SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT
(this “
Agreement”),
is
dated as of January 8, 2008, by and among Attitude Drinks Inc., a Delaware
corporation (the “ Company”),
and
the subscribers identified on the signature page hereto (each a “ Subscriber”
and
collectively “ Subscribers”).
WHEREAS
, the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (" Regulation
D
") as
promulgated by the United States Securities and Exchange Commission (the "
SEC
" and/or
“ 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 purchase for up to $430,000 (the
"
Purchase
Price
") of
principal amount promissory notes of the Company (“ Note”
or
“
Notes”)
in the
principal amount of up to $520,000 (“ Note
Principal”),
in
the form annexed hereto as Exhibit
A
. The
Notes and Shares of the Company’s Common Stock, $.001 par value (the “
Common
Stock”)
issuable upon conversion of the Notes (“ Shares”)
are
collectively referred to herein as the “ Securities”;
and
WHEREAS
, the
aggregate proceeds of the sale of the Notes contemplated hereby shall be held
in
escrow pursuant to the terms of a Funds Escrow Agreement to be executed by
the
parties (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 the Subscribers Notes in the principal amount of up to $520,000. The
“
Closing
Date”
shall
be the date that subscriber funds representing the net amount due the Company
from the Purchase Price is transmitted by wire transfer or otherwise to or
for
the benefit of the Company.
2.
Escrow
Arrangements; Form of Payment
. Upon
execution hereof by the parties and pursuant to the terms of the Escrow
Agreement, Subscriber agrees to make the deliveries required of such Subscriber
as set forth in the Escrow Agreement annexed hereto as Exhibit
B
and the
Company agrees to make the deliveries required of the Company as set forth
in
the Escrow Agreement.
3.
Security
Interest
. On or
about October 23, 2007, certain lenders were granted a security interest in
the
assets of the Company, including ownership of the Subsidiaries (as defined
in
Section 5(a) of this Agreement) and in the assets of the Subsidiaries,
which security interest was memorialized in a “ Security
Agreement”
and
“
Collateral
Agent Agreement”
dated
October 23, 2007. The Subsidiaries guaranteed the Company’s obligations under
the Transaction Documents [as defined in Section 5(c)]. Such guaranties were
memorialized in a “ Subsidiary
Guaranty”.
The
Security Agreement and Collateral Agent Agreement are hereby amended to include
the Subscribers and the Company agrees that the Subscribers are hereby made
parts to the Security Agreement and Collateral Agent Agreement as Lenders
therein and their interests in the Obligations (as defined in the Security
Agreement) are pari pasu in proportion to their specific Obligation amounts
and
of equal priority with each other. The Company will execute such other
agreements, documents and financing statements reasonably requested by the
Subscribers to memorialize and further protect the security interest described
herein, which will be filed at the Company’s expense with the jurisdictions,
states and counties designated by the Subscribers. The Company will also execute
all such documents reasonably necessary in the opinion of Subscribers to
memorialize and further protect the security interest described
herein.
1
4.
Subscriber
Representations and Warranties
. Each
Subscriber hereby represents and warrants to and agrees with the Company only
as
to such Subscriber that:
(a)
Organization
and Standing of the Subscribers
. If
such Subscriber is an entity, such Subscriber is a corporation, partnership
or
other entity duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b)
Authorization
and Power
. Such
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and the other Transaction Documents and to purchase the Notes being
sold to it hereunder. The execution, delivery and performance of this Agreement
and the other Transaction Documents by such Subscriber and the consummation
by
it of the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its Board of Directors, stockholders,
partners, members, as the case may be, is required. This Agreement and the
other
Transaction Documents have been duly authorized, executed and delivered by
such
Subscriber and constitutes, or shall constitute when executed and delivered,
a
valid and binding obligation of such Subscriber enforceable against such
Subscriber in accordance with the terms thereof.
(c)
No
Conflicts
. The
execution, delivery and performance of this Agreement and the other Transaction
Documents and the consummation by such Subscriber of the transactions
contemplated hereby and thereby or relating hereto do not and will not (i)
result in a violation of such Subscriber’s charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Subscriber is a party or by which its properties or assets are bound,
or
result in a violation of any law, rule, or regulation, or any order, judgment
or
decree of any court or governmental agency applicable to such Subscriber or
its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber). Such Subscriber is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement and the other Transaction Documents or to
purchase the Securities in accordance with the terms hereof, provided that
for
purposes of the representation made in this sentence, such Subscriber is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(d)
Information
on Company
. S uch
Subscriber has been furnished with or has had access at the XXXXX Website of
the
Commission to the Company's audited financial statements for the period ended
March 31, 2007 (hereinafter referred to collectively as the " Reports
"). Such
financial statements were prepared pursuant to Generally Accepted Accounting
Principles in the United States and fairly present in all material respects
the
financial position of the Company and its consolidated subsidiaries, if any,
as
of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject to normal, immaterial adjustments. In addition,
such Subscriber may have received in writing from the Company such other
information concerning its operations, financial condition and other matters
as
such Subscriber has requested in writing, identified thereon as OTHER WRITTEN
INFORMATION (such other information is collectively, the " Other
Written Information
"), and
considered all factors such Subscriber deems material in deciding on the
advisability of investing in the Securities.
2
(e)
Information
on Subscriber
. S uch
Subscriber is, and will be at the time of the conversion of the Notes, an "
accredited
investor
", as
such term is defined in Regulation D promulgated by the Commission under the
1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with
its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable such Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. S uch Subscriber has the authority and
is
duly and legally qualified to purchase and own the Securities. S uch Subscriber
is able to bear the risk of such investment for an indefinite period and to
afford a complete loss thereof. The information set forth on the signature
page
hereto regarding such Subscriber is accurate.
(f)
Purchase
of Notes
. On the
Closing Date, such Subscriber will purchase the Notes as principal for its
own
account for investment only and not with a view toward, or for resale in
connection with, the public sale or any distribution thereof.
(g)
Compliance
with Securities Act
. S uch
Subscriber understands and agrees that the Securities have not been registered
under the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933
Act
(based in part on the accuracy of the representations and warranties of such
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration. S uch
Subscriber will comply with all applicable rules and regulations in connection
with the sales of the Securities including laws relating to short
sales.
(h)
Note
Legend
. The
Note shall bear the following legend:
"NEITHER
THE
ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
(WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE
FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT
TO
RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
"
(i)
Communication
of Offer
. The
offer to sell the Securities was directly communicated to such Subscriber by
the
Company. At no time was such Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
3
(
j )
Authority;
Enforceability
. This
Agreement and other agreements delivered together with this Agreement or in
connection herewith have been duly authorized, executed and delivered by such
Subscriber and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights generally and to general principles of equity;
and such Subscriber has full power and authority necessary to enter into this
Agreement and such other agreements and to perform its obligations hereunder
and
under all other agreements entered into by such Subscriber relating
hereto.
(
k )
Restricted
Securities
. Such
Subscriber understands that the Securities have not been registered under the
1933 Act and such Subscriber will not sell, offer to sell, assign, pledge,
hypothecate or otherwise transfer any of the Securities unless pursuant to
an
effective registration statement under the 1933 Act, or unless an exemption
from
registration is available. Notwithstanding anything to the contrary contained
in
this Agreement, such Subscriber may transfer (without restriction and without
the need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an “accredited investor” under
Regulation D 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 includes each Subsidiary of the Company. For
purposes of this definition, “ control”
means
the power to direct the management and policies of such person or firm, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
(
l )
No
Governmental Review
. Such
Subscriber understands that no United States federal or state agency or any
other governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the
offering of the Securities.
(m)
Correctness
of Representations
. Each
Subscriber represents only as to such Subscriber that the foregoing
representations and warranties are true and correct as of the date hereof and,
unless such Subscriber otherwise notifies the Company prior to the Closing
Date
shall be true and correct as of the Closing Date.
(n)
Survival
. The
foregoing representations and warranties shall survive the Closing
Date.
(o)
Mandatory
Conversion Representations
. In
connection with Section 2.1 of the Note, Subscriber makes all of the customary
Subscriber representations to the Company.
5.
Company
Representations and Warranties
. The
Company represents and warrants to and agrees with each Subscriber
that:
(a)
Due
Incorporation
. The
Company is a corporation or other entity duly incorporated or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate power to own
its
properties and to carry on its business as presently conducted. The Company
is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those jurisdictions
in which the failure to so qualify would not have a Material Adverse Effect.
For
purposes of this Agreement, a “ Material
Adverse Effect”
shall
mean a material adverse effect on the financial condition, results of
operations, prospects, properties or business of the Company and its
Subsidiaries taken as a whole. For purposes of this Agreement, “ Subsidiary”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity of which more than 30% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by such
entity. The Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
5(a)
.
4
(b)
Outstanding
Stock
. All
issued and outstanding shares of capital stock of the Company and each
Subsidiary have been duly authorized and validly issued and are fully paid
and
non-assessable.
(c)
Authority;
Enforceability
. This
Agreement, the Note, Escrow Agreement, and any other agreements delivered
together with this Agreement or in connection herewith (collectively “
Transaction
Documents”)
have
been duly authorized, executed and delivered by the Company, and Subsidiaries
(as applicable) and are valid and binding agreements of the Company and
Subsidiaries, and are enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
(d)
Additional
Issuances
. There
are no outstanding agreements or preemptive or similar rights affecting the
Company's Common Stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of Common
Stock or equity of the Company or Subsidiaries or other equity interest in
the
Company except as described on Schedule
5(d)
. The
Common Stock of the Company on a fully diluted basis outstanding as of the
last
Business Day preceding the Closing Date is set forth on Schedule
5(d)
.
(e)
Consents
. No
consent, approval, authorization or order of any court, governmental agency
or
body or arbitrator having jurisdiction over the Company, or any of its
Affiliates, or the Company's shareholders is required for the execution by
the
Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities. The Transaction Documents
and the Company’s performance of its obligations thereunder has been unanimously
approved by the Company’s Board of Directors.
(f)
No
Violation or Conflict
.
Assuming the representations and warranties of the Subscribers in Section 4
are
true and correct, neither the issuance and sale of the Securities nor the
performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
(i)
violate, conflict with, result in a breach of, or constitute a default
(or an event which with the giving of notice or the lapse of time or both would
be reasonably likely to constitute a default) under (A) the articles or
certificate of incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency
or
body, or arbitrator having jurisdiction over the Company or over the properties
or assets of the Company or any of its Affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or
other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to
which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect ;
or
5
(ii)
result in the creation or imposition of any lien, charge or encumbrance
upon the Securities or any of the assets of the Company or any of its Affiliates
except as described herein; or
(iii)
except as described in Schedule
5(d)
, 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)
will result in the triggering of any piggy-back registration rights of
any person or entity holding securities of the Company or having the right
to
receive securities of the Company.
(g)
The
Securities
. The
Securities upon issuance:
(i)
are, or will be, free and clear of any security interests, liens, claims
or other encumbrances, subject to restrictions upon transfer under the 1933
Act
and any applicable state securities laws;
(ii)
have been, or will be, duly and validly authorized, fully paid and
non-assessable;
(iii)
will not have been issued or sold in violation of any preemptive or other
similar rights of the holders of any securities of the Company;
(iv)
will not subject the holders thereof to personal liability by reason of
being such holders; and
(v)
assuming the representations warranties of the Subscribers as set forth
in Section 4 hereof are true and correct, will not result in a violation of
Section 5 under the 1933 Act.
(h)
Litigation
. There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or the performance by the Company
of
its obligations under the Transaction Documents. Except as disclosed in the
Reports, there is no pending or, to the best knowledge of the Company, basis
for
or threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have
a
Material Adverse Effect .
(i)
No
Market Manipulation
. The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Securities or affect the price
at
which the Securities may be issued or resold.
(j)
Information
Concerning Company
. The
Reports and Other Written Information contain all material information relating
to the Company and its operations and financial condition as of their respective
dates which information is required to be disclosed therein. Since the date
of
the financial statements included in the Reports, and except as modified in
the
Other Written Information or in the Schedules hereto, there has been no Material
Adverse Event relating to the Company's business, financial condition or affairs
not disclosed in the Reports. The Reports and Other Written Information do
not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein,
taken
as a whole, not misleading in light of the circumstances when made.
6
(k)
Stop
Transfer
. The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Securities, except as may be required by any
applicable federal or state securities laws and if so required only if
contemporaneous notice of such instruction is given to the
Subscriber.
(l)
Defaults
. The
Company is not in violation of its articles of incorporation or bylaws. The
Company is (i) not in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect , (ii) not in default with respect to any order of
any
court, arbitrator or governmental body or subject to or party to any order
of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) not in
violation of any statute, rule or regulation of any governmental authority
which
violation would have a Material Adverse Effect .
(m)
No
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the OTC Bulletin Board (“ Bulletin
Board”)
which
would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder. Neither the Company
nor
any of its Affiliates will take any action or steps that would cause the offer
or issuance of the Securities to be integrated with other offerings or issuances
which would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder. The Company will not
conduct any offering other than the transactions contemplated hereby that will
be integrated with the offer or issuance of the Securities that would impair
the
exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder.
(n)
No
General Solicitation
.
Neither the Company, nor any of its Affiliates, nor to its knowledge, any person
acting on its or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under the 0000 Xxx)
in connection with the offer or sale of the Securities.
(o)
No
Undisclosed Liabilities
. The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, other than those incurred in the ordinary course of the Company
businesses since September 30, 2007 and which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect , except as
disclosed in the Reports or on Schedule
5(o)
.
(p)
No
Undisclosed Events or Circumstances
. Since
September 30, 2007, no event or circumstance has occurred or exists with respect
to the Company or its businesses, properties, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure
or
announcement prior to the date hereof by the Company but which has not been
so
publicly announced or disclosed in the Reports.
(q)
Capitalization
. The
authorized and outstanding capital stock of the Company and Subsidiaries as
of
the date of this Agreement and the Closing Date (not including the Securities)
are set forth in the Reports or on Schedule
5(d)
. Except
as set forth on Schedule
5(d)
, there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company or any of its
Subsidiaries.
7
(r)
Dilution
. The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment
that
the issuance of the Securities is in the best interests of the
Company.
(s)
No
Disagreements with Accountants and Lawyers.
There
are no material disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise between the Company and the accountants
and
lawyers presently employed by the Company, including but not limited to disputes
or conflicts over payment owed to such accountants and lawyers, nor have there
been any such disagreements during the two years prior to the Closing
Date.
(t)
Investment
Company
.
Neither the Company nor any Affiliate of the Company is an “investment company”
within the meaning of the Investment Company Act of 1940, as
amended.
(u)
Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(v)
DTC
Status
. The
Company’s transfer agent is NOT a participant in, and the Common Stock is NOT
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
5(v)
hereto.
(w)
Reporting
Company
. The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13 of the Securities Exchange Act of 1934, as amended (the "
1934
Act
") and
has a class of Common Stock registered pursuant to Section 12(g) of the 0000
Xxx. The Company is not a “shell company” as that term is employed in the 1933
Act.
(x)
Solvency
. Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the Notes
hereunder, (i) the Company’s fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities)
as
they mature; (ii) the Company’s assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; 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).
(y)
Company
Predecessor and Subsidiaries
. The
Company makes each of the representations contained in Sections 5(a), (b),
(c),
(d), (e), (f), (h), (j), (l), (o), (p), (q), (s), (t), and (u) of this
Agreement, as same relate to the Subsidiary of the Company. All representations
made by or relating to the Company of a historical or prospective nature and
all
undertakings described in Sections 9(g) through 9(l) shall relate, apply and
refer to the Company and its predecessors. The Company represents that it owns
100% of the outstanding equity of the Subsidiaries and rights to receive equity
of the Subsidiaries free and clear of all liens, encumbrances and claims, except
as set forth on Schedule
5(d)
. No
person or entity other than the Company has the right to receive any equity
interest in the Subsidiaries.
8
(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 Subscribers 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 the Closing
Date.
6.
Regulation
D Offering/Legal Opinion
. The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder. On the Closing Date, the Company will provide an opinion
reasonably acceptable to the Subscribers from the Company's legal counsel
opining on the availability of an exemption from registration under the 1933
Act
as it relates to the offer and issuance of the Securities and other matters
reasonably requested by Subscribers. A form of the legal opinion is annexed
hereto as Exhibit
C
.
7.
Redemption
. The
Notes shall not be redeemable or callable by the Company except as described
in
the Note.
8.
Commissions/Due
Diligence Fee/Legal Fees.
(a)
Commissions
. The
Company on the one hand, and each Subscriber (for himself only) on the other
hand, agrees to indemnify the other against and hold the other harmless from
any
and all liabilities to any persons claiming brokerage commissions or similar
fees except as described on Schedule
8(a)
on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party’s actions. Anything in this
Agreement to the contrary notwithstanding, each Subscriber is providing
indemnification only for such Subscriber’s own actions and not for any action of
any other Subscriber. 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 except as described on Schedule
8(a)
hereto.
(b)
Due
Diligence Fee
. The
Company will pay a due diligence fee (“ Due
Diligence Fee”)
to the
lead investor or its designees (each a “ Due
Diligence Fee Recipient”)
as
described on Schedule
8(b)
. The
aggregate Due Diligence Fee shall be equal to five percent (5%) of the Purchase
Price. The Due Diligence Fee will be payable on the Closing Date out of funds
held pursuant to the Escrow Agreement.
(c)
Subscriber’s
Legal Fees
. The
Company shall pay to Grushko & Xxxxxxx, P.C., a cash fee of $15,000 (“
Cash
Legal Fees”)
as
reimbursement for services rendered to the Subscribers in connection with this
Agreement and the purchase and sale of the Notes (the “ Offering”).
The
Subscribers’ Legal Fees and expenses will be payable out of funds held pursuant
to the Escrow Agreement on the Closing Date. Grushko & Xxxxxxx, P.C. will be
reimbursed on the Closing Date for all lien searches, filing fees, and printing
and shipping costs for the closing statements to be delivered to
Subscribers.
9
9.
Covenants
of the Company
. The
Company covenants and agrees with the Subscribers as follows:
(a)
Stop
Orders
. The
Company will advise the Subscribers, within twenty-four hours after it receives
notice of issuance by the Commission, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale
in
any jurisdiction, or the initiation of any proceeding for any such
purpose.
(b)
Listing
. Not
later than April 10, 2008, the Company shall secure the listing of its Common
Stock upon the OTC Bulletin Board, American Stock Exchange or a NASDAQ domestic
market or exchange, any of which is a “ Principal
Market”
(c)
Market
Regulations
. The
Company shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to the Subscribers.
(d)
Filing
Requirements
. From
the date of this Agreement and until the last to occur of (i) two (2) years
after the Closing Date, (ii) until all the Shares have been resold or
transferred by all the Subscribers pursuant to a registration statement or
pursuant to Rule 144(k), or (iii) the Notes are no longer outstanding (the
date
of occurrence of the last such event being the “ End
Date”),
the
Company will (A) cause its Common Stock to be registered under Section 12(b)
or
12(g) of the 1934 Act, (B) comply in all respects with its reporting and filing
obligations under the 1934 Act, and (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. The Company will not 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 until the End Date. Until the End Date, the Company will continue
the
listing or quotation of the Common Stock on a Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations
under
the bylaws or rules of the Principal Market. The Company agrees to timely file
a
Form D with respect to the Securities if required under Regulation D and to
provide a copy thereof to each Subscriber promptly after such
filing.
(e)
Reporting
Requirements
. Until
the time the Company becomes subject to the reporting provisions of the Exchange
Act, the Company shall furnish to each Subscriber that holds Notes and/or
underlying Shares, the following:
(i)
As soon as available and in any event within ninety (90) days after the
end of each fiscal year of the Company, audited financial statements of the
Company as at the end of such fiscal year and related statements of income
and
expenses for such fiscal year, all in reasonable detail and in scope to the
Subscriber, prepared in accordance with GAAP, with the opinion of an independent
certified public accountant reasonably acceptable to the Subscriber as evidenced
by the prior written consent of the Subscriber;
(ii)
As soon as available and in any event within forth-five (45) days after
the end of the sixth (6th) month of the Company’s fiscal year, reviewed
financial statements of the Company as at the end of such six month period
and
related statements of income and expenses for such period, all in reasonable
detail and scope to Subscriber, prepared in accordance with GAAP, and prepared
by an independent certified public accountant reasonably acceptable to the
Subscriber as evidenced by the prior written consent of the
Subscriber;
10
(iii)
As soon as available and in any event within thirty (30) days after the
end of each fiscal quarter, quarterly financial statements prepared by the
Company and other information reasonably requested by the
Subscriber;
(iv)
As soon as available and in any event within fifteen (15) days after the
end of each month, monthly reports containing information on the Company's
sales
and other information reasonably requested by the Subscriber;
(v)
As soon as available and in any event not less than thirty (30) days
prior to the commencement of each fiscal year, a detailed annual budget and
strategic plan for the Company's business for such fiscal year, which shall
have
been approved by the Company's Board of Directors;
(vi)
As soon as possible and in any event within five (5) days after the
Subscribers notify the Company of the occurrence of each Event of Default,
a
statement of an authorized officer of the Company setting forth the nature
and
period of existence of such Event of Default and the action which the Company
has taken and proposes to take with respect thereto;
(vii)
Promptly after the sending or filing thereof, copies of all reports, if
any, which the Company sends to any of its shareholders, and copies of all
reports and registration statements, if any, which the Company files with the
Commission or any Trading Market;
(viii)
Promptly after the filing or receiving thereof, copies of all reports and
notices, if any, which the Company files under ERISA, with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation or the U.S. Department
of
Labor or which the Company receives from any of such Persons;
(ix)
Promptly upon determination by the Company’s Chief Executive Officer of
the need for the Company or Board of Directors to obtain additional financing,
all information concerning such determination if, as and when
available;
(x)
Information concerning offers or solicitations, and the terms and
conditions thereof, for additional equity financing, given to the Subscriber
not
less than 30 days prior to the entering into of such financial arrangement;
and
(xi)
Such other information respecting the condition or operations, financial
or otherwise, of the Company as the Subscribers may from time to time reasonably
request.
(f)
Use
of
Proceeds
. The
proceeds of the Offering will be employed by the Company as described on
Schedule
9(f)
. Except
as described on Schedule
9(f)
, the
Purchase Price may not and will not be used for accrued and unpaid officer
and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company nor non-trade obligations outstanding
on a Closing Date. For so long as any Notes are outstanding, the Company will
not prepay any financing related debt obligations nor redeem any equity
instruments of the Company.
(g)
DTC
Program
. No
later than March 31, 2008 and thereafter at all times that Notes are
outstanding, the Company will employ as the transfer agent for the Common Stock
a participant in the Depository Trust Company Automated Securities Transfer
Program.
11
(h)
Taxes
. From
the date of this Agreement and until the End Date, the Company will promptly
pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided, however, that
any such tax, assessment, charge or levy need not be paid if the validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefore.
(i)
Insurance
. From
the date of this Agreement and until the End Date, the Company will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and not
in
any event less than 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.
(j)
Books
and Records.
From the
date of this Agreement and until the End Date, the Company will keep true
records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs
in
accordance with generally accepted accounting principles applied on a consistent
basis.
(k)
Governmental
Authorities.
From the
date of this Agreement and until the End Date, the Company shall duly observe
and conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its properties or
assets.
(l)
Intellectual
Property
. From
the date of this Agreement and until the End Date, the Company shall maintain
in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights to use intellectual property owned or possessed by
it
and reasonably deemed to be necessary to the conduct of its business, unless
it
is sold for value.
(m)
Properties.
From the
date of this Agreement and until the End Date, the Company will keep its
properties in good repair, working order and condition, reasonable wear and
tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably
be
expected to have a Material Adverse Effect.
(n)
Confidentiality/Public
Announcement.
From the
date of this Agreement and until the End Date, the Company agrees that except
in
connection with a Form 8-K and the registration statement or statements
regarding the Subscribers’ securities or in correspondence with the SEC
regarding same, it will not disclose publicly or privately the identity of
the
Subscribers unless expressly agreed to in writing by a Subscriber or only to
the
extent required by law and then only upon five days prior notice to Subscriber.
In any event and subject to the foregoing, the Company undertakes to file a
Form
10-SB, Form 8-K or make a public announcement describing the Offering not later
than the business day after the Closing Date. Prior to filing or announcement,
such Form 10-SB, Form 8-K or public announcement will be provided to Subscribers
for their review and approval. In the Form 10-SB, Form 8-K or public
announcement, the Company will specifically disclose the amount of Common Stock
outstanding immediately after the Closing. Upon delivery by the
Company to the Subscribers after the Closing Date of any notice or information,
in writing, electronically or otherwise, and while a Note is held by such
Subscribers, unless the Company has in good faith determined that the
matters relating to such notice do not constitute material, nonpublic
information relating to the Company or
Subsidiaries, the Company shall within one business day after
any such delivery publicly disclose such material, nonpublic
information on a Report on Form 10-SB, Form 8-K or
otherwise. In
the event that the Company believes that a
notice or communication to a Subscriber contains material, nonpublic
information, relating to the Company or Subsidiaries, the Company shall so
indicate to such Subscriber contemporaneously with delivery of such notice
or
information. In the absence of any such indication, such Subscriber shall
be allowed to presume that all matters relating to such notice and information
do not constitute material, nonpublic information relating to the Company
or its Subsidiaries.
12
(o)
Non-Public
Information
. The
Company covenants and agrees that except for the Reports, Other Written
Information and schedules and exhibits to this Agreement, neither it nor any
other person acting on its behalf will at any time provide any Subscriber or
its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Subscriber shall
have
agreed in writing to keep such information in confidence. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the
Company.
(p)
Negative
Covenants
. So
long as a Note is outstanding, without the consent of the Subscribers, the
Company will not and will not permit any of its Subsidiaries to directly or
indirectly:
(i)
create, incur, assume or suffer to exist any pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
security title, mortgage, security deed or deed of trust, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Uniform Commercial
Code or comparable law of any jurisdiction) (each, a “ Lien”)
upon
any of its property, whether now owned or hereafter acquired except for: (A)
the
Excepted Issuances (as defined in Section 12 hereof), and (B) (a) Liens imposed
by law for taxes that are not yet due or are being contested in good faith
and
for which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
material men’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business
in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing
of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed
by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a “ Permitted
Lien”)
;
(ii)
amend its certificate of incorporation, bylaws or its charter documents
so as to materially and 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.
13
(iv)
engage in any transactions with any officer, director, employee or any
Affiliate of the Company, including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real
or personal property to or from, or otherwise requiring payments to or from
any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $100,000 other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company,
and
(iii) for other employee benefits, including stock option agreements under
any
stock option plan of the Company; or
(v)
prepay or redeem any financing related debt or past due obligations
outstanding as of the Closing Date.
(q)
Seniority
. Except
for Permitted Liens and as otherwise provided for herein, until the Notes are
fully satisfied or converted, the Company shall not grant nor allow any security
interest to be taken in the assets of the Company or any Subsidiary; nor issue
any debt, equity or other instrument which would give the holder thereof
directly or indirectly, a right in any assets of the Company or any Subsidiary,
superior to any right of the holder of a Note in or to such assets.
(r)
Notices
. For so
long as the Subscribers hold any Securities, the Company will maintain as United
States address and United States fax number for notices purposes under the
Transaction Documents.
10.
Covenants
of the Company Regarding Indemnification.
The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, members,
managers, control persons, and principal shareholders, against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal
fees)
of any nature, incurred by or imposed upon the Subscriber or any such person
which results, arises out of or is based upon (i) any material misrepresentation
by Company or breach of any representation or warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant
or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.
11.1.
Delivery
of Unlegended Shares
.
(a)
Within seven business days (such seventh business day being the “
Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a notice that Shares
or
any other Common Stock held by a Subscriber have been sold pursuant to a
registration statement, if any, or Rule 144, (ii) a representation that the
prospectus delivery requirements, or the requirements of Rule 144, as applicable
and if required, have been satisfied, (iii) the original share certificates
representing the shares of Common Stock that have been sold, and (iv) in the
case of sales under Rule 144, customary representation letters of the Subscriber
and/or a Subscriber’s broker regarding compliance with the requirements of Rule
144, the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver to its transfer agent (with copies
to
Subscriber) an appropriate instruction and opinion of such counsel, directing
the delivery of shares of Common Stock without any legends including the legend
set forth in Section 4(i) above (the “ Unlegended
Shares”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted certificate, if any, to the Subscriber at the address specified in
the
notice of sale, via express courier, by electronic transfer or otherwise on
or
before the Unlegended Shares Delivery Date. In the event that the Shares are
sold in a manner that complies with an exemption from registration, the Company
will promptly instruct its counsel to issue to the Company’s transfer agent an
opinion permitting removal of the legend indefinitely if pursuant to Rule
144(k).
14
(b)
In lieu of delivering physical certificates representing the Unlegended
Shares, upon request of a Subscriber, so long as the certificates therefor
do
not bear a legend and the Subscriber is not obligated to return such certificate
for the placement of a legend thereon, the Company will cause its transfer
agent
to electronically transmit the Unlegended Shares by crediting the account of
Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in
such
DWAC system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(c)
The Company understands that a delay in the delivery of the Unlegended
Shares pursuant to Section 11 hereof later than the Unlegended Shares Delivery
Date could result in economic loss to a Subscriber. As compensation to a
Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for late delivery
of
Unlegended Shares in the amount of $100 per business day after the Delivery
Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. In the event damages are payable pursuant to the foregoing
sentence, then the Subscriber may elect to receive liquidated damages under
this
Section 11.1(c) or Section 12(g) below. If during any 360 day period, the
Company fails to deliver Unlegended Shares as required by this Section 11.1
for
an aggregate of 30 days, then each Subscriber or assignee holding Securities
subject to such default may, at its option, require the Company to redeem all
or
any portion of the Shares subject to such default at a price per share equal
to
the greater of (i) 120% of the purchase price of such Shares, or (ii) a fraction
in which the numerator is the highest closing price of the Common Stock during
the aforedescribed 30 day period and the denominator of which is the purchase
price of the Shares during such 30 day period, multiplied by the purchase price
of the Shares (“ Unlegended
Redemption Amount”).
The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
(d)
In addition to any other rights available to a Subscriber, if the Company
fails to deliver to a Subscriber Unlegended Shares as required pursuant to
this
Agreement, within three 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 11.1 and the Company is required to deliver such Unlegended
Shares pursuant to Section 11.1, the Company may not refuse to deliver
Unlegended Shares based on any claim that such Subscriber or any one associated
or affiliated with such Subscriber has been engaged in any violation of law,
or
for any other reason, unless, an injunction or temporary restraining order
from
a court, on notice, restraining and or enjoining delivery of such Unlegended
Shares shall have been sought and obtained by the Company or at the Company’s
request or with the Company’s assistance, and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount
of
the aggregate purchase price of the Shares which are subject to the injunction
or temporary restraining order, which bond shall remain in effect until the
final unappealable disposition of the 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.
15
11.2.
In the event commencing one hundred and eighty-one (181) days after the
Closing Date and ending five years thereafter, the Subscriber is not permitted
to resell any of the Shares without any restrictive legend or if such sales
are
permitted but subject to volume limitations or further restrictions on resale
as
a result of the unavailability to Subscriber of Rule 144(k) under the 1933
Act
or any successor rule (a “ 144
Default”),
for
any reason except for Subscriber’s status as an Affiliate or “control person” of
the Company, then the Company shall pay such Subscriber as liquidated damages
(“
Liquidated
Damages”)
and
not as a penalty an amount equal to one percent (1%) for the first day of such
occurrence and one percent (1%) for each thirty (30) days (or such lesser
pro-rata amount for any period less than thirty (30) days) thereafter of the
purchase price of the Shares owned by the Subscriber during the pendency of
the
144 Default.
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: Attitude Drinks Inc., 00000
X.X. Xxxxxxx 0, Xxxxx 000, Xxxxx Xxxx Xxxxx, Xxxxxxx 00000, Attn: Xxx Xxxxxx,
CEO and President, telecopier: (000) 000-0000, with a copy by telecopier only
to: Weed & Co., LLP, 0000 XxxXxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx, XX
00000, Attn: Xxxx Xxxx, Esq., telecopier number: (000) 000-0000, and (ii) if
to
the Subscriber, to: the one or more addresses and telecopier numbers indicated
on the signature pages hereto, with an additional copy by telecopier only to:
Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx
00000, telecopier: (000) 000-0000.
(b)
Entire
Agreement; Assignment
. This
Agreement and other documents delivered in connection herewith represent the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No right
or obligation of the Company shall be assigned without prior notice to and
the
written consent of the Subscribers.
(c)
Counterparts/Execution
. This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d)
Law
Governing this Agreement
. This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of
New
York or in the federal courts located in the state and county of New York.
The
parties to this Agreement hereby irrevocably waive any objection to jurisdiction
and venue of any action instituted hereunder and shall not assert any defense
based on lack of jurisdiction or venue or based upon forum
non conveniens
.
The
parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith on behalf of the Company agree to submit to
the
in personam jurisdiction of such courts and hereby irrevocably waive trial
by
jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
Each party hereby irrevocably waives personal service of process and consents
to
process being served in any suit, action or proceeding in connection with this
Agreement or any other Transaction Document by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in
any way any right to serve process in any other manner permitted by
law.
16
(e)
Specific
Enforcement, Consent to Jurisdiction
. The
Company and Subscriber acknowledge and agree that irreparable damage would
occur
in the event that any of the provisions of this Agreement were not performed
in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek an injunction
or
injunctions to prevent or cure breaches of the provisions of this Agreement
and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 12(d) hereof, the Company hereby irrevocably waives, and
agrees not to assert in any such suit, action or proceeding, any claim that
it
is not personally subject to the jurisdiction in New York of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that
the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(f)
Independent
Nature of Subscribers
. The Company acknowledges that the obligations of each
Subscriber under the Transaction Documents are several and not joint with the
obligations of any other Subscriber, and no Subscriber shall be responsible
in
any way for the performance of the obligations of any other Subscriber under
the
Transaction Documents. The Company acknowledges that each Subscriber has
represented that the decision of each Subscriber to purchase Securities has
been
made by such Subscriber independently of any other Subscriber and independently
of any information, materials, statements or opinions as to the business,
affairs, operations, assets, properties, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company which may have
been made or given by any other Subscriber or by any agent or employee of any
other Subscriber, and no Subscriber or any of its agents or employees shall
have
any liability to any Subscriber (or any other person) relating to or arising
from any such information, materials, statements or opinions. The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto shall be deemed to constitute
the Subscribers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Subscribers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company
acknowledges that each Subscriber shall be entitled to independently protect
and
enforce its rights, including without limitation, the rights arising out
of the Transaction Documents, and it shall not be necessary for any
other Subscriber to be joined as an additional party in any proceeding for
such
purpose. The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience
of
the Company and not because Company was required or requested to do so by the
Subscribers. The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
17
(g)
Damages
. In the
event the Subscriber is entitled to receive any liquidated damages pursuant
to
the Transactions, the Subscriber may elect to receive the greater of actual
damages or such liquidated damages.
(h)
Consent
. As
used in the Agreement, “consent of the Subscribers” or similar language means
the consent of holders of not less than 75% of the total of the Shares issued
and issuable upon conversion of outstanding Notes owned by Subscribers on the
date consent is requested.
(i)
Limit
on Liability
. 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 Shares.
(j)
Equal
Treatment
. No
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of the Transaction Documents unless
the
same consideration is also offered and paid to all the Subscribers and their
permitted successors and assigns.
(k)
Maximum
Payments
.
Nothing contained herein or in any document referred to herein or delivered
in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed by
the
Company to the Subscriber and thus refunded to the Company.
(l)
Calendar
Days
. All
references to “days” in the Transaction Documents shall mean calendar days
unless otherwise stated. The terms “business days” and “trading days” shall mean
days that the New York Stock Exchange is open for trading for three or more
hours. Time periods shall be determined as if the relevant action, calculation
or time period were occurring in New York City. Any deadline that falls on
a
non-business day in any of the Transaction Documents shall be automatically
extended to the next business day and interest, if any, shall be calculated
and
payable through such extended period.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
18
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (A)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
a
Delaware corporation
|
||
|
|
|
By:
|
/s/
Xxx Xxxxxx
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
Dated:
January 8, 2008
|
SUBSCRIBER
|
NOTE PRINCIPAL
AMOUNT
|
PURCHASE PRICE
|
||||||
XXXXXXX ASSOCIATES
|
$
|
362,790.00
|
$
|
300,000.00
|
||||
Address:
|
||||||||
|
||||||||
|
Fax
No.:
|
|
|
Taxpayer ID# (if applicable): ______________________________
|
|
|
(Signature)
|
By:
|
19
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (B)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
a
Delaware corporation
|
||
|
|
|
By:
|
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
Dated:
January ____, 2008
|
SUBSCRIBER
|
NOTE PRINCIPAL
AMOUNT
|
PURCHASE PRICE
|
||||||
CMS
CAPITAL
0000
Xxx Xxxx Xxxx. #000
Xxxxxxxx
Xxxx, XX 00000
Fax:
(000) 000-0000
|
$
|
120,930.00
|
$
|
100,000.00
|
|
(Signature)
|
By:
|
20
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (C)
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.
a
Delaware corporation
|
||
|
|
|
By:
|
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
Dated: January ____, 2008
|
SUBSCRIBER
|
NOTE PRINCIPAL
AMOUNT
|
PURCHASE PRICE
|
||||||
MOMONA
CAPITAL LLC
000
Xxxxxxx Xxxx Xxxxx, 0 xx
Xxxxx
Xxx
Xxxx, XX 00000
Fax:
(000) 000-0000
|
$
|
36,280.00
|
$
|
30,000.00
|
|
(Signature)
|
By:
|
21
LIST
OF EXHIBITS AND SCHEDULES
Exhibit
A
|
Form
of Note (see Exhibit 4.5 to Registration Statement)
|
Exhibit
B
|
Escrow
Agreement (see Exhibit 10.9 to Registration Statement0
|
Exhibit
C
|
Form
of Legal Opinion (omitted)
|
Schedule
5(a)
|
Subsidiaries
|
Schedule
5(d)
|
Additional
Issuances / Capitalization / Reset Rights
|
Schedule
5(o)
|
Undisclosed
Liabilities
|
Schedule
5(v)
|
Transfer
Agent
|
Schedule
8(a)
|
Placement
Fees
|
Schedule
8(b)
|
Due
Diligence Fee
|
Schedule
9(f)
|
Use
of Proceeds
|
22
SCHEDULE 5(a)
Subsidiaries
Consistent
with the Agreement and Plan of Merger among the Company, MH 09122007, Inc.
and
Attitude Drink Company, Inc. following completion of the merger that occurred
on
September 19, 0000, Xxxxxxxx
Drink Company, Inc.
, a
Delaware corporation, is a wholly owned subsidiary and has 50,000,000 shares
of
common stock, $.001 par value, of which 100,000 shares are issued and
outstanding and held of record by the Company.
SCHEDULE 5(d)
Additional Issuances / Capitalization / Reset Rights
There
are
no outstanding agreements or preemptive or similar rights affecting the
Company's Common Stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of Common
Stock or equity of the Company or Subsidiaries or other equity interest in
the
Company except as described on Schedule
5(d)
. The
Common Stock of the Company on a fully diluted basis outstanding as of the
last
Business Day preceding the Closing Date is set forth on Schedule
5(d)
.
As
of
January 6, 2008, the Company has 120,000,000 shares consisting of 100,000,000
shares of common stock, $.001 par value, of which 6,560,600 shares are issued
and outstanding and 20,000,000 shares of preferred stock, $.001 par value,
of
which 75,000 shares are issued and outstanding.
The
Company has designated 2,000,000 shares of its preferred stock as Series A
Convertible Preferred Stock, $.001 par value, (the “Series A”) of which 75,000
shares of Series A are issued and outstanding. The Series A has 6:1 voting
rights, converts into 6 shares of common stock and is subject to redemption
by
the Company under certain circumstances. [450,000 shares of common
stock]
The
Company has created the 2007 Stock Compensation and Incentive Plan and has
reserved 1,000,000 shares of its common stock for issuance in the form of stock
options or shares to employees, consultants and advisors that perform services
for the Company.
The
Company has filed a registration statement for the resale by the Selling
Security Holders of up to 17,396,964 shares of common stock of Attitude Drinks
Incorporated comprised of 1,760,600 shares of Common Stock, 9,272,722 shares
of
Common Stock underlying Class A and Class B Common Stock Purchase Warrants,
and
6,363,642 shares of common stock for resale following conversion of $1,200,000
in Secured Convertible Promissory Notes.
The
Selling Security Holders are Alpha Capital Anstalt, EFCOR, Grushko &
Xxxxxxx, P.C., Monarch Capital Fund Limited, Momona Capital, Whalehaven Capital
Fund Limited, SMIVEL LLC, and Xxx X. Xxxxxx.
The
registration rights agreement with the investors from the October 23, 2007
transaction requires the registration of 175% of the shares needed for
conversion of the $1,200,000 notes (i.e., an extra 2,045,455 shares). The fully
diluted outstanding shares of common stock is 21,601,509 as of January 6, 2008
calculated as follows:
6,560,600
|
Issued
and outstanding per the transfer agent
|
450,000
|
Reserved
for Conversion of the 75,000 shares of Preferred Stock
|
1,000,000
|
Reserved
for the 2007 Stock Compensation and Incentive Plan
|
9,272,722
|
Reserved
as shares of Common Stock underlying Class A and Class B
Warrants
|
4,318,187
|
Reserved
for conversion of the $1,200,000 notes per Agreement from October
23,
2007
|
23
SCHEDULE 5(o)
Undisclosed Liabilities
None
SCHEDULE 5(v)
Transfer Agent
The
current transfer agent is
Florida
Atlantic Stock Transfer
Attention:
Mr. Xxxx Xxxxxx, President
0000
Xxx
Xxxx Xxxx
Xxxxxxx,
XX 00000
Telephone
000-000-0000
Facsimile
000-000-0000
On
or
before March 31, 2008, the Company will employ as the transfer agent for the
Common Stock, Shares and Warrant Shares a participant in the Depository Trust
Company Automated Securities Transfer Program.
SCHEDULE
9(f) Use of Proceeds
Gross
Amount
|
$
|
430,000
|
||
|
||||
less
Due Diligence Fee
|
$
|
21,500
|
||
less
Subscriber’s Legal Fees
|
$
|
15,000
|
||
|
||||
Net
to Company
|
$
|
393,500
|
||
Professional
Services
|
$
|
120,000
|
||
Other
|
$
|
136,750
|
||
Purchase
of Assets
|
$
|
136,750
|
24