Exhibit 4.06
SUBSCRIPTION AGREEMENT
----------------------
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Liquidix, Inc., a
Florida corporation (the "Company") hereby agrees to issue and to sell to the
Subscriber, 8% Convertible Note (the "Note") convertible in accordance with the
terms thereof into shares of the Company's $.0001 par value common stock (the
"Company Shares") for the aggregate consideration as set forth on the signature
page hereof ("Purchase Price"). The form of Convertible Note as annexed hereto
as Exhibit A1. (The Company Shares included in the Securities (as hereinafter
defined) are sometimes referred to herein as the "Shares" or "Common Stock").
(The Note, the Company Shares, Common Stock Purchase Warrants ("Warrants")
issuable to the recipients identified on Schedule B hereto, and the Common Stock
issuable upon exercise of the Warrants are collectively referred to herein as,
the "Securities"). Upon acceptance of this Agreement by the Subscriber, the
Company shall issue and deliver to the Subscriber the Note against payment, by
federal funds wire transfer of the Purchase Price.
The following terms and conditions shall apply to this subscription.
1. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) INFORMATION ON COMPANY. The Subscriber has been furnished
with the Company's Form 10-KSB for the year ended December 31, 2000 as filed
with the Securities and Exchange Commission (the "Commission") together with all
subsequently filed forms 10-QSB, and other publicly available filings made with
the Commission (hereinafter referred to as the "Reports"). In addition, the
Subscriber has received from the Company such other information concerning its
operations, financial condition and other matters as the Subscriber has
requested in writing, and considered all factors the Subscriber deems material
in deciding on the advisability of investing in the Securities (such information
in writing is collectively, the "Other Written Information").
(b) INFORMATION ON SUBSCRIBER. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (the "1933 Act"), is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a speculative
investment. The Subscriber has the authority and is duly and legally qualified
to purchase and own the Securities. The Subscriber is able to bear the risk of
such investment for an indefinite period and to afford a complete loss thereof.
The information set forth on the signature page hereto regarding the Subscriber
is accurate.
(c) PURCHASE OF NOTE. On the Closing Date, the Subscriber will
purchase the Note for its own account and not with a view to any distribution
thereof.
1
(d) COMPLIANCE WITH SECURITIES ACT. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act, by
reason of their issuance in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the representations and
warranties of Subscriber contained herein), and that such Securities must be
held unless a subsequent disposition is registered under the 1933 Act or is
exempt from such registration.
(e) COMPANY SHARES LEGEND. The Company Shares, and the shares
of Common Stock issuable upon the exercise of the Warrants, shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO LIQUIDIX, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) WARRANTS LEGEND. The Warrants shall bear the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
LIQUIDIX, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) NOTE LEGEND. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO LIQUIDIX, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(h) COMMUNICATION OF OFFER. The offer to sell the Securities
was directly communicated to the Subscriber. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.
2
(i) REGULATORY COMPLIANCE. The Subscriber agrees that
Subscriber will comply with all relevant rules and regulations of the Securities
Exchange Act of 1934, as amended, including the provisions of Regulation M
promulgated thereunder.
(j) CORRECTNESS OF REPRESENTATIONS. The Subscriber represents
that the foregoing representations and warranties are true and correct as of the
date hereof and, unless the Subscriber otherwise notifies the Company prior to
the Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to and agrees with the Subscriber that:
(a) DUE INCORPORATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and have the requisite corporate power to own their properties and to
carry on their business as now being conducted.
(b) OUTSTANDING STOCK. All issued and outstanding shares of
capital stock of the Company has been duly authorized and validly issued and are
fully paid and non-assessable.
(c) AUTHORITY; ENFORCEABILITY. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.
(d) ADDITIONAL ISSUANCES. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information.
(e) CONSENTS. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, the NASD, NASDAQ or the Company's Shareholders is required for
execution of this Agreement, and all other agreements entered into by the
Company relating thereto, including, without limitation issuance and sale of the
Securities, and the performance of the Company's obligations hereunder.
(f) NO VIOLATION OR CONFLICT. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the certificate of incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or over the properties
or assets of the Company, (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 is a party, by which the Company is bound, or to which any of the
properties of the Company is subject, or (D) the terms of any "lock-up" or
similar provision of any underwriting or similar agreement to which the Company
is a party; or
3
(ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities.
(g) THE SECURITIES. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Note are converted, and the Warrants are exercised,
the Securities will be duly and validly issued, fully paid and nonassessable
(and if registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted, provided that the
Subscriber complies with the Prospectus delivery requirements);
(iii) will not have been issued or sold in violation
of any preemptive or other similar rights of the holders of any securities of
the Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) LITIGATION. There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company that would affect the execution by the Company or the performance by the
Company of its obligations under this Agreement, and all other agreements
entered into by the Company relating hereto. Except as disclosed in the Reports
or Other Written Information, there is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company.
(i) REPORTING COMPANY. The Company is a publicly-held company
subject to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and has a class of
common shares registered pursuant to Section 12(g) of the 1934 Act. The
Company's common stock is trading on the NASD OTC Bulletin Board ("OTC Bulletin
Board"). Pursuant to the provisions of the 1934 Act, the Company has filed all
reports and other materials required to be filed thereunder with the Securities
and Exchange Commission during the preceding twelve months except as set forth
in the Reports.
(j) NO MARKET MANIPULATION. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued.
(k) INFORMATION CONCERNING COMPANY. The Reports 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, there has been no material adverse change in the Company's
4
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 not misleading.
(l) DILUTION. The number of Shares issuable upon conversion of
the Note may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines prior to conversion of the Note. The Company's executive officers
and directors have studied and fully understand the nature of the Securities
being sold hereby and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Note and exercise of the Warrants is binding upon the Company
and enforceable, except as otherwise described in this Subscription Agreement or
the Note, regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
(m) STOP TRANSFER. The Securities are restricted securities as
of the date of this Agreement. The Company will not issue any stop transfer
order or other order impeding the sale and delivery of the Securities, except as
may be required by federal securities laws.
(n) DEFAULTS. The Company is not in violation of its
Certificate of Incorporation or ByLaws. The Company is not (i) in default under
or in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a material adverse effect on the Company, (ii)
in default with respect to any order of any court, arbitrator or governmental
body or subject to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or other law
respecting antitrust, monopoly, restraint of trade, unfair competition or
similar matters, or (iii) to its knowledge in violation of any statute, rule or
regulation of any governmental authority which violation would have a material
adverse effect on the Company.
(o) NO INTEGRATED OFFERING. To the best of its knowledge after
due inquiry with regulatory authorities, neither the Company nor any person
acting on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the NASD OTC Bulletin
Board, as applicable, nor will the Company or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.
(p) NO GENERAL SOLICITATION. Neither the Company nor to its
knowledge, any person acting on its or their behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D
under the Act) in connection with the offer or sale of the Securities.
(q) LISTING. The Company's Common Stock is listed for trading
on the NASD OTC Bulletin Board and satisfies all requirements for the
continuation of such listing. The Company has not received any notice that its
common stock will be delisted from the NASD OTC Bulletin Board or that the
Common Stock does not meet all requirements for the continuation of such
listing.
(r) NO UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since December 31,
2000 and which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company's financial condition.
5
(s) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31,
2000, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, 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 and Other Written
Information.
(t) CAPITALIZATION. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing Date are
set forth on Schedule 2 hereto. Except as set forth in the Reports and Other
Written Information. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable.
(u) CORRECTNESS OF REPRESENTATIONS. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof in all material respects, will be true and correct as of the Closing
Date, and, unless the Company otherwise notifies the Subscriber prior to the
Closing Date, shall be true and correct in all material respects as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date and shall run until the Note are repaid in full or converted in
full.
3. REGULATION D OFFERING. This Offering is being made pursuant to the
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Rule 506 of Regulation D promulgated thereunder. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the conversion of the Note and exercise
of the Warrants.
4. REISSUANCE OF SECURITIES. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Sections 1(e) and
1(f) above at such time as (a) the holder thereof is permitted to and disposes
of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the 1933 Act
in the opinion of counsel reasonably satisfactory to the Company, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the 0000 Xxx. The Company agrees to cooperate with the
Subscriber in connection with all resales pursuant to Rule 144(d) and Rule
144(k) and provide legal opinions AT COMPANY EXPENSE necessary to allow such
resales provided the Company and its counsel receive all reasonably requested
written representations from the Subscriber and selling broker, if any. If the
Company fails to remove any legend as required by this Section 4 (a "Legend
Removal Failure"), then beginning on the tenth (10th) day following the date
that the Subscriber has requested the removal of the legend and delivered all
items reasonably required to be delivered by the Subscriber, the Company
continues to fail to remove such legend, the Company shall pay to each
Subscriber or assignee holding shares subject to a Legend Removal Failure an
amount equal to one percent (1%) of the Purchase Price of the shares subject to
a Legend Removal Failure per day that such failure continues. If during any
twelve (12) month period, the Company fails to remove any legend as required by
this Section 4 for an aggregate of thirty (30) days, each Subscriber or assignee
holding Securities subject to a Legend Removal Failure may, at its option,
require the Company to purchase all or any portion of the Securities subject to
a Legend Removal Failure held by such Subscriber or assignee at a price per
share equal to 120% of the applicable Purchase Price.
6
5. REDEMPTION. The Company may not redeem the Securities without the
consent of the holder of the Securities except as otherwise described herein.
6. FEES/WARRANTS.
(a) The Company paid to counsel to the Subscriber its fees of
$10,000 for services rendered to Subscriber in connection with this Agreement
and the other Subscription Agreements for aggregate subscription amounts of up
to $250,000 (the "Offering"). The Company will pay to the Placement Agent
identified on Schedule B hereto a cash fee in the amount of: ten percent (10%)
of the Purchase Price ("Placement Agent's Fee") and of the actual cash proceeds
received by the Company in connection with the exercise of the Warrants issued
in connection with the Offering ("Warrant Exercise Compensation"). The Placement
Agent's Fee must be paid each Closing Date with respect to the Note issued on
such date. The Warrant Exercise Compensation must be paid to the Placement
Agent's identified on Schedule B hereto, within ten (10) days of receipt of the
Warrant exercise "Purchase Price" (as defined in the Warrant). The Placement
Agent's Fee and legal fees will be payable out of funds held pursuant to a Funds
Escrow Agreement to be entered into by the Company, Subscriber and an Escrow
Agent.
(b) The Company will also issue and deliver to the Subscriber,
Warrants in the amounts designated on Schedule B hereto in connection with the
Initial Offering. A form of Warrant is annexed hereto as Exhibit D. The per
share "Purchase Price" of Common Stock as defined in the Warrant shall be equal
to (i) $0.73 ("Maximum Purchase Price") or (ii) sixty percent (60%) of the
average of the three lowest closing bid prices for the Common Stock on the NASD
OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System,
American Stock Exchange, or New York Stock Exchange (whichever of the foregoing
is at the time the principal trading exchange or market for the Common Stock, or
if not then trading on the foregoing, such other principal market or exchange
where the Common Stock is listed or traded (the "Principal Market"), for the ten
(10) trading days prior to but not including the date of purchase. Further, IN
THE EVENT THAT THE AVERAGE CLOSING BID PRICE FOR THE COMMON STOCK ON THE
PRINCIPAL MARKET FOR THE LAST FIVE (5) TRADING DAYS PRIOR TO THE NINE (9) MONTH
ANNIVERSARY DATE AFTER THE CLOSING OF THIS SUBSCRIPTION AGREEMENT IS LESS THAN
$1.10, THE MAXIMUM PURCHASE PRICE SHALL BE REDUCED FROM $.73 TO SIXTY PERCENT
(60%) OF SAID AVERAGE FIVE (5) DAY CLOSING BID PRICE. The Warrant designated on
Schedule B hereto must be delivered to the Subscriber on the Closing Date.
Failure to timely deliver the Warrant Exercise Compensation or the Warrants
shall be an Event of Default as defined in Article III of the Note.
(c) The Placement Agent's Fee, legal fees and escrow agent's
fee will be paid to the Placement Agent's and attorneys only when, as, and if a
corresponding subscription amount is released from escrow to the Company and out
of the escrow proceeds. All the representations, covenants, warranties,
undertakings, remedies, liquidated damages, indemnification, rights in Section 9
hereof, and other rights but not including registration rights made or granted
to or for the benefit of the Subscriber are hereby also made and granted to the
Subscriber in respect of the Warrants and Company Shares issuable upon exercise
of the Warrants.
(d) The Company on the one hand, and the Subscriber on the
other hand, agree to indemnify the other against and hold the other harmless
from any and all liabilities to any other persons claiming brokerage commissions
or Placement Agent's Fees except as identified on Schedule B hereto on account
of services purported to have been rendered on behalf of the indemnifying party
in connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions. Except as set forth on Schedule B hereto,
the Company represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the offering described in
the Subscription Agreement.
7
7. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it
receives notice of issuance by the Securities and Exchange Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of the
Company Shares, and Common Stock issuable upon the exercise of the Warrants upon
a Principal Market, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain such listing so long
as any other shares of Common Stock shall be so listed. If and when so listed,
the Company will maintain the listing of its Common Stock on a Principal Market,
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company will provide the
Subscriber copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements, if any, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Subscriber and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the effectiveness of
the Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10.1(iv) hereof, the Company will (i) cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, (ii) comply in all respects with its reporting and filing obligations under
the Exchange Act, (iii) comply with all reporting requirements that is
applicable to an issuer with a class of Shares registered pursuant to Section
12(g) of the Exchange Act, and (iv) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will not
take any action or file any document (whether or not permitted by the Act or the
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Acts
until the sale by the Subscriber and Warrant Recipients of all the Company
Shares and Securities issuable by the Company pursuant to this Agreement. Until
at least two (2) years after the Warrants have been exercised, the Company will
use its commercial best efforts to continue the listing of the Common Stock on
the OTC Bulletin Board, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and NASDAQ.
(e) The Company undertakes to use the proceeds of the
Subscriber's funds for the purposes set forth on Schedule 7(e) hereto. Purchase
Price may not and will not be used to pay debt or non-trade obligations
outstanding on or after the Closing Date. A deviation from the use of proceeds
set forth on Schedule 7(e) of more than 10% per item or more than 20% in the
aggregate shall be deemed a material breach of the Company's obligations
hereunder.
(f) The Company undertakes to use its best efforts to maintain
its officers and directors errors and omissions liability insurance policy
covering the transactions contemplated in this Agreement.
(g) The Company undertakes to reserve pro rata on behalf of
each holder of a Note or Warrant, from its authorized but unissued Common Stock,
at all times that Note or Warrants remain outstanding, a number of Common Shares
equal to not less than 200% of the amount of Common Shares necessary to allow
each such holder to be able to convert all such outstanding Note, at the then
applicable Conversion Price and one Common Share for each Common Share issuable
upon exercise of the Warrants.
8
(h) For any equity or debt linked private financing of the
Company within twelve (12) months of the Closing Date, the Subscriber(s) herein
shall have a right of first offer to purchase any or all of the private
financing. A carve out of this provision shall be granted for issuances and
situations involving strategic partnerships, acquisitions candidates, and public
secondary offerings.
8. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING INDEMNIFICATION.
(a) The Company agrees to indemnify, hold harmless, reimburse
and defend Subscriber, Subscriber's officers, directors, agents, affiliates,
control persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon Subscriber or any such person which results,
arises out of or is based upon (i) any misrepresentation by Company or 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 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 and directors at all
times against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Company or any such person which results, arises out of or is based upon (i) any
misrepresentation by Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant hereto; or (ii)
after any applicable notice and/or cure periods, any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscriber relating hereto.
(c) The procedures set forth in Section 10.6 shall apply to
the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. CONVERSION OF NOTE.
(a) Upon the conversion of the Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel) to assure that the Company's transfer
agent shall issue stock certificates in the name of Subscriber (or its nominee)
or such other persons as designated by Subscriber and in such denominations to
be specified at conversion representing the number of shares of common stock
issuable upon such conversion. The Company warrants that no instructions other
than these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that the Shares will be unlegended, free-trading, and
freely transferable, and will not contain a legend restricting the resale or
transferability of the Company Shares provided the Shares are being sold
pursuant to an effective registration statement covering the Shares to be sold
or are otherwise exempt from registration when sold.
(b) Subscriber will give notice of its decision to exercise
its right to convert a Note or part thereof by telecopying an executed and
completed Notice of Conversion (as defined in the Note) to the Company via
confirmed telecopier transmission. The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied. Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date. The Company will
9
or cause the transfer agent to transmit the Company's Common Stock certificates
representing the Shares issuable upon conversion of the Note to the Subscriber
via express courier for receipt by such Subscriber within five (5) business days
after receipt by the Company of the Notice of Conversion (the "Delivery Date").
A Note representing the balance of the Note not so converted will be provided to
the Subscriber, if requested by Subscriber. To the extent that a Subscriber
elects not to surrender a Note for reissuance upon partial payment or
conversion, the Subscriber hereby indemnifies the Company against any and all
loss or damage attributable to a third-party claim in an amount in excess of the
actual amount then due under the Note.
(c) The Company understands that a delay in the delivery of
the Shares in the form required pursuant to Section 9 hereof, or the Mandatory
Redemption Amount described in Section 9.2 hereof, beyond the Delivery Date or
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
Conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment charges described
above shall be payable through the date notice of revocation or rescission is
given to the Company.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
9.2. MANDATORY REDEMPTION. In the event the Company is prohibited from
issuing Shares, or fails to timely deliver Shares on a Delivery Date, or upon
the occurrence of an Event of Default (as defined in the Note) or for any reason
other than pursuant to the limitations set forth in Section 9.3 hereof, and such
event or failure is not cured within three (3) business days, then at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber or on the Delivery Date (if requested by
the Subscriber) a sum of money determined by multiplying up to the outstanding
principal amount of the Note designated by the Subscriber by 130%, together with
accrued but unpaid interest thereon ("Mandatory Redemption Payment"). The
Mandatory Redemption Payment must be received by the Subscriber on the same date
as the Company Shares otherwise deliverable or within ten (10) business days
after request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding.
9.3. MAXIMUM CONVERSION. The Subscriber shall not be entitled to
convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 4.99% of
10
the outstanding shares of Common Stock of the Company on such Conversion Date.
For the purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99%. The Subscriber may void the conversion limitation
described in this Section 9.3 upon 75 days prior written notice to the Company.
The Subscriber may allocate which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 4.99% amount
described above and which shall be allocated to the excess above 4.99%.
9.4. INJUNCTION - POSTING OF BOND. In the event a Subscriber shall
elect to convert a Note or part thereof, the Company may not refuse conversion
based on any claim that such Subscriber or any one associated or affiliated with
such Subscriber has been engaged in any violation of law, or for any other
reason, unless, an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of such Subscriber
in the amount of 130% of the amount of the Note, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment.
9.5. BUY-IN. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10) days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of Note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
9.6 ADJUSTMENTS. The Conversion Price and amount of Shares issuable
upon conversion of the Note shall be adjusted consistent with customary
anti-dilution adjustments.
9.7. OPTIONAL REDEMPTION. There is no optional redemption rights for
the Company.
10.1. REGISTRATION RIGHTS. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 91 days after the
Closing Date, but not later than three years after the Closing Date ("Request
Date"), the Company, upon a written request therefor from any record holder or
holders of more than 50% of the aggregate of the Company's Shares issued and
issuable upon Conversion of the Note (the Common Stock issued or issuable upon
conversion of the Note or exercise of the Warrants, or issuable by virtue of
ownership of the Note or Warrants, being, the "Registrable Securities"), shall
prepare and file with the SEC a registration statement under the Act covering
the Registrable Securities which are the subject of such request, unless such
Registrable Securities are the subject of an effective registration statement.
In addition, upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities that
such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received written
11
requests within 10 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 10.1(i). As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests. The obligation
of the Company under this Section 10.1(i) shall be limited to one registration
statement.
(ii) If the Company at any time proposes to register any of
its securities under the Act for sale to the public, whether for its own account
or for the account of other security holders or both, except with respect to
registration statements on Forms X-0, X-0 or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the Subscriber
or Holder pursuant to an effective registration statement, each such time it
will give at least 30 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 20 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1(ii) shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 10.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 10.1(ii)
without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account, such written request shall
be deemed to have been given pursuant to Section 10.1(ii) rather than Section
10.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 10.1(ii).
(iv) Notwithstanding the foregoing, and without any request
from holders of the Registrable Securities, the Company shall file with the
Commission within 45 days after the Closing Date (the "Filing Date"), and use
its reasonable commercial efforts to cause to be declared effective a Form SB-2
registration statement (or such other form that it is eligible to use) in order
to register the Registrable Securities for resale and distribution under the
Act. The registration statement described in this paragraph must be declared
effective by the Commission within 120days of the Closing Date (as defined
herein) ("Effective Date"). The Company will register not less than a number of
shares of Common Stock in the aforedescribed registration statement that is
equal to 200% of the Company Shares issuable at the Warrant exercise price and
Conversion Price, respectively, that would be in effect on the Closing Date or
the date of filing of such registration statement (employing the Warrant
exercise price and Conversion Price which would result in the greater number of
Shares), assuming the conversion of 100% of the Note and exercise of 100% of the
Warrants. The Registrable Securities shall be reserved and set aside exclusively
for the benefit of the Subscriber, and not issued, employed or reserved for
anyone other than the Subscriber. Such registration statement will be promptly
amended or additional registration statements will be promptly filed by the
Company as necessary to register additional Company Shares to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. No securities of the Company other than the Registrable Securities
will be included in the registration statement described in this Section
10.1(iv).
12
10.2. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities ("Sellers") copies of all
filings and Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the latest of: (i) twelve months after the latest Maturity Date of a Note;
(ii) thirty months after the Closing Date; or (iii) until such registration
statement has been effective for a period of not less than 270 days, and comply
with the provisions of the Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Seller, and to each underwriter if any,
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;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each underwriter under
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, 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,
underwriter, attorney, accountant or agent in connection with such registration
statement.
10.3. PROVISION OF DOCUMENTS.
13
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution by it as reasonably
shall be necessary in order to assure compliance with federal and applicable
state securities laws. In connection with each registration pursuant to Section
10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and
the Seller agree to enter into a written agreement with the managing underwriter
in such form and containing such provisions as are customary in the securities
business for such an arrangement between such underwriter and companies of the
Company's size and investment stature.
10.4. NON-REGISTRATION EVENTS. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 30 days after written
request by the Holder and not declared effective by the Commission within 120
days after such request (or the Filing Date and Effective Date, respectively, in
reference to the Registration Statement on Form SB-2 or such other form
described in Section 10.1(iv)), and maintained in the manner and within the time
periods contemplated by Section 10 hereof, and it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if (i) the
Registration Statement described in Sections 10.1(i) or 10.1(ii) is not filed
within 30 days of such written request, or is not declared effective by the
Commission on or prior to the date that is 90 days after such request, or (ii)
the registration statement on Form SB-2 or such other form described in Section
10.1(iv) is not filed on or before the Filing Date or not declared effective on
or before the sooner of the Effective Date, or within five business days of
receipt by the Company of a written or oral communication from the Commission
that the registration statement described in Section 10.1(iv) will not be
reviewed, or (iii) any registration statement described in Sections 10.1(i),
10.1(ii) or 10.1(iv) is filed and declared effective but shall thereafter cease
to be effective (without being succeeded immediately by an additional
registration statement filed and declared effective) for a period of time which
shall exceed 30 days in the aggregate per year but not more than 20 consecutive
calendar days (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) (each such event referred to in
clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as a
"Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay, at the Subscriber's option, in cash or
stock at the applicable Conversion Price, as Liquidated Damages to each holder
of any Registrable Securities an amount equal to three percent (3%) per month or
part thereof during the pendency of such Non-Registration Event, of the
principal and accrued interest of the Note issued in connection with the
Offering, whether or not converted, then owned of record by such holder or
issuable as of or subsequent to the occurrence of such Non-Registration Event.
Payments to be made pursuant to this Section 10.4 shall be due and payable
within five (5) business days after demand in immediately available funds. In
the event a Mandatory Redemption Payment is demanded from the Company by the
Holder pursuant to Section 9.2 of this Subscription Agreement, then the
Liquidated Damages described in this Section 10.4 shall no longer accrue on the
portion of the Purchase Price underlying the Mandatory Redemption Payment, from
and after the date the Holder receives the Mandatory Redemption Payment. It
shall also be deemed a Non-Registration Event if at any time a Note or Warrant
is outstanding, there is less than 125% of the amount of Common Shares necessary
to allow full conversion of such Note and full exercise of such Warrants at the
then applicable Conversion Price or exercise price registered for unrestricted
resale in an effective registration statement.
10.5. EXPENSES. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, and costs of insurance are called
14
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Seller, are called "Selling
Expenses". The Seller shall pay the fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
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 Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Seller failed to send or deliver a copy of the
final prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the gross proceeds received by the Seller from the sale of Registrable
Securities covered by such registration statement.
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 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Act in any case in which either (i) the
Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
10.7. UNDERWRITER LIABILITY. Nothing contained in this Agreement or any
document delivered herewith shall require or imply that the Subscriber is or be
an Underwriter as defined in the 1933 Act of 1934 Act, nor a "statutory
underwriter." The Subscriber shall not be required to take any action or assume
any liability or obligation which would or could impose Underwriter or
"statutory underwriter" status or liability on the Subscriber.
11. OFFERING RESTRICTIONS. Except (i) as disclosed in the Reports or
Other Written Information prior to the date of this Subscription Agreement, (ii)
stock or stock options granted to employees or directors of the Company pursuant
to a plan which has been approved by the shareholders of the Company, (iii)
stock or stock options granted to members of the Board of Directors in payment
16
for Board or Committee meetings attended or for guarantees for performance, and
(iii) stock or stock options granted to the Company's Management as incentive
compensation in lieu of cash payments, (iv) stock or stock options granted in a
private placement to the Company's consultants and vendors (these exceptions
hereinafter referred to as the "Excepted Issuances"), the Company will not issue
any convertible debt for 24 months after the Closing Date, other than with
respect to a bona fide business acquisition of or by the Company. The Excepted
Issuances (other than (i) above) may be issued during the above described time
periods provided such securities are not transferable until after a time period
equal to one year during which the registration statement described in Section
10.1(iv) above has been effective. Notwithstanding the above, if the Subscriber
elects not to, or cannot, further fund the Company following the transaction
contemplated hereby, the Subscriber shall waive the provisions of this Section
11.
12. SECURITY INTEREST. The Subscriber has been granted a security
interest in certain assets of the Company memorialized in a Security Agreement
dated the Closing Date The Company will also execute all such documents
reasonably necessary to memorialize and further protect the security interest
described above.
13. FUTURE ISSUANCES. Not Applicable.
14. MISCELLANEOUS.
(a) NOTICES. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to
Liquidix, Inc., 00000 X. Xxxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxxxx Xxxxx, XX 00000,
telecopier number: (000) 000-0000, with a copy by telecopier only to: Xxxxxxx
Xxxxxxxxx, Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx
Xxxx, XX 00000, telecopier number: (000) 000-0000, and (ii) if to the
Subscriber, to the name, address and telecopy number set forth on the signature
page hereto, with a copy by telecopier only to Xxxx X. Xxxx , Law Offices of
Xxxx X. Xxxx, 0000 Xxxxxxxx Xxxx., #000, Xxx Xxxxxxx XX 00000, telecopier number
(000) 000-0000.
(b) CLOSING. The consummation of the transactions contemplated
herein shall take place at the offices of: Xxxxxxx Xxxxxxxxx, Sichenzia Xxxx
Xxxxxxxx Xxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX, 00000, upon the
satisfaction of all conditions to Closing set forth in this Agreement. The
closing date shall be the date that subscriber funds representing the net amount
due the Company from the Purchase Price are transmitted by wire transfer to the
Company (the "Closing Date").
(c) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and thereby, controls and supersedes any prior understandings,
agreements or representations by or between the parties, written or oral, and
may be amended only by a writing executed by both parties. No right or
obligation of either party shall be assigned by that party without prior notice
to and the written consent of the other party.
(d) EXECUTION. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.
17
(e) LAW GOVERNING THIS AGREEMENT. This Agreement shall be
governed by and construed in accordance with the laws of the State of California
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 California or in the
federal courts located in the state of California. Both parties and the
individuals executing this Agreement and other agreements 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.
(f) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) CONFIDENTIALITY. The Company agrees that it will not
disclose publicly or privately the identity of the Subscriber unless expressly
agreed to in writing by the Subscriber or only to the extent required by law.
(h) AUTOMATIC TERMINATION. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth (10th) business day following the date this
Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
18
IN WITNESS WHEREOF, the parties hereto have executed the
SUBSCRIPTION AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY:
SUBSCRIBER:
LIQUIDIX, INC.
KAZI MANAGEMENT VI, INC.
By: By:
-------------------------------------- ------------------------------
Name: Name:
Title: Title;
Address: 00000 X. Xxxxxxxxxx Xxxxx, #000, Address: 00 Xxxxxxxxxxx Xxxx,
Xxxxxxxx Xxxxx, Xxxxxxx 00000 Suite B 30,
St. Xxxxxx, Virgin Islands 00802
19
EXHIBIT A(1)
CONVERTIBLE NOTE
20
EXHIBIT B
INVESTOR(S)
21
EXHIBIT C
Intentionally Omitted
22
EXHIBIT D
FORM OF WARRANT
23
SCHEDULE B TO SUBSCRIPTION AGREEMENT
------------------------------------
FUND MANAGER PLACEMENT AGENT'S FEES AND WARRANT EXERCISE COMPENSATION
--------------------- ----------------------------------------------------------
--------------------- ----------------------------------------------------------
24
