SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
dated
as of January 16, 2007, by and between Xxxxxxxx.xxx, Incorporated, a Nevada
corporation (the “Company”),
and
Lakewood Group LLC (“Subscriber”).
WHEREAS,
the
Company and the Subscriber 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 Subscriber, as provided herein,
and the Subscribers, in the aggregate, shall subscribe to One Million Dollars
($1,000,000) (the "Principal
Amount")
of
promissory notes of the Company with an original discount of twenty percent
(20%) (“Note”
or
if
more than one, “Notes”),
a
form of which is annexed hereto as Exhibit
A.
The
original discount shall be reduced to ten percent (10%) as described in the
Note, should the Company prepay the Note in full within 45 days of the Closing
Date as defined below. The Notes are sometimes referred to herein as the
"Securities";
and
WHEREAS,
the
aggregate proceeds of the sale of the Notes contemplated hereby shall be held
in
escrow pursuant to the terms of a Funds Escrow Agreement to be executed by
the
parties substantially in the form attached hereto as Exhibit
B
(the
"Escrow
Agreement").
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscriber hereby agree as follows:
1. Closing.
Subject
to the satisfaction or waiver of the terms and conditions of this Agreement,
on
the Closing Date, Subscriber shall purchase and the Company shall sell to
Subscriber a Note in the Principal Amount of $1,000,000 for the purchase price
of $800,000 (“Purchase
Price”).
The
consummation of the transactions contemplated herein shall take place at the
offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx,
Xxx Xxxx 00000, as soon as practicable following the satisfaction or waiver
of
all conditions to closing set forth in this Agreement (the “Closing
Date”).
2. Additional
Transactions With Company Chief Executive Officer and President.
(a) Stock
Pledge.
Xxxx
Xxxxxxxx, the Chief Executive Officer and President of the Company
(“Pledgor”)
will
pledge 4,000,000 Shares (subject to increase) of the Company’s $.001 par value
Common Stock (“Common
Stock”
and
“Pledged
Shares”)
as
security for the Company’s obligations to the Subscriber. The pledge will be
memorialized in a Stock Pledge Agreement, a form of which is annexed hereto
as
Exhibit
C.
Pledgor
will also provide a personally guaranty the payment of the Note. The personal
guaranty will be memorialized in a Guaranty, a form of which is annexed hereto
as Exhibit
D.
(b) Stock
Sale.
Contemporaneously with the Closing, Pledgor will sell to the Subscriber 825,000
Shares of Common Stock (“Purchased
Shares”)
for
the consideration stated in a stock purchase agreement to be entered into
between Xx. Xxxxxxxx and Sellers.
3. Subscriber's
Representations and Warranties.
Subscriber hereby represents and warrants to and agrees with the Company
that:
(a) Organization
and Standing of the Subscriber.
Subscriber is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has the requisite power to
own
its assets and to carry on its business.
(b) Authorization
and Power.
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and to purchase the Notes being sold to it hereunder. The execution,
delivery and performance of this Agreement by Subscriber and the consummation
by
it of the transactions contemplated hereby and thereby have been duly authorized
by all necessary action, and no further consent or authorization of such
Subscriber, its Board of Managers or members is required. This Agreement has
been duly authorized, executed and delivered by Subscriber and constitutes,
or
shall constitute when executed and delivered, a valid and binding obligation
of
the Subscriber enforceable against the Subscriber in accordance with the term
hereof.
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
Subscriber of the transactions contemplated hereby or relating hereto do not
and
will not (i) result in a violation of such Subscriber’s charter documents or
bylaws or other organizational documents or (ii) conflict with, or constitute
a
default (or an event which with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument or
obligation to which 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
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 Subscriber). Subscriber is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or to purchase the Notes in accordance with the terms
hereof, provided that for purposes of the representation made in this sentence,
Subscriber is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) Information
on Company.
The
Subscriber has been furnished with or has had access at the XXXXX Website of
the
Commission to the Company's Form 10-KSB for the year ended June 30, 2006 and
all
periodic reports filed with the Commission thereafter but not later than five
days before the Closing Date (hereinafter referred to as the "Reports").
In
addition, the Subscriber has received in writing from the Company such other
information concerning its operations, financial condition and other matters
as
the Subscriber has requested in writing (such other information is collectively,
the "Other
Written Information"),
and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(e) Information
on Subscriber.
The
Subscriber is, and will be on the Closing Date, an "accredited investor", as
such term is defined in Regulation D promulgated by the Commission under the
1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with
its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase of the Note,
which represents a speculative investment. The Subscriber has the authority
and
is duly and legally qualified to purchase and own the Note. The Subscriber
is
able to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate.
(f) Purchase
of Note.
On the
Closing Date, the Subscriber will purchase the Note as principal for its own
account for investment only and not with a view toward, or for resale in
connection with, the public sale or any distribution thereof, but Subscriber
does not agree to hold the Note for any minimum amount of time.
2
(g) Compliance
with Securities Act.
The
Subscriber understands and agrees that the Note has not been registered under
the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933
Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Note must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt
from such registration. Notwithstanding anything to the contrary contained
in
this Agreement, Subscriber may transfer (without restriction and without the
need for an opinion of counsel) the Note to its Affiliates (as defined below)
provided that each such Affiliate is an “accredited investor” under Regulation D
and such Affiliate agrees to be bound by the terms and conditions of this
Agreement. For the purposes of this Agreement, an “Affiliate”
of
any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with
such
person or entity. Affiliate when employed in connection with the Company
includes each Subsidiary [as defined in Section 4(a)] of the Company. For
purposes of this definition, “control”
means
the power to direct the management and policies of such person or firm, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
(h) 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 XXXXXXXX.XXX, INCORPORATED THAT SUCH REGISTRATION IS NOT
REQUIRED."
(i) Communication
of Offer.
The
offer to sell the Note was directly communicated to the Subscriber by the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(j) No
Governmental Review.
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 Note or the suitability of the investment in the Note nor
have such authorities passed upon or endorsed the merits of the offering of
the
Note.
(k) Correctness
of Representations.
Subscriber represents that the foregoing representations and warranties are
true
and correct as of the date hereof and, unless such Subscriber otherwise notifies
the Company prior to the Closing Date shall be true and correct as of the
Closing Date.
(l) Survival.
The
foregoing representations and warranties shall survive the Closing Date for
a
period of three years after the Closing Date.
4. Company
Representations and Warranties.
The
Company represents and warrants to and agrees with Subscriber that except as
set
forth in the Reports or the Other Written Information and as otherwise qualified
in the Transaction Documents [as defined in Section 4(c)]:
3
(a) Due
Incorporation.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
corporate power to own its properties and to carry on its business is disclosed
in the Reports.
The
Company is duly qualified as a foreign corporation to do business and is in
good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a “Material
Adverse Effect”
shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken individually, or in
the
aggregate, as a whole. For purposes of this Agreement, “Subsidiary”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by such
entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
4(a)
hereto.
(b) Outstanding
Stock.
All
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
(c) Authority;
Enforceability.
This
Agreement, the Note, the Escrow Agreement, Stock Pledge Agreement, and any
other
agreements delivered together with this Agreement or in connection herewith
including in connection with the transactions described in Section 3 above
(collectively “Transaction
Documents”)
have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements enforceable against the Company in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into
and
deliver the Transaction Documents and to perform its obligations
thereunder.
(d) Additional
Issuances.
There
are no outstanding agreements or preemptive or similar rights affecting the
Company's or any of its Subsidiaries’ Common Stock or other equity and no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of any Common Stock or equity of the Company except as
described on Schedule
4(d).
The
Common Stock and all other equity of the Company and its Subsidiaries on a
fully
diluted basis outstanding as of the last trading day preceding the Closing
Date
is set forth on Schedule
4(d).
(e) Consents.
No
consent, approval, authorization or order of any court, governmental agency
or
body or arbitrator having jurisdiction over the Company, or any of its
Affiliates, any Principal Market (as defined in Section 9(b) of this Agreement),
nor the Company's shareholders is required for the execution by the Company
of
the Transaction Documents and compliance and performance by the Company of
its
obligations under the Transaction Documents, including, without limitation,
the
issuance and sale of the Note.
(f) No
Violation or Conflict.
Assuming the representations and warranties of the Subscriber in Section 3
are
true and correct, neither the issuance and sale of the Note 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:
4
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default in any material respect) under (A) the articles
or certificate of incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency
or
body, or arbitrator having jurisdiction over the Company or over the properties
or assets of the Company or any of its Affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or
other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to
which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
or
(ii) result
in
the creation or imposition of any Lien (as defined in Section 9(o)(i)) upon
the
Note or any of the assets of the Company or any of its Affiliates other then
a
Permitted Lien (as defined in Section 9(o)(i)); or
(iii) result
in
the activation of any anti-dilution rights or a reset or repricing of any debt
or security instrument of any other creditor or equity holder of the Company,
nor result in the acceleration of the due date of any obligation of the Company;
or
(iv) result
in
the activation of any piggy-back registration rights of any person or entity
holding securities or debt of the Company or having the right to receive
securities of the Company.
(g) The
Note.
Each of
the Note upon issuance; the Purchased Shares upon the Closing Date and the
Pledged Shares upon release or sale by or on behalf of Subscriber (if
ever):
(i) is,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and
any
applicable state securities laws;
(ii) has
been,
or will be, duly and validly authorized and on the date of issuance of will
be
or will have been duly and validly issued and fully paid and nonassessable
and,
if registered pursuant to the 1933 Act and resold pursuant to an effective
registration statement, will be free trading and unrestricted except to the
extent of any restrictions pursuant to the 1933 Act or the Exchange Act that
may
be applicable to any Subscriber due to such Subscriber’s affiliate or insider
status with respect to the Company or such Subscriber’s possession of material
non-public information with respect to the Company;
(iii) will
not
have been issued or sold in violation of any preemptive, right of first offer,
right of first refusal or other similar rights of the holders of any securities
or debt of the Company or any other person having such rights;
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders provided Subscriber’s representations herein are true and accurate and
Subscriber takes no actions or fails to take any actions required by Subscriber
for such purchase to be in compliance with applicable laws and regulations;
and
(v) will
have
been issued in reliance upon an exemption from the registration requirements
of
and will not result in a violation of Section 5 under the 1933 Act provided
Subscriber’s representations herein are true and accurate and Subscriber takes
no actions or fails to take any actions required for their purchase to be in
compliance with applicable laws and regulations.
5
(h) Litigation.
Except
as described 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 that would affect the execution
by
the Company of any of the Transaction Documents or the performance by the
Company of its obligations under the Transaction Documents except as described
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) Reporting
Company.
The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13 of the Securities Exchange Act of 1934 (the “1934
Act”)
and
has a
class of common shares registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, except as disclosed on Schedule
4(i)
hereto,
the Company has timely filed all reports and other materials required to be
filed thereunder with the Commission during the preceding thirty-six
months.
(j) No
Market Manipulation.
The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock or
affect
the price at which Common Stock may be issued or resold, provided, however,
that
this provision shall not prevent the Company from engaging in investor
relations/public relations activities consistent with past
practices.
(k) Information
Concerning Company.
The
Reports contain all material information relating to the Company and its
operations and financial condition as of their respective dates and all the
information required to be disclosed therein. Since the last day of the fiscal
year of the most recent audited financial statements included in the Reports
(“Latest
Financial Date”),
and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no Material Adverse Event relating to the Company's business,
financial condition or affairs not disclosed in the Reports. The Reports
including the financial statements therein do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of
the circumstances when made. Subscriber acknowledges the Company’s disclosure
made in a Form 8-K filed by the Company with the Commission on December 29,
2006
relating to its financial statements.
(l) Stop
Transfer.
The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Pledged Shares or Purchased Shares, except
as
may be required by any applicable federal or state securities laws and unless
contemporaneous notice of such instruction is given to the
Subscriber.
(m) Defaults.
The
Company is not in violation of its certificate of incorporation or bylaws.
The
Company is (i) not in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect,
(ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under
any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority
which
violation would have a Material Adverse Effect.
(n) Not
an
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Note pursuant to this Agreement to be integrated with prior
offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the OTC Bulletin Board (“Bulletin
Board”)
which
would impair the exemptions relied upon herein or the Company’s ability to
timely comply with its obligations hereunder. Nor will the Company or any of
its
Affiliates take any action or steps that would cause the offer or issuance
of
the Note to be integrated with other offerings which would impair the exemptions
relied upon herein or the Company’s ability to timely comply with their
obligations set forth in the Transaction Documents. The Company will not conduct
any offering other than the transactions contemplated hereby that will be
integrated with the offer or issuance of the Note, which would impair the
exemptions relied upon herein or the Company’s or Pledgor’s ability to timely
comply with their respective obligations.
6
(o) No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 0000 Xxx)
in
connection with the offer or sale of the Note, Pledged Stock or Purchased
Stock.
(p) Listing.
The
Company's common stock is quoted on the Bulletin Board under the symbol IMEN.OB.
The Company has not received any oral or written notice that its common stock
is
not eligible nor will become ineligible for quotation on the Bulletin Board
nor
that its common stock does not meet all requirements for the continuation of
such quotation. The Company satisfies all the requirements for the continued
quotation of its common stock on the Bulletin Board.
(q) No
Undisclosed Liabilities.
The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company’s
businesses since the Latest Financial Date and which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse
Effect,
except
as disclosed on Schedule
4(q).
(r) No
Undisclosed Events or Circumstances.
Since
the Latest Financial Date, no event or circumstance has occurred or exists
with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has
not been so publicly announced or disclosed in the Reports.
(s) Capitalization.
The
authorized and outstanding capital stock of the Company and each Subsidiary
as
of the date of this Agreement and the Closing Date are set forth on Schedule
4(d).
Except
as set forth on Schedule
4(d),
there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company or any of its
Subsidiaries. All of the outstanding shares of Common Stock of the Company
and
Subsidiaries have been duly and validly authorized and issued and are fully
paid
and nonassessable.
(t) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers, nor
have there been any such disagreements during the two years prior to the Closing
Date.
(u) Transfer
Agent/DTC Status.
The
Company’s transfer agent is a participant in and the Common Stock is eligible
for transfer pursuant to the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax number, contact
person and email address of the Company transfer agent is set forth on
Schedule
4(u)
hereto.
(v) Investment
Company.
Neither
the Company nor any Affiliate is an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.
7
(w) 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 Note,
(i) the Company’s fair saleable value of its assets exceeds the amount that will
be required to be paid on or in respect of the Company’s existing debts and
other liabilities (including known contingent liabilities) as they mature;
(ii)
the Company’s assets do not constitute unreasonably small capital to carry on
its business for the current fiscal year as now conducted and as proposed to
be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were
it to
liquidate all of its assets, after taking into account all anticipated uses
of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its
debt).
(x) Subsidiary
Representations.
The
Company makes each of the representations contained in Sections 4(a), (b),
(c),
(d), (e), (f), (h), (k), (m), (q), (r), (t), (v) and (w) of this Agreement,
as
same relate to each Subsidiary of the Company.
(y) Company
Predecessor.
All
representations made by or relating to the Company of a historical or
prospective nature and all undertakings described in Sections 9(g) through
9(l)
shall relate, apply and refer to the Company, Subsidiaries and their
predecessors, if any.
(z) 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 Subscriber prior to the Closing Date, shall
be
true and correct in all material respects as of the Closing Date.
(AA) Survival.
The
foregoing representations and warranties shall survive for a period of three
years after the Closing Date.
5. Regulation
D Offering.
The
offer, issuance and sale of the Note and Purchased Shares to the Subscriber
is
being made pursuant to the exemption from the registration provisions of the
1933 Act afforded by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule
506 of Regulation D promulgated thereunder. On the Closing Date, the Company
will provide an opinion reasonably acceptable to Subscriber from the Company's
legal counsel opining on the availability of an exemption from registration
under the 1933 Act as it relates to the offer and issuance of the Note and
other
matters reasonably requested by Subscriber. A form of the legal opinion is
annexed hereto as Exhibit
E.
At the
Company’s option, the Company will provide, at the Company's expense or
reimburse Subscriber, for such other legal opinions in the future as are
reasonably necessary for the issuance and resale of the Note, Pledged Shares,
and Purchased Shares pursuant to an effective registration statement, Rule
144
under the 1933 Act or an exemption from registration.
6. Broker’s
Commission.
The
Company on the one hand, and Subscriber on the other hand, agrees to indemnify
the other against and hold the other harmless from any and all liabilities
to
any persons claiming brokerage commissions or similar fees 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. The Company represents that there are no
parties entitled to receive fees, commissions, or similar payments in connection
with the offering described in this Agreement.
7. Due
Diligence Fee.
The
Company will pay a due diligence fee of $25,000 (“Due
Diligence Fee”).
The
Due Diligence Fee will be paid at the Subscriber’s election out of the funds
deposited pursuant to the Escrow Agreement or at the Subscriber’s election
withheld from the Purchase Price. The Subscriber will not receive additional
Common Stock as an additional due diligence fee.
8
8. Legal
Fees.
The
Company shall pay to Grushko & Xxxxxxx, P.C., a cash fee of $20,000
(“Legal
Fees”)
(of
which $10,000 has been paid prior to Closing) as reimbursement for services
rendered to the Subscriber in connection with this Agreement and the purchase
and sale of the Note (the “Offering”).
The
Legal Fees and reimbursement for estimated UCC searches, credit and background
investigations, if any (less any amounts paid prior to a Closing Date), will
be
payable on the Closing Date out of funds held pursuant to the Escrow
Agreement.
9. Covenants
of the Company.
The
Company covenants and agrees with the Subscriber as follows:
(a) Stop
Orders.
The
Company will advise the Subscriber, within two business days after the Company
receives notice of issuance by the Commission, any state securities commission
or any other regulatory authority of any stop order or of any order preventing
or suspending any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock of the Company for offering
or sale in any jurisdiction, or the initiation of any proceeding for any such
purpose.
(b) Listing.
The
Company will maintain the listing or quotation of its Common Stock on the
American Stock Exchange, Nasdaq Capital Market, Nasdaq National Market System,
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.
For so long as the Subscriber owns any Purchased Shares or Pledged Shares remain
subject to the Stock Pledge Agreement, the Company will provide the Subscriber
copies of all notices it receives notifying the Company of the threatened and
actual delisting or exclusion from quotation of the Common Stock from any
Principal Market. As of the date of this Agreement, the Bulletin Board is the
Principal Market.
(c) Market
Regulations.
The
Company shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Note to the Subscriber
and
promptly provide copies thereof to Subscriber.
(d) Filing
Requirements.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Purchased Shares have been resold or
transferred by all the Subscriber pursuant to a registration statement or
pursuant to Rule 144, without regard to volume limitations and no sum remains
outstanding under the Note (“Compliance
Period”),
the
Company will (A) cause its Common Stock to continue to be registered under
Section 12(b) or 12(g) of the 1934 Act, (B) comply in all respects with its
reporting and filing obligations under the 1934 Act, (C) voluntarily comply
with
all reporting requirements that are applicable to an issuer with a class of
shares registered pursuant to Section 12(g) of the 1934 Act, if Company is
not
subject to such reporting requirements, and (D) comply with all requirements
related to any registration statement filed pursuant to this Agreement. The
Company will use its best efforts not to take any action or file any document
(whether or not permitted by the 1933 Act or the 1934 Act or the rules
thereunder) to terminate or suspend its reporting and filing obligations under
said acts during the Compliance Period. During the Compliance Period, 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 Note 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 for the purposes set
forth on Schedule
9(e)
hereto.
Except as set forth on Schedule
9(e),
the
Purchase Price may not and will not be used for accrued and unpaid officer
and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company, litigation related expenses or
settlements, brokerage fees, nor non-trade obligations outstanding on a Closing
Date.
9
(f) Taxes.
During
the Compliance Period, 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.
(g) Insurance.
During
the Compliance Period, the Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against
by
companies in the Company’s line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured less
reasonable deductible amounts; and the Company will maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner customary
for
companies in similar businesses similarly situated and to the extent available
on commercially reasonable terms.
(h) Books
and Records.
During
the Compliance Period, 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.
(i) Governmental
Authorities.
During
the Compliance Period, 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.
(j) Intellectual
Property.
During
the Compliance Period, 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.
(k) Properties.
During
the Compliance Period, 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.
(l) Confidentiality/Public
Announcement.
During
the Compliance Period, the Company agrees that except in connection with a
Form
8-K or the Registration Statement or as otherwise required in any other
Commission filing or as required by law, it will not disclose publicly or
privately the identity of the Subscriber unless expressly agreed to in writing
by Subscriber, only to the extent required by law and then only upon five days
prior notice to Subscriber. In any event and subject to the foregoing, the
Company shall file
a
Form 8-K or make a public announcement describing the Offering not later than
the first business day after the Closing Date. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of common stock
outstanding immediately after the Closing. A form of the proposed Form 8-K
or
public announcement to be employed in connection with the Closing is annexed
hereto as Exhibit
F.
10
(m) Non-Public
Information.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf will provide Subscriber or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber shall
be
relying on the foregoing representations in effecting transactions in securities
of the Company. The Company will offer to the Subscriber an opportunity to
review and comment on the Registration Statement thereto between three and
five
business days prior to the proposed filing date thereof.
(n) Additional
Negative Covenants.
So long
as the Notes are outstanding and during the pendency of an Event of Default
(as
defined in the Note), without the consent of the Subscriber, the Company will
not and will not permit any of its Subsidiaries to directly or
indirectly:
(i) create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”)
upon
any of its property, whether now owned or hereafter acquired except for (i)
the
Excepted Issuances [as defined on Schedule
9(n)],
(ii)
(a) Liens imposed by law for taxes that are not yet due or are being contested
in good faith and for which adequate reserves have been established in
accordance with generally accepted accounting principles; (b) carriers’,
warehousemen’s, mechanics’, material men’s, repairmen’s and other like Liens
imposed by law, arising in the ordinary course of business and securing
obligations that are not overdue by more than 30 days or that are being
contested in good faith and by appropriate proceedings; (c) pledges and deposits
made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or
regulations; (d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; (e) Liens created with respect to the financing of the purchase of
new
property in the ordinary course of the Company’s business up to the amount of
the purchase price of such property, or (f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property (each of (a) through (g), a “Permitted
Lien”)
and
(iii) indebtedness for borrowed money which is not senior or pari passu in
right
of payment to the payment of the Notes;
(ii) amend
its
certificate of incorporation or bylaws so as to adversely affect any rights
of
the Subscriber;
(iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents or as described on Schedule
9(n) subpart
(vi);
(iv) prepay
any financing related or other outstanding debt obligations except as described
on Schedule
9(n), subpart (vi);
or
(v) engage
in
any transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $50,000
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.
11
(o) Sale
of Pledged Shares and Purchased Shares.
Upon the
transfer of Pledged Shares or Purchased Shares, 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 transferee, or its permitted nominee or such
other persons as designated by Subscriber and in such denominations to be
specified upon transfer representing the number of shares of Common Stock
issuable upon such Pledged Shares and Purchased Shares. 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 required 1933
Act restriction from transfer legend. If and when the Subscriber transfers
the
Pledged Shares and Purchased Shares, assuming (i) a registration statement
is
effective and the prospectus, as supplemented or amended, contained therein
is
current and (ii) the Subscriber confirms in writing to the transfer agent that
the Subscriber has complied with the prospectus delivery requirements, the
restrictive legend will be removed and such Pledged Shares and Purchased Shares
will be free trading, and freely transferable. In the event that the Pledged
Shares and Purchased 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).
(p) Preservation
of Corporate Existence.
The
Company shall preserve and maintain its corporate existence, rights, privileges
and franchises in the jurisdiction of its incorporation, and qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its business or operations and where
the
failure to qualify or remain qualified might reasonably have a Material Adverse
Effect upon the financial condition, business or operations of the Company
and
its Subsidiaries taken as a whole.
10. Covenants
of the Company and Subscriber Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the Subscriber,
the 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 the Subscriber or any such person which results, arises out of
or
is based upon (i) any material misrepresentation by Company or material breach
of any warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or other agreement delivered pursuant hereto; or (ii) after
any
applicable notice and/or cure periods, any material breach or default in
performance by the Company of any covenant or undertaking to be performed by
the
Company hereunder, or any other agreement entered into by the Company and
Subscriber relating hereto.
(b) Subscriber
agrees to indemnify, hold harmless, reimburse and defend the Company and each
of
the Company’s officers, directors, agents, Affiliates, control persons against
any claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Company
or
any such person which results, arises out of or is based upon (i) any material
misrepresentation by such Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant hereto; or
(ii)
after any applicable notice and/or cure periods, any material breach or default
in performance by such Subscriber of any covenant or undertaking to be performed
by such Subscriber hereunder, or any other agreement entered into by the Company
and Subscriber, relating hereto.
(c) In
no
event shall the liability of any Subscriber or permitted successor hereunder
or
under any Transaction Document or other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber upon the sale of the Purchased
Shares.
12
(d) The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Sections 10(a) and 10(b) above.
11.1. Registration
Rights.
The
Company hereby grants the following registration rights to holders of the
Purchased Shares and Pledged Shares. Other than for the exclusive registration
of the securities underlying that certain equity swap by and between the Company
and Cogent Capital, LLC as described in the Reports, 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 Warrant Shares and the other
shares of Common Stock held by or purchaseable by Subscriber as set forth on
Schedule
11.1
(“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 fifteen (15) days'
prior written notice to the record holder of the Registrable Securities of
its
intention so to do. Upon the written request of the holder, received by the
Company within ten (10) days after the giving of any such notice by the Company,
to register any of the Registrable Securities not previously registered, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by
the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the “Seller”
or
“Sellers”).
The
Subscriber or any transferee of the Pledged Shares (as the case may be) will
be
deemed the holder or Seller of the Pledged Shares for so long as the Pledged
Shares remain subject to the Stock Pledge Agreement. Unless instructed in
writing to the contrary, the Subscribers hereby automatically exercise the
registration rights granted in this Section 11.1. The Seller is hereby given
the
same rights and benefits as any other party identified in such registration.
In
the event that any registration pursuant to this Section 11.1 shall be, in
whole
or in part, an underwritten public offering of common stock of the Company,
the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1 without
thereby incurring any liability to the Seller due to such withdrawal or delay.
The holder of Registrable Securities may elect to receive the registration
rights applicable to any other holder of securities (except the Company)
included for resale in a Registration Statement in lieu of the registration
rights granted to such holder as described in Sections 11.2 through 11.6
hereto.
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 11.1 to effect
the
registration of any Registrable Securities under the 1933 Act, the Company
will,
as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect to
such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of
the
Registrable Securities copies of all filings and Commission letters of comment
and notify Subscribers (by telecopier and by e-mail addresses provided by
Subscribers) and Grushko & Xxxxxxx, P.C. (by telecopier and by email to
Xxxxxxxxx@xxx.xxx)
on or
before the first business day thereafter that the Company receives notice that
(i) the Commission has no comments or no further comments on the Registration
Statement, and (ii) the registration statement has been declared effective
(failure to timely provide notice as required by this Section 11.2(a) shall
be a
material breach of the Company’s obligation and an Event of Default as defined
in the Notes
and
a Non-Registration Event as defined in Section 11.4 of this Agreement);
13
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with
the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
(c) furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;
(d) use
its
commercially
reasonable best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or “blue sky” laws
of New York and such jurisdictions as the Sellers shall request in writing,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service
of
process in any such jurisdiction;
(e) if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) notify
the Subscribers within 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, and any attorney, accountant
or other agent retained by the Seller or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents
and
properties of the Company, and cause the Company's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the seller, attorney, accountant or agent in connection
with such registration statement; and
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto
five
business days prior to the filing thereof with the Commission.
11.3. Provision
of Documents.
In
connection with each registration described in this Section 11, each Seller
will
furnish to the Company in writing such information and representation letters
reasonably requested by the Company with respect to itself and the proposed
distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
11.4. Non-Registration
Events.
The
Company and the Subscriber agree that the Sellers will suffer damages if the
Company does not comply with its obligations set forth in Section
11.1.
11.5. Expenses.
All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky” laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
and registrars, costs of insurance and fee of one counsel for all Sellers are
called “Registration
Expenses.”
All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any additional
counsel to the Seller, are called "Selling
Expenses."
The
Company will pay all Registration Expenses in connection with the registration
statement under Section 11. Selling Expenses in connection with each
registration statement under Section 11 shall be borne by the Seller and may
be
apportioned among the Sellers in proportion to the number of shares sold by
the
Seller relative to the number of shares sold under such registration statement
or as all Sellers thereunder may agree.
14
11.6. Indemnification
and Contribution.
(a) In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions
of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by
the
Company to the Seller with or prior to the delivery of written confirmation
of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement
or
alleged untrue statement or such omission or alleged omission, or (iii) to
the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller,
or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In
the
event of a registration of any of the Registrable Securities under the 1933
Act
pursuant to Section 11, each Seller severally but not jointly will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage
or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability
of
the Seller hereunder shall be limited to the net proceeds actually received
by
the Seller from the sale of Purchased Shares covered by such registration
statement.
15
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 11.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake
the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.6(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
11.6 but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may
be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6;
then, and in each such case, the Company and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will not
be
required to contribute any amount in excess of the public offering price of
all
such securities sold by it pursuant to such registration statement; and (z)
no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the 0000 Xxx) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery
of Unlegended Shares.
(a) Within
three (3) business days (such third business day being the “Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a notice that Registrable
Securities have been sold pursuant to a 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 Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company, at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery
of
shares of Common Stock without any legends including the legend set forth in
Section 4
above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the
1933
Act (the “Unlegended
Shares”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted Common Stock 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.
16
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, if
the
Company’s transfer agent is participating in the Depository Trust Company
(“DTC”)
Fast
Automated Securities Transfer program, upon request of a Subscriber, so long
as
the certificates therefor do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the
Company must cause its transfer agent to electronically transmit the Unlegended
Shares by crediting the account of Subscriber’s prime Broker with DTC through
its Deposit Withdrawal Agent Commission system. Such delivery must be made
on or
before the Unlegended Shares Delivery Date.
(c) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof after the Unlegended Shares Delivery Date could
result in economic loss to Subscriber. As compensation 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 sales
price
anticipated to have been received by Subscriber in connection with such sale
of
the Unlegended Shares subject to the delivery default. If during any 360 day
period, the Company fails to deliver Unlegended Shares as required by this
Section 11.7 for an aggregate of thirty (30) days, then each Subscriber or
assignee holding Registrable Securities subject to such default may, at its
option, require the Company to redeem all or any portion of such Registrable
Securities subject to such default at a price per share equal to 120% of the
sales price anticipated to have been received by Subscriber in connection with
such sale (“Unlegended
Redemption Amount”).
(d) In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"), then
the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate purchase
price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares
together
with interest thereon at a rate of 15% per annum, accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000,
plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
(e) In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 11.7 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or
for
any other reason, unless, an injunction or temporary restraining order from
a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares shall have been sought and obtained by the Company or at the Company’s
request or with the Company’s assistance, and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount
of
the aggregate market value of the Common Stock which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber’s favor. Market Value shall mean the highest Ask price of
the Common Stock during the three hundred and sixty-five days preceding the
date
the injunction or temporary restraining order is requested from a
court.
17
12. 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: Xxxxxxxx.xxx,
Incorporated, 0000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxx Xxxxxx, XX 00000, Attn:
Xxxx
Xxxxxxxx, CEO and President, telecopier: (000) 000-0000, with a copy by
telecopier only to: Xxxxxx Xxxxxx, Esq., and Xxxxx X. Xxxxxxx, Esq., Xxxxxxx
Savage LLP, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, telecopier (000) 000-0000,
and (ii) if to the Subscriber, to: the one or more addresses and telecopier
numbers indicated on the signature pages hereto, with an additional copy by
telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000,
Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (000) 000-0000.
(b) Entire
Agreement; Assignment.
This
Agreement and the Transaction Documents delivered in connection herewith
represent the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by both
parties. Neither the Company nor the Subscribers have relied on any
representations not contained or referred to in this Agreement and the documents
delivered herewith. No right or obligation of the Company shall be assigned
without prior notice to and the written consent of the Subscribers.
(c)
Counterparts/Execution.
This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d) Law
Governing this Agreement.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to conflicts
of laws
principles that would result in the application of the substantive laws of
another jurisdiction. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought
only
in the civil or state courts of New York or in the federal courts located in
New
York County. The
parties and the individuals executing this Agreement and other agreements
referred to herein or delivered in connection herewith on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by
jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
18
(e) Specific
Enforcement, Consent to Jurisdiction.
To the
extent permitted by law, the Company and Subscriber acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to one or more preliminary and final injunctions to prevent or cure breaches
of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any
of
them may be entitled by law or equity. Subject to Section 12(d) hereof, each
of
the Company, Subscriber and any signator hereto in his personal capacity hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction in New York of
such
court, that the suit, action or proceeding is brought in an inconvenient forum
or that the venue of the suit, action or proceeding is improper. Nothing in
this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
(f) 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.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
19
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.
|
XXXXXXXX.XXX,
INCORPORATED
|
|
|
a
Nevada corporation
|
|
|
By:
/s/ Xxxx Xxxxxxxx
|
|
|
Name:
Xxxx Xxxxxxxx
|
|
|
Title:
CEO and President
|
|
|
Dated:
January 16, 2007
|
|
SUBSCRIBER
|
NOTE
PRINCIPAL AMOUNT
|
PURCHASE
PRICE
|
|
LAKEWOOD
GROUP LLC
000
Xxxx 00xx
Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx, XX 00000
Fax:
(000) 000-0000
/s/
(Signature)
By:
|
$1,000,000.00
|
$800,000.00
|
LIST
OF EXHIBITS AND SCHEDULES
|
Exhibit
A
|
Form
of Note
|
|
Exhibit
B
|
Escrow
Agreement
|
|
Exhibit
C
|
Form
of Stock Pledge Agreement
|
|
Exhibit
D
|
Form
of Guaranty
|
|
Exhibit
E
|
Form
of Legal Opinion
|
|
Exhibit
F
|
Form
of 8-K or Public Announcement
|
|
Schedule
4(a)
|
Subsidiaries
|
|
Schedule
4(d)
|
Additional
Issuances / Capitalization
|
|
Schedule
4(q)
|
Undisclosed
Liabilities
|
|
Schedule
4(u)
|
Transfer
Agent
|
|
Schedule
9(e)
|
Use
of Proceeds
|
|
Schedule
9(n)
|
Excepted
Issuances
|
|
Schedule
11.1
|
Other
Registrable Securities
|
