to the offer and issuance of the
Securities. A form of the legal opinion is annexed hereto as Exhibit C. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the conversion of the Note and exercise
of the Warrants.
4. REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to and disposes of such Securities pursuant to Rule 144(d) and/or Rule 144(k)
under the 1933 Act in the opinion of counsel reasonably satisfactory to the
Company, or (b) upon resale subject to an effective registration statement after
the Securities are registered under the 0000 Xxx. The Company agrees to
cooperate with the Subscriber in connection with all resales pursuant to Rule
144(d) and Rule 144(k) and provide legal opinions necessary to allow such
resales provided the Company and its counsel receive all reasonably requested
written representations from the Subscriber and selling broker, if any. If the
Company fails to remove any legend as required by this Section 4 (a "Legend
Removal Failure"), then beginning on the tenth (10th) day following the date
that the Subscriber has requested the removal of the legend and delivered all
items reasonably required by the Company to be delivered by the Subscriber, the
Company continues to fail to remove such legend, the Company shall pay to each
Subscriber or assignee holding shares subject to a Legend Removal Failure an
amount equal to one percent (1%) of the Purchase Price of the shares subject to
a Legend Removal Failure per day that such failure continues. If during any
twelve (12) month period, the Company fails to remove any legend as required by
this Section 4 for an aggregate of thirty (30) days, each Subscriber or assignee
holding Securities subject to a Legend Removal Failure may, at its option,
require the Company to purchase all or any portion of the Securities subject to
a Legend Removal Failure held by such Subscriber or assignee at a price per
share equal to 120% of the applicable Purchase Price.
5. REDEMPTION. The Company may not redeem the Securities
without the consent of the holder of the Securities except as otherwise
described herein.
6. FEES/WARRANTS.
(a) The Company shall pay to counsel to the
Subscriber its fees of $20,000 for services rendered to Subscribers in
connection with this Agreement and the other Subscription Agreements for
aggregate subscription amounts of up to $750,000 (the "Offering") and acting as
escrow agent for the Offering. The Company will pay to the Finders identified on
Schedule B hereto a cash fee equal to 10% of the Purchase Price as designated on
Schedule B ("Finder's Fee"). The Finder's Fee must be paid on the Closing Date.
The legal fees will be payable out of funds held pursuant to a Funds Escrow
Agreement to be entered into by the Company, Subscriber and an Escrow Agent.
(b) The Company will also issue and deliver on the
Closing Date to the Subscribers, one Warrant for each Five Dollars ($5.00) of
Purchase Price. A form of Warrant is annexed hereto as Exhibit D. The per share
"Purchase Price" of Common Stock as defined in the Warrant shall be $1.50.
(c) All the representations, covenants, warranties,
undertakings, remedies, liquidated damages, indemnification, rights in Section 9
hereof, and other rights including but not limited to registration rights made
or granted to or for the benefit of the Subscriber are hereby also made and
granted to the Subscribers in respect of the Warrants and Company Shares
issuable upon exercise of the Warrants.
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(d) The Company on the one hand, and the Subscriber
on the other hand, agree to indemnify the other against and hold the other
harmless from any and all liabilities to any other persons claiming brokerage
commissions or finder's fees except as identified on Schedule B hereto 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. Except as set forth
on Schedule B hereto, the Company represents that there are no other parties
entitled to receive fees, commissions, or similar payments in connection with
the offering described in the Subscription Agreement.
7. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange 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) The Company shall promptly secure the listing of
the Company Shares, and Common Stock issuable upon the exercise of the Warrants
upon each national securities exchange, or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain such listing so long as any other shares of Common
Stock shall be so listed. The Company will maintain the listing of its 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
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Subscriber copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD, the
Principal Market and applicable state authorities, in accordance with their
requirements, if any, 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 Subscriber and promptly provide copies thereof
to Subscriber.
(d) From the Closing Date and until at least two (2)
years after the effectiveness of the Registration Statement on Form S-3 or such
other Registration Statement described in Section 10.1(iv) hereof, the Company
will (i) cause its Common Stock to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, (ii) comply in all respects with its
reporting and filing obligations under the Exchange Act, (iii) comply with all
reporting requirements that is applicable to an issuer with a class of Shares
registered pursuant to Section 12(g) of the Exchange Act, and (iv) 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 Act or the Exchange 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 later of
two (2) years after the actual effective date of the Registration Statement on
Form S-3 or such other Registration Statement described in Section 10.1(iv)
hereof. Until at least two (2) years after the Warrants have been exercised, the
Company will use its commercial best efforts to continue the listing of the
Common Stock on the SmallCap and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and NASDAQ.
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(e) The Company undertakes to use the proceeds of the
Subscriber's funds for working capital. Purchase Price may not and will not be
used to pay debt or non-trade obligations outstanding on or after the Closing
Date. The Company will pay out of the escrow of the Purchase Price the sum of
$50,000 to its attorneys. This sum shall be used as an advance on the fees
payable to the Company's attorneys for the preparation of the registration
statement described in Section 10.1(iv) of this Agreement. The Company will
provide the Subscriber at Closing a copy of the retainer agreement with the
Company's attorneys relating to the preparation of the Registration Statement
described in Section 10.1(iv).
(f) The Company undertakes to reserve pro rata on
behalf of each holder of a Note or Warrant, from its authorized but unissued
Common Stock, at all times that Notes or Warrants remain outstanding, a number
of Common Shares equal to not less than 175% of the amount of Common Shares
necessary to allow each such holder to be able to convert all such outstanding
Notes, at the then applicable Conversion Price and one Common Share for each
Common Share issuable upon exercise of the Warrants.
(g) The Company and Subscriber agree that until the
Company either obtains shareholder approval of the issuance of the Securities,
or an exemption from NASDAQ's corporate governance rules as they may apply to
the Securities, and an opinion of counsel reasonably acceptable to Subscriber
that NASDAQ's corporate governance rules do not conflict with nor may result in
a delisting of the Company's common stock from the SmallCap ("the Approval")
upon the conversion of the Notes, each Subscriber may not receive upon
conversion of the Notes more than the number of common shares designated on the
Signature Page hereto ("Section 7 Shares"). The Company represents that this
number of Company Shares together with the aggregate of such amounts designated
for all investors in the Offering is not greater than 19.9% of the shares of
Company's common stock outstanding on the Closing Date. The Company covenants to
obtain the Approval required pursuant to the NASDAQ's corporate governance rules
to allow conversion of all the Notes and interest thereon and exercise of the
Warrants. The Company further covenants to file the preliminary proxy statement
relating to the Approval with the Commission on or before thirty days after the
Closing Date ("Proxy Filing Date"). The Company further covenants to obtain the
Approval no later than ninety days after the Closing Date ("Approval Date"). The
Company's failure to (i) file the proxy on or before the Proxy Filing Date; or
(ii) the Company's failure to obtain the Approval on or before the Approval Date
(each being an "Approval Default") shall be deemed an Event of Default under the
Note, but only to the extent the Notes and interest thereon that may not be
converted in compliance with NASDAQ's corporate governance rules, due to the
Company's failure to obtain the Approval. Anything to the contrary in this
Section 7(g) notwithstanding, there shall be no limitation on the amount of
Notes that may be converted by the Subscriber and the amount of Company Shares
that may be issued upon conversion of the Notes provided the Subscriber elects a
Conversion Price (as defined in the Note) equal to the closing price of the
Common Stock on the Closing Date. At any meeting at which the Company's
shareholders will vote on the Approval, Company Shares issued upon conversion of
the Notes may be counted for the purpose of obtaining a quorum but may not be
voted on the Approval resolution.
8. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING
INDEMNIFICATION.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber, Subscriber's officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon Subscriber or any such person
which results, arises out of or is based upon (i) any material misrepresentation
by Company or breach of any warranty by Company in this Agreement or in any
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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 Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers and
directors at all times against any claim, cost, expense, liability, obligation,
loss or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon the Company or any such person which results, arises out of or is
based upon (i) any material misrepresentation by Subscriber in this Agreement or
in any Exhibits or Schedules attached hereto, or other agreement delivered
pursuant hereto; or (ii) after any applicable notice and/or cure periods, any
breach or default in performance by Subscriber of any covenant or undertaking to
be performed by Subscriber hereunder, or any other agreement entered into by the
Company and Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall
apply to the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. CONVERSION OF NOTE.
(a) Upon the conversion of the Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or its
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 Shares will be
unlegended, free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Company Shares provided the
Shares are being sold pursuant to an effective registration statement covering
the Shares to be sold or are otherwise exempt from registration when sold and
Subscriber complies with prospectus delivery requirements.
(b) Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying an
executed and completed Notice of Conversion (as defined in the Note) to the
Company via confirmed telecopier transmission. The Subscriber will not be
required to surrender the Note until the Note has been fully converted or
satisfied. Each date on which a Notice of Conversion is telecopied to the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Company will or cause the transfer agent to transmit the Company's
Common Stock certificates representing the Shares issuable upon conversion of
the Note to the Subscriber via express courier for receipt by such Subscriber
within three (3) business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). A Note representing the balance of the Note
not so converted will be provided to the Subscriber, if requested by Subscriber
provided an original Note is delivered to the Company. To the extent that a
Subscriber elects not to surrender a Note for reissuance upon partial payment or
conversion, the Subscriber hereby indemnifies the Company against any and all
loss or damage attributable to a third-party claim in an amount in excess of the
actual amount then due under the Note.
(c) The Company understands that a delay in the
delivery of the Shares in the form required pursuant to Section 9 hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the Delivery
Date or Mandatory Redemption Payment Date (as hereinafter defined) could result
in economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
Conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
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addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber 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 the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment charges described
above shall be payable through the date notice of revocation or rescission is
given to the Company.
(d) Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.
9.2. MANDATORY REDEMPTION. In the event the Company is
prohibited from issuing Shares, or fails to timely deliver Shares on a Delivery
Date, or upon the occurrence of any other Event of Default (as defined in the
Note) or for any reason other than pursuant to the limitations set forth in
Section 9.3 hereof, then at the Subscriber's election, the Company must pay to
the Subscriber ten (10) business days after request by the Subscriber or on the
Delivery Date (if requested by the Subscriber) a sum of money determined by (i)
multiplying up to the outstanding principal amount of the Note designated by the
Subscriber by 130%, or (ii) multiplying the number of Shares otherwise
deliverable upon conversion of an amount of Note principal and/or interest
designated by the Subscriber (with the date of giving of such designation being
a Deemed Conversion Date) at the then Conversion Price that would be in effect
on the Deemed Conversion Date by the highest closing price of the Common Stock
on the principal market from the Deemed Conversion Date until the day prior to
the receipt of the Mandatory Redemption Payment, whichever is greater, together
with accrued but unpaid interest thereon ("Mandatory Redemption Payment").
Notwithstanding the foregoing, provided the proxy statement described in Section
7(g) is filed by the Proxy Filing Date and further provided all of the Company's
officers and directors vote Common Shares owned by them in favor of the
Approval, the Mandatory Redemption Payment shall be 100% of the principal amount
of the Note designated by the Subscriber together with accrued but unpaid
interest if the event giving rise to the Mandatory Redemption Payment is a
consequence exclusively of the Company's failure to obtain the Approval of its
shareholders as contemplated by Section 7(g) hereof. The Mandatory Redemption
Payment must be received by the Subscriber on the same date as the Company
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.
9.3. MAXIMUM CONVERSION. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 9.99% 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,
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beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 9.99% and aggregate conversion by the Subscriber may exceed
9.99%. The Subscriber may void the conversion limitation described in this
Section 9.3 upon 75 days prior written notice to the Company. The Subscriber may
allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 9.99% amount described above and which shall
be allocated to the excess above 9.99%.
9.4. INJUNCTION - POSTING OF BOND. In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of such Subscriber
in the amount of 130% of the amount of the Note, which is 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.
9.5. BUY-IN. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10) days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In. The delivery date by which
Common Stock must be delivered pursuant to this Section 9.5 shall be tolled for
the amount of days that the Subscriber does not deliver information reasonably
requested by the Company's transfer agent.
9.6 ADJUSTMENTS. The Conversion Price and amount of Shares
issuable upon conversion of the Notes and Put Notes shall be adjusted to offset
the effect of stock splits, stock dividends and pro rata distributions of
property or equity interests to the Company's shareholders.
9.7. OPTIONAL REDEMPTION. The Company will have the option of
redeeming any portion of the outstanding Notes ("Optional Redemption") by paying
to the Subscriber a sum of money equal to 120% of the principal amount of the
Note together with accrued but unpaid interest thereon and any and all other
sums due, accrued or payable to the Subscriber arising under this Subscription
Agreement, Note or any other document delivered herewith ("Redemption Amount")
outstanding on the day notice of redemption ("Notice of Redemption) is given to
a Subscriber ("Redemption Date"). A Notice of Redemption may not be given in
connection with any portion of Note for which notice of conversion has been
given by the Subscriber at any time before receipt of a Notice of Redemption.
The Subscriber may elect within five (5) business days after receipt of a Notice
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of Redemption to give the Company Notice of Conversion in connection with some
or all of the Note principal and interest which was the subject of the Notice of
Redemption provided the Conversion Price elected by the Subscriber is the
Maximum Base Price set forth in Section 2.1(b)(i) of the Note. A Notice of
Redemption must be accompanied by a certificate signed by the chief executive
officer or chief financial officer of the Company stating that the Company has
on deposit and segregated ready funds equal to the Redemption Amount. The
Redemption Amount must be paid in good funds to the Subscriber no later than the
seventh (7th) business day after the Redemption Date ("Optional Redemption
Payment Date"). On the Optional Redemption Payment Date, the Company must
deliver one common stock purchase warrant for each $3.00 of Redemption Amount
("Redemption Warrant"). The Redemption Warrant will be identical to the Warrant
except that the "Purchase Price" per share of Common Stock shall be 120% of the
closing bid price of the Common Stock on the Principal Market on the Redemption
Date. The holder of the Redemption Warrant shall have only "piggyback"
registration rights as described in Section 10.1(ii) of this Agreement in
relation to the shares of Common Stock issuable upon exercise of the Redemption
Warrant. In the event the Company fails to pay the Redemption Amount by the
Optional Redemption Payment Date, then the Redemption Notice will be null and
void and the Company will thereafter have no further right to effect an Optional
Redemption, and at the Subscription's election, the Redemption Amount will be
deemed a Mandatory Redemption Payment and the Optional Redemption Payment Date
will be deemed a Mandatory Redemption Payment Date. Such failure will also be
deemed an Event of Default under the Note. Any Notice of Redemption must be
given to all holders of Notes issued in connection with the Offering, in
proportion to their holdings of Note principal on a Redemption Date. A Notice of
Redemption may be given by the Company, provided (i) no Event of Default, as
described in the Note shall have occurred or be continuing; (ii) the Company
Shares issuable upon conversion of the entire outstanding Note principal are
included for unrestricted resale in a registration statement effective as of the
Redemption Date; and (iii) the Conversion Price for each of the five (5) trading
days preceding the Redemption Date is less than $.75. Purchase Price proceeds
may not be used to effect an Optional Redemption.
9.8. CALL OPTION. The Company shall have the option to "call"
the Note for Conversion (the "Note Call"), in accordance with and governed by
the following:
(a) The Company shall exercise the Note Call by
giving to each Subscriber a written notice of call (the "Call Notice") during
the period in which the Note may be converted.
(b) The Company's right to exercise the Note Call
shall commence with the actual effective date of the registration statement
described in Section 10.1(iv) of the Subscription Agreement and continue
thereafter, provided, that the registration statement is effective at the date
the Call Notice is given. In no event may the Company exercise the Note Call at
any time unless the Company Shares to be delivered upon conversion of the entire
Note, will be upon delivery, immediately resalable, without restrictive legend
and upon such resale freely transferable on the transfer books of the Company.
The Company may not exercise the right to Call the Note or any part of it after
the occurrence of an Event of Default, as defined in the Note.
(c) Unless otherwise agreed to by the Subscriber, the
Call Notices must be given to all Subscribers to the Offering in accordance with
the respective Note principal held by each.
(d) The Company may give a Call Notice in connection
with up to one-third of the outstanding Note principal provided the closing bid
price of the Common Stock as reported for the Principal Market for each trading
day during the twenty-two trading days prior to the giving of the Call Notice
("Lookback Period") is more than $4.00 and the average daily trading volume of
the Common Stock during the Lookback Period is not less than 50,000 Common
Shares.
(e) The Company may give a Call Notice in connection
with up to two-thirds of the outstanding Note principal provided the closing bid
price of the Common Stock as reported for the Principal Market for each trading
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day during the Lookback Period is more than $6.00 and the average daily trading
volume of the Common Stock during the Lookback Period is not less than 50,000
Common Shares.
(f) The Subscribers shall exercise their conversion
rights within 30 business days of the date of the Call Notice. If the Subscriber
fails to send a notice of conversion during such thirty trading days, the
thirtieth day shall automatically be deemed a Conversion Date.
(g) Only one Note Call may be given to the
Subscriber.
9.9. REDEMPTION. The Company may not redeem or Call the Note
without the consent of the holder of the Securities except as otherwise
described herein.
10.1. REGISTRATION RIGHTS. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 121 days
after the Closing Date, but not later than three years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any record
holder or holders of more than 50% of the aggregate of the Company's Shares
issued and issuable upon Conversion of the Notes (the Common Stock issued or
issuable upon conversion of the Notes or issuable by virtue of ownership of the
Note, and one share of Common Stock for each Share issuable upon exercise of the
Warrants being, the "Registrable Securities"), shall prepare and file with the
SEC a registration statement under the Act covering the Registrable Securities
which are the subject of such request, unless such Registrable Securities are
the subject of an effective registration statement. In addition, 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 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 10.1(i). As a condition precedent to the inclusion of Registrable
Securities, the holder thereof shall provide the Company with such information
as the Company reasonably requests. The obligation of the Company under this
Section 10.1(i) shall be limited to one registration statement.
(ii) If the Company at any time proposes to register
any of its securities under the 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 Subscriber or Holder pursuant to an effective registration statement, each
such time it will give at least 25 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 15 days after the giving
of any such notice by the Company, to register any of the Registrable
Securities, 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"). In the event that any registration pursuant to this
Section 10.1(ii) shall be, in whole or in part, an underwritten public offering
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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 10.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration statement
referred to in this Section 10.1(ii) without thereby incurring any liability to
the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(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, such
written request shall be deemed to have been given pursuant to Section 10.1(ii)
rather than Section 10.1(i), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section
10.1(ii).
(iv) The Company shall file with the Commission
within 60 days after the Closing Date (the "Filing Date"), and use its
reasonable commercial efforts to cause to be declared effective Form S-3
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
Act. The registration statement described in this paragraph must be declared
effective by the Commission within 120 days of the Closing Date (as defined
herein) ("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 200% of the Company Shares issuable at the Conversion Price that would
be in effect on the Closing Date or the date of filing of such registration
statement (employing the Conversion Price which would result in the greater
number of Shares), assuming the conversion of 100% of the Notes and one share of
Common Stock for each of the shares issuable upon exercise of the Warrants. The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of the Subscriber and Warrant Recipients, and not issued, employed or
reserved for anyone other than the Subscriber and Warrant Recipients. Such
registration statement will immediately be amended or additional registration
statements will be immediately filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 10.1(iv) except as set forth in
Schedule Section 10.1(iv) hereto and except for the Excepted Issuances as
defined in Section 11 hereof.
10.2. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a
registration statement 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),
and promptly provide to the holders of Registrable Securities ("Sellers") copies
of all filings and Commission letters of comment;
(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 the latest of: (i) twelve months after the latest
Maturity Date of a Note; (ii) thirty months after the Closing Date; or (iii)
until such registration statement has been effective for a period of not less
than 270 days, and comply with the provisions of the Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Seller's intended method of disposition set
forth in such registration statement for such period;
(c) furnish to the Seller, 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
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facilitate the public sale or their disposition of the securities covered by
such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller, provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction;
(e) 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) immediately notify the Seller when a prospectus
relating thereto is required to be delivered under the 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;
(g) make available for inspection by the Seller, 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.
10.3. PROVISION OF DOCUMENTS.
(a) At the request of the Seller, provided a demand
for registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration hereunder,
the 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. In connection with each registration
pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public
offering, the Company and the Seller agree to enter into a written agreement
with the managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
10.4. NON-REGISTRATION EVENTS. The Company and the Subscriber
agree that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 30 days after
written request by the Holder and not declared effective by the Commission
within 105 days after such request [or the Filing Date and Effective Date,
respectively, in reference to the Registration Statement on Form S-3 or such
other form described in Section 10.1(iv)], and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement described in Sections 10.1(i) or 10.1(ii) is not
filed within 30 days of such written request, or is not declared effective by
the Commission on or prior to the date that is 90 days after such request, or
(ii) the registration statement on Form S-3 or such other form described in
Section 10.1(iv) is not filed on or before the Filing Date or not declared
effective on or before the sooner of the Effective Date, or within five business
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days of receipt by the Company of a written or oral communication from the
Commission that the registration statement described in Section 10.1(iv) will
not be reviewed, or (iii) any registration statement described in Sections
10.1(i), 10.1(ii) or 10.1(iv) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately by an
additional registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the aggregate per year but not more than 20
consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) (each such event referred
to in clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as
a "Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay, at the Subscriber's option, in cash or
stock at the applicable Conversion Price, as Liquidated Damages to each holder
of any Registrable Securities an amount equal to one (1%) percent per month for
the first thirty days and two (2%) percent per month or part thereof for each
month or part thereof thereafter during the pendency of such Non-Registration
Event, of the principal of the Notes issued in connection with the Offering,
whether or not converted, whether or not converted, then owned of record by such
holder or issuable as of or subsequent to the occurrence of such
Non-Registration Event. Payments to be made pursuant to this Section 10.4 shall
be due and payable within ten (10) business days after demand in immediately
available funds. In the event a Mandatory Redemption Payment is demanded from
the Company by the Holder pursuant to Section 9.2 of this Subscription
Agreement, then the Liquidated Damages described in this Section 10.4 shall no
longer accrue on the portion of the Purchase Price underlying the Mandatory
Redemption Payment, from and after the date the Holder receives the Mandatory
Redemption Payment. It shall also be deemed a Non-Registration Event if at any
time a Note is outstanding, there is less than 125% of the amount of Common
Shares necessary to allow full conversion of such Note at the then applicable
Conversion Price registered for unrestricted resale in an effective registration
statement.
10.5. EXPENSES. All expenses incurred by the Company in
complying with Section 10, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional counsel,
if any. The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 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.
10.6. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the 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 Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
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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 reimburse the Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable to the Seller to
the extent that any such damages arise out of or are based upon an untrue
statement or omission made in any preliminary prospectus if (i) the Seller
failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the 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 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 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 Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the gross proceeds received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(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 10.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.6(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
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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 10.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 10.6 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 10.6 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.6; 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 offered by it pursuant to such registration statement; and (z) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
10.7. UNDERWRITER LIABILITY. Nothing contained in this
Agreement or any document delivered herewith shall require or imply that the
Subscriber is or be an Underwriter as defined in the 1933 Act of 1934 Act, nor a
"statutory underwriter." The Subscriber shall not be required to take any action
or assume any liability or obligation which would or could impose Underwriter or
"statutory underwriter" status or liability on the Subscriber.
11. OFFERING RESTRICTIONS. Except (i) as disclosed in the
Reports or Other Written Information prior to the date of this Subscription
Agreement, (ii) stock or stock options granted to employees or directors of the
Company pursuant to a plan or otherwise which has been approved by the directors
or shareholders of the Company, (iii) non-financing equity or debt issued to a
seller in connection with an acquisition of a business or assets from such
seller by the Company, (iv) the issuance by the Company of stock in connection
with the establishment of a joint venture, partnership or licensing arrangement
relating to its business, and (v) Common Stock, provided the issue price of such
Common Stock is not less than seventy percent (70%) of the closing price of the
Common Stock on the Principal Market on the subscription date and issue date of
the Common Stock (these exceptions hereinafter referred to as the "Excepted
Issuances"), without the prior written consent of the holders of a majority of
the principal amount of the outstanding Notes issued in the Offering, the
Company will not issue any equity, convertible debt or other securities, prior
to the expiration of the later of a period equal to 270 days during which the
registration statement described in Section 10.1(iv) above has been effective.
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The Excepted Issuances (other than [i] and [v] above) may be issued during the
above described time periods provided such securities are not transferable until
after a time period equal to 270 days during which the registration statement
described in Section 10.1(iv) above has been effective. Notwithstanding the
permissible issuance by the Company of the Excepted Issuances unless a majority
of the holders of the outstanding principal amount of the Notes issued in the
Offering consent, the Company may not file with the Commission prior to two
years after the Closing Date any registration statement that would register any
Common Stock for sale by the Company or resale by a selling shareholder unless
such Common Stock is an Excepted Issuance. Until two years after the Closing
Date unless the Company receives the foregoing consent, the Company may not
enter into an equity line of credit agreement or register for sale on a shelf
registration or other registration statement any Common Stock issued, to be
issued or issuable upon conversion of any convertible instrument.
12. MISCELLANEOUS.
(a) NOTICES. All notices or other communications
given or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied (provided that a
copy is delivered by first class mail) to the party to receive the same at its
address set forth below or to such other address as either party shall hereafter
give to the other by notice duly made under this Section: (i) if to the Company,
to Voiceflash Networks, Inc., 0000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxx Xxxxx, XX
00000, telecopier number: (000) 000-0000, with a copy by telecopier only to:
Atlas Xxxxxxxx, P.A., 000 Xxxx Xxx Xxxx Xxxxxxxxx, Xxxxx 0000, Xx. Xxxxxxxxxx,
XX 00000, Attn: Xxxx X. Xxxxxxxxx, Esq., telecopier number: (000) 000-0000, and
(ii) if to the Subscriber, to the name, address and telecopy number set forth on
the signature page hereto, with a copy by telecopier only to Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number:
(000) 000-0000. Any notice that may be given pursuant to this Agreement, or any
document delivered in connection with the foregoing may be given by the
Subscriber on the first business day after the observance dates in the United
States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur, the first two
days of the Feast of Tabernacles, Shemini Atzeret, Simchat Torah, the first two
and final two days of Passover and Pentecost, with such notice to be deemed
given and effective, at the election of the Subscriber on a holiday date that
precedes such notice. Any notice received by the Subscriber on any of the
aforedescribed holidays may be deemed by the Subscriber to be received and
effective as if such notice had been received on the first business day after
the holiday.
(b) CLOSING. 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 of
all conditions to Closing set forth in this Agreement. The closing date shall be
the date that subscriber funds representing the net amount due the Company from
the Purchase Price are transmitted by wire transfer to the Company (the "Closing
Date").
(c) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
represents 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. No right or obligation of either party shall be assigned by that party
without prior notice to and the written consent of the other party.
(d) EXECUTION. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.
(e) 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 of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
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Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
(f) 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 an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction 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.
(g) CONFIDENTIALITY. The Company agrees that it will
not disclose publicly or privately the identity of the Subscriber unless
expressly agreed to in writing by the Subscriber or only to the extent required
by law.
(h) AUTOMATIC TERMINATION. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the tenth (10th) business day following the
date this Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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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.
VOICEFLASH NETWORKS, INC.
A Florida Corporation
By:_________________________________
Name:
Title:
Dated: July _____, 2001
ATTEST:
By:___________________________________
-------------------------------------------------------------------------------
Purchase Price: $525,000.00
-----------
Section 7 Shares: 1,781,371
---------
Warrants to Purchase 105,000 Common Shares
ACCEPTED: Dated as of July ____, 2001
ALPHA CAPITAL AKTIENGESELLSCHAFT - Subscriber
A Lichtenstein corporation
Xxxxxxxxx 0, 0000 Xxxxxxxxxxx
Xxxxx, Xxxxxxxxxxxx
Fax: 000-00-00000000
By:______________________________
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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.
VOICEFLASH NETWORKS, INC.
A Florida Corporation
By:_________________________________
Name:
Title:
Dated: July _____, 2001
ATTEST:
By:___________________________________
-------------------------------------------------------------------------------
Purchase Price: $225,000.00
-----------
Section 7 Shares: 763,445
-------
Warrants to Purchase 45,000 Common Shares
ACCEPTED: Dated as of July ____, 2001
XXXXXXXXXXX LIMITED PARTNERSHIP - Subscriber
C/o Canaccord Capital Corporation
000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX X0X 0X0, Xxxxxx
Fax: 000-000-0000
By:______________________________
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SCHEDULE B TO SUBSCRIPTION AGREEMENT
----------------------------------------- --------------------------------------
FINDERS CASH FINDER'S SHARES
----------------------------------------- --------------------------------------
LIBRA FINANCE, S.A. $15,750.00
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
----------------------------------------- --------------------------------------
XXXXXXXXXXX CORPORATION $ 6,750.00
C/o Canaccord Capital Corporation
000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX X0X 0X0, Xxxxxx
Fax: 000-000-0000
----------------------------------------- --------------------------------------
GEM, INC. $52,500.00
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: 000-000-0000
----------------------------------------- --------------------------------------
TOTAL $75,000.00
----------------------------------------- --------------------------------------
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