EXHIBIT 10.3
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (the "AGREEMENT") is made as of April 5,
2000 between Compliance1, Inc., a Delaware corporation, with its principal
offices at 0000 Xxxxxxxxx Xxxxx Xxxx, Xxxxx 000, XxXxxx, Xxxxxxxx 00000 (the
"COMPANY"), and each of those persons and entities whose names are set forth
on the Schedule of Purchasers attached hereto as EXHIBIT A (which persons and
entities are hereinafter collectively referred to as "PURCHASERS" and each
individually as a "PURCHASER").
WHEREAS, the Company has authorized the sale and issuance of up to
an aggregate of One Million Dollars ($1,000,000) of its convertible secured
notes at a 10% interest rate (each a "NOTE," and collectively, the "NOTES"),
substantially in the form annexed hereto as EXHIBIT B; and
WHEREAS, the Company desires to sell to Purchasers and Purchasers
desire to purchase Notes having a principal amount as is set forth on the
signature page hereof.
NOW, THEREFORE, in consideration of the premises and the covenants
herein contained and for other good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. PURCHASE AND SALE OF NOTES. Subject to the terms and
conditions hereinafter set forth, Purchasers hereby subscribe for and agree
to purchase from the Company, Notes having the principal amount set forth on
the Schedule of Purchasers attached hereto as EXHIBIT A and the Company
hereby agrees to sell such Notes to Purchasers. The purchase price for each
Note shall be the stated principal amount of each Note (the "PURCHASE PRICE")
and the issue date of a Note shall be the Closing Date (as defined below) for
such Note and shall appear on such Note. The Purchase Price is payable by
certified or bank check made payable to the Company or by wire transfer of
funds, contemporaneously with the execution and delivery of this Subscription
Agreement. The Notes being purchased by Purchasers will be delivered by the
Company within two (2) days of the Closing Date (as defined below).
Purchasers hereby authorize and direct the Company to deliver the Notes
purchased pursuant to this Agreement to the address set forth on the
signature page hereto.
SECTION 2. DESCRIPTION OF THE NOTES.
2.1 INTEREST. Each Note shall bear interest at the rate of
ten percent (10%) per annum on its principal amount from its Closing Date.
2.2 INTEREST PAYMENTS.
(a) Except as provided in subparagraph (b) of this
subsection 2.2, accrued interest on the Notes shall be payable quarterly, in
arrears, in immediately available funds on April 1, July 1, October 1 and
January 1.
(b) Accrued interest for the first year that the Notes are
outstanding shall be payable on April 1, 2001.
2.3 MATURITY DATE. The unpaid principal balance of a Note,
plus all accrued and unpaid interest thereon, shall be due in full three (3)
years from the Closing Date of the Note.
2.4 SECURITY. The Notes shall be secured by a security
agreement (the "Security Agreement") in the form attached hereto as EXHIBIT
C, creating a lien against certain collateral and security of the Company as
described therein.
2.5 CONVERSION.
(a) CONVERSION AT PURCHASERS' OPTION. Subject to and upon
compliance with the provisions of this subsection 2.5, a Purchaser shall have
the right, at such Purchaser's option, at any time to convert such Note, in
whole but not in part, into the number of shares of common stock of the
Company, par value $0.001 per share ("COMMON STOCK"), obtained by dividing
(i) the then outstanding principal amount of the Note by (ii) the Conversion
Price (as defined below) then in effect.
(b) CONVERSION PRICE. "CONVERSION PRICE" means the price at
which one share of Common Stock shall be deliverable upon conversion of a
Note without the payment of any additional consideration by the Purchaser.
Initially, the Conversion Price shall be equal to (i) the total principal
amount of the Notes DIVIDED BY (ii) the aggregate number of Conversion Shares
(as defined below) issuable upon conversion of such Notes. The Conversion
Price shall be subject to adjustment in accordance with subparagraph (d) of
this subsection.
(c) CONVERSION SHARES. "CONVERSION SHARES" means the
aggregate number of fully paid and nonassessable shares of Common Stock
issuable in exchange for the total principal amount of Notes sold by the
Company. The aggregate number of Conversion Shares shall be equal to 67.0% of
the number of fully diluted outstanding shares of Common Stock of the
Company; provided, however, that in the event that the Company achieves the
Milestones (as defined below) on or before June 30, 2000, the aggregate
number of Conversion Shares shall be equal to 36.9% of the number of fully
diluted outstanding shares of Common Stock of the Company. The total number
of shares of Common Stock outstanding to be calculated on the Closing Date
shall be calculated on a fully diluted basis, as if all securities
convertible into shares of Common Stock had been fully converted into shares
of Common Stock immediately prior to such calculation and any other options,
warrants, options or other rights for the purchase of shares of Common Stock
had been fully exercised immediately prior to such calculation (and the
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resulting securities fully converted into shares of Common Stock, if so
convertible) as of the date of such calculation.
(d) CONVERSION PRICE ADJUSTMENT. The Conversion Price of
each Note shall be adjusted from time to time as follows:
(i) If the Company shall after the Closing
Date of such Note (A) pay a dividend or make a distribution on its capital
stock in shares of Common Stock, (B) subdivide its outstanding Common Stock
into a greater number of shares, (C) combine its outstanding Common Stock
into a smaller number of shares or (D) issue any shares of capital stock by
reclassification of its outstanding Common Stock, the Conversion Price in
effect at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or
distribution or at the opening of business on the day on which such
subdivision, combination or reclassification becomes effective, as the case
may be, shall be adjusted so that the Purchaser of any Note thereafter
converted shall be entitled to receive the number of shares of Common Stock
that such Purchaser would have owned or have been entitled to receive after
the happening of any of the events described above had such Note been
converted immediately prior to the record date in the case of a dividend or a
distribution or the effective date in the case of a subdivision, combination
or reclassification.
(ii) If the Company shall issue after the
Closing Date of such Note any Common Stock (except Common Stock issuable upon
conversion of the Notes) for a consideration per share of less than the
Conversion Price in effect immediately prior to the issuance of such Common
Stock, the Conversion Price shall immediately be adjusted to equal the price
determined by multiplying the Conversion Price by a fraction, the numerator
of which shall be the sum of (A) the number of shares of Common Stock
outstanding on the close of business on the date immediately preceding such
issuance and (B) the number of shares that could be purchased at the
Conversion Price from the aggregate proceeds to the Company of such issuance,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately following such issuance. In determining whether any
Common Stock was issued by the Company at less than the Conversion Price then
in effect, there shall be taken into account any consideration received by
the Company upon issuance, the value of such consideration, if other than
cash, to be determined in good faith by the Board of Directors.
(iii) If the Company shall issue after the
Closing Date of such Note rights or options or warrants exercisable for
Common Stock at a price per share less than the Conversion Price in effect on
the date that is the issue date for such rights, options or warrants, then
the Conversion Price shall be adjusted (effective on the first business day
following the issue date) to equal the price determined by multiplying the
Conversion Price in effect on such issue date by a fraction, the numerator of
which shall be the sum of (A) the number of shares of Common Stock
outstanding on the close of business on such issue date and (B) the number of
shares that could be purchased at the Conversion Price from the aggregate
proceeds to the Company from the issuance of such rights, options or warrants
plus the aggregate proceeds to be received by the Company upon the exercise
of such rights, options or warrants for Common Stock, and the denominator of
which shall be the sum of (AA) the number of shares of Common
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Stock outstanding on the close of business on the issue date and (BB) the
number of additional shares of Common Stock offered for subscription or
purchase pursuant to such rights, options or warrants. In determining whether
any rights, options or warrants entitle Purchaser s thereof to subscribe for
or purchase the Common Stock at less than the Conversion Price then in
effect, there shall be taken into account any consideration received by the
Company upon issuance, and any consideration expected to be received upon
exercise of such rights, options or warrants, the value of such
consideration, if other than cash, to be determined in good faith by the
Board of Directors.
(iv) Notwithstanding any other provision of
this subsection 2.5, the Conversion Price shall NOT be adjusted to reflect
the issuance by the Company to employees, officers, directors, or consultants
of the Company (either directly or pursuant to a stock option plan or
restricted stock plan approved by the shareholders and directors of the
Company) of up to an aggregate of twenty percent (20%) of the Company's
shares of Common Stock or of rights or options exercisable for up to an
aggregate of twenty percent (20%) of the Company's shares of Common Stock,
adjusted to reflect subsequent stock splits, stock dividends, combinations,
reverse stock splits, or reclassifications.
(v) If the Company intends to enter into any
consolidation with or merger of the Company with or into another corporation
or other entity, or in the case of any sale, lease or conveyance to another
corporation of the assets of the Company as an entirety or substantially as
an entirety, then the Company shall give each Purchaser not less than thirty
(30) days prior written notice of the closing date for such transaction, and
each Purchaser shall have the right to convert its Note into Common Stock of
the Company pursuant to the terms of this Agreement.
(e) DIVIDENDS. Each Purchaser shall, unless such Note is
paid in full on or before the record date for such dividend, be entitled to
receive a share of all assets (including cash) or securities (other than
Common Stock or rights, options or warrants referred to in subparagraph
(e)(iv) of this subsection 2.5) that are paid by dividend or distribution on
or after such Note's Closing Date to the holders of Common Stock, in each
case as if such Note had been converted into shares of Common Stock at the
Conversion Price in effect on the record date relating to such dividend or
distribution.
(f) CONVERSION PROCEDURE.
(i) In order to exercise the conversion
right pursuant to paragraph (a) of this subsection 2.5, a Purchaser shall
deliver such Note to the Company accompanied by a written notice to the
Company that the Purchaser thereof elects to convert such Note.
(ii) Within three (3) days after receipt
of a Note delivered for conversion, the Company shall deliver to such
Purchaser a certificate for the number of whole shares and any fractional
share of Common Stock issuable upon the conversion. Each conversion shall be
deemed to have been effected immediately prior to the close of business on
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the date on which the Notes shall have been delivered pursuant to section
11.2 hereof or, in the case of a mandatory conversion pursuant to paragraph
(b) of this subsection 2.5, in accordance with such subsection.
(g) TAXES ON CONVERSION. Subject to the restrictions on
transfer contained herein, the issuance of certificates for shares of Common
Stock upon the conversion of the Notes shall be made without charge to the
Purchasers for such certificates or any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, such Purchasers; PROVIDED,
HOWEVER, that in the event that certificates for shares of Common Stock are
to be issued in a name other than the name of the Purchaser, such Note when
surrendered for conversion, shall be accompanied by an instrument of
transfer, in form satisfactory to the Company, duly executed by such
Purchaser or his duly authorized attorney; and PROVIDED FURTHER, HOWEVER,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Purchaser, and the Company
shall not be required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid or is not applicable.
(h) COMPANY TO PROVIDE STOCK. All shares of Common Stock
that may be issued upon conversion of the Notes shall be newly-issued, duly
authorized, validly issued, fully paid and non-assessable when so issued. The
Company agrees to take any and all actions that may be necessary to ensure
that it has a sufficient number of shares of Common Stock to issue upon the
conversion of the Notes.
2.6 EFFECT OF REORGANIZATION, CONSOLIDATION, SALE OR
MERGER. If there shall occur any capital reorganization or any
reclassification of the capital stock of the Company, consolidation, sale,
merger or other business combination of the Company with or into another
company or other entity, or the conveyance of all or substantially all of the
assets of the Company to another company or other entity, in each case with
the effect that the holders of the Company's capital stock possess less than
40% of the voting securities of the surviving entity, then the Purchaser
shall have the option to (a) receive the principal amount of the Notes plus
accrued and unpaid interest, or (b) treat each Note as convertible into the
number of shares or other securities or property to which a holder of the
number of shares of Common Stock deliverable upon conversion of each Note
would have been entitled upon such reorganization, reclassification,
consolidation, sale, merger or conveyance. In the case of (b) above,
appropriate adjustment (as determined by the Board) shall be made in the
application of the provisions hereof with respect to the rights of the
Purchaser such that the provisions hereof (including, without limitation,
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably practicable,
in relation to any shares or other property thereafter deliverable upon the
conversion of the Notes.
2.7 PREPAYMENT. With respect to any Note, the Company shall
not prepay all or any portion of the principal amount outstanding thereunder
at any time prior to the first anniversary of the Closing Date for such Note,
except that prepayment shall occur, whether before
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or after such anniversary, if such prepayment is required by the Purchaser by
reason of acceleration following default or any other acceleration event
under the Note. After such first anniversary, the Company may prepay all or
any portion of such principal amount of any such Note at any time and at the
prepayment prices set forth below (expressed as a percentage of principal
amount), plus accrued interest, provided that the Company first shall give
the Purchaser thereof not less than thirty (30) days prior written notice of
its intention to prepay an amount specified in such notice, such prepayment
shall occur in such amount and in no other amount, and such prepayment shall
occur on the date set forth in the notice which date shall be the first day
of a calendar month, PROVIDED, HOWEVER, that the Purchaser shall have the
right prior to the anticipated prepayment date set forth in the notice to
exercise its conversion option contained in Section 2.5(a) hereof and convert
its Note into Common Stock of the Company, in which case the prepayment
notice shall be of no further force or effect.
Year Price
---- -----
First 104%
Second 102.5%
Third 101%
2.8 DEFAULTS AND REMEDIES.
(a) EVENTS OF DEFAULT. Each of the following events is
herein referred to as an Event of Default:
(i) if any representation or warranty
made herein, or in the Notes, or in any report, certificate, financial
statement or other instrument furnished in connection with this Agreement,
shall be false, inaccurate or misleading in any material respect when made or
when deemed made hereunder;
(ii) any default in the payment of any
principal or interest under any of the Notes or any other indebtedness of the
Company when the same shall be due and payable, whether at the due date
thereof or by acceleration or otherwise;
(iii) any material default in the due
observance or performance of any other covenant, condition or agreement to be
observed or performed pursuant to the terms hereof, and the continuance of
such default unremedied for a period of fifteen (15) days after written
notice thereof to the Company setting forth in reasonable detail the
circumstances of such default; PROVIDED, HOWEVER that if such breach is
curable but is not capable of being cured within such period and if the
Company shall have commenced action to cure such breach within such period
and is diligently attempting to cure such breach, then the Company shall be
afforded an additional thirty (30) days to cure such breach;
(iv) if the Company shall: (A) apply for
or consent to the appointment of a receiver, trustee, custodian or liquidator
of it or any of its properties, (B) admit
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in writing its inability to pay its debts as they mature, (C) make a general
assignment for the benefit of creditors, (D) be adjudicated a bankrupt or
insolvent or be the subject of an order for relief under Title 11 of the
United States Code, or any successor thereto, or (E) file a voluntary
petition in bankruptcy, or a petition or an answer seeking reorganization or
an arrangement with creditors or to take advantage or any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation
law or statute, or an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law, or (vi) take or permit
to be taken any action in furtherance of or for the purpose of effecting any
of the foregoing;
(v) if any order, judgment or decree
shall be entered, without the application, approval or consent of the
Company, by any court of competent jurisdiction, approving a petition seeking
reorganization of the Company, or appointing a receiver, trustee, custodian
or liquidator of the Company, or of all or any substantial part of its
assets, and such order, judgment or decree shall continue unstayed and in
effect for any period of sixty (60) days; or
(vi) if final judgment(s) for the payment
of money in excess of $250,000 individually or $500,000 in the aggregate
shall be rendered against the Company, and the same shall remain undischarged
or unbonded for a period of thirty (30) consecutive days, during which
execution shall not be effectively stayed.
(b) REMEDIES. Upon the occurrence of any Event of Default,
and at all times thereafter during the continuance thereof: (i) the Notes
shall, at the option of the holders thereof, in accordance with Section 2.8
hereof (except in the case of any event described in Sections 2.8(a)(iv) and
(v) hereof, the occurrence of which shall automatically effect acceleration,
regardless of any action or forbearance in respect of any prior or ongoing
default or Event of Default which may be inconsistent with such automatic
acceleration), become immediately due and payable, as to principal, interest
and premium, without presentment, demand, protest, notice or other
requirement of any kind, all of which are hereby expressly waived, anything
contained herein or in the Notes to the contrary notwithstanding, (ii) all
outstanding obligations under the Notes, shall bear interest at the default
rate of interest of 18% as provided in the Notes, (iii) Purchasers may file
suit against the Company on the Notes and/or seek specific performance or
injunctive relief thereunder (whether or not a remedy exists at law or is
adequate), (iv) the Purchasers shall have the right to seek to exercise any
and all remedies as they may determine in their discretion (without any
requirement of marshalling of assets, or other such requirement) that may be
available at law or in equity.
SECTION 3. CLOSING.
3.1 CLOSING. The closing of the purchase and sale of
$325,000 of Notes ($300,000 to be purchased by Xxxxxxx Healthcare, Inc.
("XXXXXXX") and $25,000 to be purchased by Mr. and Mrs. Xxxxxxx Xxxxxxxxx)
("CLOSING") shall take place at 10:00 a.m. on April 5, 2000, at the offices
of Xxxxxx Xxxxxx Xxxxx, 0000 Xxxxxx Xxxxxxxxx Xxxxxx, X.X., Xxxxx 000-Xxxx,
Xxxxxxxxxx, X.X. 00000 or at such other time or place as the Company and
Purchasers may mutually agree (such date is hereinafter referred to as the
"CLOSING DATE"). The closing of the
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purchase and sale of $50,000 of Notes to be purchased by Xxxxxxx X. Xxxxxxxxx
SEP shall take place as soon as possible after the Closing after approval of
such purchase has been approved by an appropriate trustee of the Xxxxxxx X.
Xxxxxxxxx SEP.
3.2 SECOND CLOSING. In the event that the Company, as
determined by a majority vote of the Board of Directors of the Company,
achieves the milestones as set forth on EXHIBIT D attached hereto (the
"MILESTONES") on or before July 31, 2000, Xxxxxxx shall purchase and the
Company shall sell to Xxxxxxx, an additional Note in the amount of $625,000
(the "REMAINING NOTE") on the same terms and conditions as set forth herein.
The closing of the sale and purchase of the Remaining Note (the "SECOND
CLOSING") shall take place at the same location and on such date (the "SECOND
CLOSING DATE") and at such time as is mutually acceptable to the Company and
Xxxxxxx; provided, however, that the Second Closing shall take place as soon
as practicable after the Company has achieved the Milestones. All of the
terms and conditions of this Agreement shall apply to the Second Closing. For
purposes of the Second Closing, if any, the term "Closing," as used in this
Agreement, shall mean the Second Closing and the term "Closing Date," as used
in this Agreement, shall mean the Second Closing Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to Purchaser, which representations
and warranties shall be true and correct as of the date hereof and as of the
Closing Date, as follows:
4.1 ORGANIZATION; STANDING AND POWER. The Company (a) is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, (b) has all requisite corporate power
and authority to own its properties and to carry on its businesses as now
conducted and as proposed hereafter to be conducted, (c) is duly qualified
and in good standing to do business as a foreign corporation in each and
every jurisdiction where its assets are located and wherever such
qualification is necessary to carry out its business and operations except
where the failure to so qualify or be in good standing would not have a
material adverse effect on the financial condition, business, operations,
assets or prospects of the Company and (d) has all requisite corporate power
and authority to own and operate its properties, to carry on its business as
now conducted, to execute and deliver, and perform all of its obligations
under this Agreement.
4.2 CAPITALIZATION; RESERVED STOCK, PREEMPTIVE RIGHTS. The
total authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, of which, as of the date hereof, 7,081,200 shares have been
duly and validly issued, are fully paid and nonassessable and are
outstanding. The Company has reserved for issuance and will continue to
reserve for issuance from time to time at least the number of shares of
Common Stock into which the Notes may be converted. Except for (i) the shares
of Common Stock issuable upon conversion of the Notes and (ii) the shares of
Common Stock issuable pursuant to the Company's Stock Option Plan, no other
shares have been reserved for issuance on the Closing Date and there are no
outstanding options, warrants or other rights to subscribe for or purchase
from the Company any shares of its capital stock or any securities
convertible into or exchangeable for its capital stock. Except for the
provisions of Section 9 hereof, there are, as of the date hereof, no
preemptive rights or rights of first refusal or similar rights that have not
been
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waived, which are binding on the Company permitting any person to subscribe
for or purchase from the Company shares of its capital stock pursuant to any
provision of law, the Certificate of Incorporation or Bylaws of the Company
or by agreement or otherwise. Attached hereto as EXHIBIT E is a table setting
forth the capitalization of the Company as of the date hereof on an actual
basis.
4.3 AUTHORIZATION. The execution and delivery by the
Company of this Agreement, the performance of the Company's obligations
hereunder and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action and will not, either
prior to or as a result of the consummation of the transactions contemplated
by this Agreement: (a) violate any provisions of any law or any governmental
rule or regulation applicable to the Company, any provision of the
Certificate of Incorporation or Bylaws of the Company, or any contract,
indenture, agreement or other instrument to which the Company is a party, or
by which the Company or any of its or their assets or properties are bound,
or (b) be in conflict with, result in a breach of, or constitute (after the
giving of notice or lapse of time or both) a default under, or result in the
creation or imposition of any lien of any nature whatsoever upon any of the
property or assets of the Company pursuant to the provisions of any contract,
indenture, agreement or other instrument to which the Company is a party or
by which it or its property is bound. The Company is not required to obtain
any approval of stockholders nor any approval, consent or authorization from,
or to file any declaration or statement with, any governmental
instrumentality or agency in connection with or as a condition to the
execution, delivery or performance of this Agreement other than the filing of
Form D and any applicable state securities law filings, which filing or
filings, as the case may be, will be made in accordance with applicable laws
and regulations.
4.4 BINDING OBLIGATION. This Agreement has been duly
executed and delivered by the Company and is the legally valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
4.5 NON-CONTRAVENTION. To the best of its knowledge, the
Company is not in violation or breach of or in default with respect to,
complying with any material provision of any contract, agreement, instrument,
lease, license, arrangement or understanding to which it is a party, and each
such contract, agreement, instrument, lease, license, arrangement and
understanding is in full force and effect and is the legal, valid and binding
obligation of the Company enforceable as to the Company in accordance with
its terms (except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability).
4.6 LITIGATION. There is no action, suit or litigation,
administrative proceeding, arbitration or other proceeding to which the
Company is a party or of which the Company is aware, pending or threatened in
writing, which might materially and adversely affect the financial condition,
proposed business, property, assets or prospects of the Company.
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4.7 THE NOTES AND THE SHARES OF COMMON STOCK UNDERLYING THE
NOTES. The sale, issuance and delivery of the Notes have been duly authorized
by all necessary corporate action and when issued the Notes will be the
legally valid and binding obligations of the Company enforceable in
accordance with their terms (except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability). The shares of Common Stock issuable upon conversion of the
Notes have been duly authorized and, when issued and delivered upon
conversion of the Notes, will be duly and validly issued, fully paid and
non-assessable, free and clear of any restrictions on transfer (other than
any restrictions under the Securities Act of 1933, as amended (the
"SECURITIES ACT") and state securities laws), and any taxes, security
interests, options, warrants, purchase rights, preemptive rights, contracts,
commitments, equities, claims, or demands.
4.8 SECURITIES LAW EXEMPTION. Assuming the accuracy of
Purchaser's representations and warranties set forth herein, the sale of the
Notes pursuant to this Agreement has been made in accordance with the
provisions and requirements of the Securities Act and any applicable state
law. All securities issued by the Company prior to the date hereof have been
issued in transactions exempt from registration under the Securities Act and
in compliance with applicable state securities or Blue Sky laws.
4.9 USE OF PROCEEDS. Except as otherwise set forth in this
Agreement, the proceeds from the sale of the Notes shall be used solely for
working capital and other general corporate purposes other than the repayment
of indebtedness or other obligations; provided, however, that up to $12,000
of the proceeds from the sale of the Notes may be used for the repayment of
certain indebtedness of Gunnison, Inc.
4.10 COMPLIANCE WITH LAWS. The Company is in compliance in
all material respects with all occupational safety, health, wage and hour,
employment discrimination, environmental, flammability, labeling, usury and
other applicable laws which are material to its businesses, and the Company
is not aware of any state of facts, events, conditions or occurrences which
may now or hereafter constitute or result in a violation of any of such
applicable laws, or which may give rise to the assertion of any such
violation, the effect of which could have a material adverse effect on the
Company's business, operations or financial condition.
4.11 LICENSES AND PERMITS. The Company has obtained or is
in the process of obtaining all federal, state and local licenses and permits
required to be maintained in connection with and material to its operations,
and all such licenses and permits obtained are valid and in full force and
effect.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
hereby represents and warrants to the Company, which representations and
warranties shall be true and correct as of the date hereof and the Closing
Date, as follows:
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5.1 AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action on the part of Purchaser, does not violate any laws or regulations
applicable to Purchaser and is the valid binding and enforceable obligation
of Purchaser in accordance with its terms.
5.2 NON-CONTRAVENTION. To the best of Purchaser's actual
knowledge, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (a) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency,
or court to which Purchaser is subject or (b) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which Purchaser is a party or by which Purchaser is
bound or to which any of Purchaser's assets are subject.
5.3 ACCREDITED INVESTOR. Purchaser is an "accredited
investor" as that term is defined in Rule 501(a) of the Securities Act, and
the rules promulgated thereunder, and Purchaser has accurately completed a
confidential Purchaser Questionnaire, a copy of which is attached hereto as
EXHIBIT F.
5.4 INVESTMENT. Purchaser acknowledges that this offering
of Notes has not been reviewed by the United States Securities and Exchange
Commission ("SEC") and that the sale of the Notes pursuant hereto is intended
to be a nonpublic offering pursuant to Sections 4(2) or 3(b) of the
Securities Act. Purchaser represents that the Notes are being purchased for
its own account, for investment and not for distribution or resale to others.
Purchaser agrees that Purchaser will not sell or otherwise transfer the Notes
or the shares of the Common Stock issuable upon conversion of the Notes
unless such securities, as the case may be, are registered under the
Securities Act or unless an exemption from such registration is available.
Purchaser understands that neither the Notes nor the shares of Common Stock
issuable upon conversion of the Notes have been registered under the
Securities Act and they are or will be issued pursuant to a specific
exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment
intent as expressed herein.
5.5 ACCESS TO DATA. Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and the opportunity to review the Company's facilities,
each to Purchaser's satisfaction. Purchaser understands that such
discussions, as well as any written information issued or provided by the
Company, were intended to describe the aspects of the Company's business and
prospects which the Company believes to be material but were not necessarily
an exhaustive description thereof. Purchaser has received from the Company
all materials and information it deems necessary for it to make its
investment decision with respect to the Notes offered hereby.
5.6 SPECULATIVE NATURE OF INVESTMENT. Purchaser
acknowledges that the purchase of the Notes involves (i) a high degree of
risk; (ii) the Company requires additional
11
capital to fully design, develop, launch and commercialize the Company's
business and does not have any commitment for additional funds; (iii) an
investment in the Company is highly speculative and only investors who can
afford the loss of their entire investment should consider investing in the
Company and purchasing Notes; (iv) Purchaser may not be able to liquidate its
investment; (v) transferability of the Notes and the shares of Common Stock
issuable upon conversion of the Notes is extremely limited; and (vi)
Purchaser could sustain the loss of its entire investment.
5.7 EXPERIENCE. Purchaser acknowledges that it has prior
investment experience, including investment in non-listed and non-registered
securities, or has employed the services of an investment advisor, attorney
or accountant to review all of the documents furnished or made available by
the Company and to evaluate the merits and risks of such an investment on
Purchaser's behalf.
5.8 LACK OF LIQUIDITY. Purchaser understands that there is
no public market for the Notes or the Common Stock. Purchaser further
understands that even if a public market develops for any of the Company's
securities, Rule 144 (the "RULE") promulgated under the Securities Act limits
Purchaser's ability to sell any of the Company's securities owned by
Purchaser. Purchaser acknowledges that the Company may, if it desires, permit
the transfer of the Notes or shares of Common Stock issuable upon conversion
of the Notes out of its name only when its request for transfer is
accompanied by an opinion of counsel reasonably satisfactory to the Company
that neither the sale nor the proposed transfer results in a violation of the
Securities Act or any applicable state "blue sky" laws (collectively
"SECURITIES LAWS"). Purchaser agrees to hold the Company and its directors,
officers and controlling persons and their respective heirs, representatives,
successors and assigns harmless and to indemnify them against all
liabilities, costs and expenses incurred by them as a result of any
misrepresentation made by Purchaser contained herein or in the confidential
Purchaser Questionnaire or any sale or distribution by Purchaser in violation
of any Securities Laws. Purchaser acknowledges that at such time, if ever, as
any of the Notes or the shares of Common Stock issuable upon conversion of
the Notes are registered, sales of such securities will be subject to state
securities laws, including those of states which may require any securities
sold therein to be sold through a registered broker-dealer or in reliance
upon an exemption from registration.
5.9 LEGENDS; STOP TRANSFER ORDERS. Purchaser consents to
the placement of a legend on the Notes and on any certificate evidencing the
shares of Common Stock issuable upon conversion of the Notes as set forth in
Section 6 hereof. In addition, Purchaser consents to the entrance of stop
transfer orders with respect to the shares of Common Stock issuable upon
conversion of the Notes.
5.10 RIGHT TO REJECT SUBSCRIPTION. Purchaser understands
that the Company will review this Agreement and the confidential Purchaser
Questionnaire and is hereby given authority by the undersigned to call his
banks or place of employment or otherwise review the financial standing of
Purchaser; and it is further agreed that the Company reserves the
unrestricted right to reject or limit any subscription and to close the offer
at any time prior to the Closing Date of such subscription.
12
5.11 ADDRESS. Purchaser hereby represents that the address
of Purchaser furnished by him at the end of this Agreement is Purchaser's
principal residence if Purchaser is an individual or Purchaser's principal
business address if it is a corporation or other entity.
5.12 NO OTHER REPRESENTATIONS. Purchaser hereby represents
that, except as set forth herein, no representations or warranties have been
made to the Purchaser by the Company or any agent, employee or affiliate of
the Company and in entering into this transaction, Purchaser is not relying
on any information, other than that contained herein and the results of
independent investigation by the Purchaser.
5.13 PURPOSE. If Purchaser is a partnership, corporation,
trust or other entity, it was not formed for the purpose of investing in the
Company.
5.14 NO BROKER. There is no firm, corporation, agency or
other entity or person that is entitled to a finder's fee or any type of
commission in relation to or in connection with the transactions contemplated
by this Agreement as a result of any agreement or understanding with
Purchaser or any of its directors, officers, employees or agents.
SECTION 6. LEGENDS.
6.1. NOTES. The Notes shall be endorsed with the
following legend:
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND
MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") SHALL
HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (II) RECEIPT BY
THE COMPANY AT THE COMPANY'S SOLE COST AND EXPENSE OF AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER AND THAT SUCH ISSUANCE
IS NOT VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS
LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR
THIS NOTE.
6.2. COMMON STOCK. Until such time as the shares of Common
Stock issuable upon conversion of the Notes are registered under the
Securities Act, the Company shall instruct its transfer agent to enter stop
transfer orders with respect to such shares and the certificates representing
such shares shall be endorsed with the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE "BLUE SKY" OR SECURITIES LAWS OF
13
ANY STATE AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, HYPOTHECATED, DISTRIBUTED OR OTHERWISE
DISPOSED OF UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SALE OR AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENT IS AVAILABLE, AND IF AN
EXEMPTION SHALL BE AVAILABLE, THE COMPANY RECEIVES AN OPINION
OF COUNSEL AT ITS SOLE COST AND EXPENSE STATING THAT SUCH
OFFER, SALE, TRANSFER, ASSIGNMENT, PLEDGE, HYPOTHECATION,
DISTRIBUTION OR OTHER DISPOSITION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT. THE RESTRICTIONS CONTAINED HEREIN ARE BINDING ON THE
HOLDER HEREOF AND HIS SUCCESSORS AND ASSIGNS."
SECTION 7. COVENANTS OF THE COMPANY.
7.1 RESTRICTED PAYMENTS; LIMITATION ON INCURRENCE OF
INDEBTEDNESS. At any time after July 31, 2000 and so long as Notes in the
aggregate principal amount of $500,000 or more shall be outstanding:
(a) the Company shall not make any principal payment on, or
redemption, repurchase, defeasance or other acquisition or retirement for
value, prior to scheduled principal payment or maturity, of any indebtedness
of the Company that is PARI PASSU with or subordinate in right of payment to
the Notes or any deposit with respect to the foregoing; PROVIDED, HOWEVER,
that this subparagraph (a) of subsection 7.1 shall not apply to any principal
payment or redemption of such indebtedness prior to maturity (i) pursuant to
a refinancing of such indebtedness on substantially similar terms or terms
more favorable to the Company, or (ii) pursuant to a conversion into, or out
of proceeds of a substantially concurrent issue or sale of, Common Stock; and
(b) the Company shall not create or suffer to exist or
permit any of its subsidiaries to create or suffer to exist any indebtedness,
deferred purchase price obligation or obligations under direct or indirect
guaranties of indebtedness except for the Notes.
7.2 DELIVERY OF FINANCIAL STATEMENTS AND REPORTS. The
Company shall deliver to each Purchaser :
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year, a balance sheet of the Company
as of the end of such year, and an income statement and statement of cash
flow for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with GAAP and audited and certified by an
independent public accountant;
14
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each fiscal quarter, a balance sheet of
the Company as of the end of such quarter, and an income statement and
statement of cash flows for such quarter, each to be in reasonable detail,
prepared in accordance with GAAP;
(c) with respect to the balance sheet, income statement,
and statement of cash flows called for in subsection (b) of this Section 7.2,
an instrument executed by the Chief Financial Officer or President of the
Company certifying that such financial statements were prepared in accordance
with GAAP consistently applied with prior practice for earlier periods and
fairly present the financial condition of the Company and its results of
operations for the period specified, subject to normal year-end audit
adjustment in the case of quarterly financial statements;
(d) a budget and operating plan of the Company for the
Company's upcoming fiscal year at least 45 days prior to the start of each
fiscal year;
(e) copies of all reports sent to stockholders or filed
with the Securities Exchange Commission;
(f) prompt written notification of all material pending or
actual litigation to which the Company is or is anticipated to be a party; and
(g) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as a
Purchaser may from time to time reasonably request; PROVIDED, HOWEVER, that
the Company shall not be obligated to provide any information that it
reasonably considers to be a trade secret, the disclosure of which the
Company reasonably believes may adversely affect its business.
7.3INSPECTION RIGHTS. The Company shall permit each
Purchaser or a representative of any such Purchaser, to visit and inspect the
Company's properties, to examine its books of account and records, and to
discuss the Company's affairs, finances, and accounts with its officers, all
at such reasonable times as may be requested by such representatives.
7.4 REGULAR COURSE OF BUSINESS. The Company will operate
its business in accordance with the reasonable judgment of its management
diligently and in good faith, and the Company will continue to use its
reasonable efforts to keep available the services of present officers and
employees (other than planned retirements) and to preserve its present
relationships with persons having business dealings with it.
7.5 ASSETS. The assets, property, and rights now owned by
the Company will be used, preserved, and maintained, as far as practicable,
in the ordinary course of business, to the same extent and in the same
condition as said assets, property, and rights are on the date of this
Agreement, and no unusual or novel methods of manufacture, purchase, sale,
management, or operation of said properties or business or accumulation or
valuation of inventory will be made or instituted. Without the prior consent
of Purchaser, the Company will not encumber any
15
of its assets or make any commitments relating to such assets, property, or
business, except in the ordinary course of its business.
7.6 TAXES. The Company shall cause all of its tax returns,
schedules and filings to be timely (including any lawful extensions) filed
and all amounts shown to be due thereon to be fully paid, including any
deficiencies, penalties or other charges thereafter arising. The Company has
not filed, and will not file on or before the Closing Date, any election
under Section 338(h)(10) or consent under Section 341(f) of the Internal
Revenue Code.
7.7 INSURANCE. The Company will continue to carry its
existing insurance, subject to variation in amounts required by the ordinary
operations of its business. At the request of Purchaser and at the Company's
sole expense, the amount of insurance against fire and other casualties
which, at the date of this agreement, the Company carries on any of its
properties or in respect of its operations shall be increased by such amount
or amounts as Purchaser shall reasonably specify.
7.8 NO VIOLATIONS. The Company will comply in all material
respects with all statutes, laws, ordinances, rules, and regulations
applicable to it in the ordinary course of business.
7.9 PUBLIC ANNOUNCEMENTS. No press release or other
announcement to the employees, customers, or suppliers of the Company related
to this Agreement or this purchase will be issued without the joint approval
of the parties mentioned or referred to in such press release or
announcement, which approval shall not be unreasonably withheld or delayed,
unless required by law, in which case Purchasers and the Company will consult
with each other regarding the announcement.
7.10 CORPORATE EXISTENCE. The Company shall at all times
maintain its corporate existence in good standing in the jurisdiction of its
formation, and shall qualify to do business in all jurisdictions in which the
failure to so qualify would materially impair its ability to conduct business
in such jurisdictions. Until Conversion, the Company shall not revise, alter,
or restate its articles or certificate of incorporation or bylaws without the
prior written consent of the Purchasers of a majority of the then outstanding
principal amount of Notes, which consent shall not be unreasonably withheld
or delayed; PROVIDED, HOWEVER that the Company shall be permitted to revise,
alter or restate its articles or certificate of incorporation without the
prior written consent of Purchasers to the extent of necessary to ensure that
the Company has a sufficient number of shares of Common Stock to issue upon
the conversion of the Notes or otherwise necessary to offer any shares of, or
securities convertible into or exercisable for any shares of, Common Stock.
7.11 RULE 144. If the Company files a registration
statement pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934 (the "EXCHANGE ACT") and/or pursuant to the requirements
of the Securities Act, it will file all reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission (the "COMMISSION")
thereunder. The Company will take
16
such further action as Purchaser may reasonably request to the extent
required from time to time to enable Purchaser to sell the shares of Common
Stock issuable upon conversion of the Notes without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rules
144 and 144A under the Securities Act, as such Rules may be amended from time
to time, or (b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of Purchaser, the Company will deliver to
Purchaser a written statement as to whether it has complied with such
requirements.
7.12 RESERVE FOR CONVERSION OF SHARES. The Company shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of the
Notes and otherwise complying with the terms of this Agreement, such number
of its duly authorized shares of Common Stock as shall be sufficient to
effect the conversion of the Notes from time to time outstanding or otherwise
to comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the Notes or otherwise to comply with the terms of
this Agreement, without limitation on any remedies available to the
Purchaser, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes. The Company
will obtain any authorization, consent, approval or other action by or make
any filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Notes.
7.13 TRANSACTIONS WITH AFFILIATES. Except for agreements or
transactions contemplated by this Agreement or as otherwise approved by the
Company's Board of Directors (which shall include approval by a majority of
the directors of the Company without a direct or indirect interest in the
agreement or transaction if there are disinterested directors on the Board),
the Company shall not enter into any agreement or transaction with any
director, officer, employee or holder of more than 5% of the outstanding
capital stock of any class or series of capital stock of the Company, any
member of the family of any such person, or any corporation, partnership,
trust or other entity in which any such person, or member of the family of
any such person, is a director, officer, trustee, partner or holder of more
than 5% of the outstanding capital stock thereof, except for agreements or
transactions (i) entered into or consummated prior to the date hereof and
previously disclosed to Purchaser, (ii) which are nonmaterial and in the
ordinary course of business, (iii) on customary terms related to such
person's employment, or (iv) are no less favorable to the Company as would be
obtainable by the Company in an arms-length transaction with an independent
third party. For purposes hereof, an agreement or transaction shall be deemed
to be nonmaterial if it and all other agreements or transactions (excluding,
for this purpose, compensation under agreements relating to employment and
other compensation arrangements approved by the Company's Board of Directors)
between the Company and the person or entity in question during the fiscal
year do not involve an amount in excess of $20,000.
SECTION 8. PURCHASER COVENANTS.
17
8.1 CONFIDENTIALITY. Purchaser covenants and agrees that
none of Purchaser, its agents and representatives will use for their own
benefit, convey or disclose to any third party any information provided by
the Company concerning its current or proposed business, operations and
financial condition, other than information which is already publicly
available and to the extent required by law.
SECTION 9. CONDITIONS OF PURCHASERS' OBLIGATIONS TO CLOSE. The
obligations of each Purchaser under Section 3 of this Agreement are subject
to the fulfillment at or before the Closing of each of the following
conditions:
9.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of the Company contained in Section 4 hereof
shall be true when made and shall be true on and as of the Closing Date with
the same effect as though such representations had been made on and as of the
Closing Date.
9.2 PERFORMANCE. The Company shall have performed and
complied with all agreements and conditions contained herein required to be
performed and complied with by it on or before the Closing Date.
9.3 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be satisfactory in form and
substance to each Purchaser.
9.4 SHAREHOLDERS' AGREEMENT; CONTRIBUTION AND ASSUMPTION
AGREEMENT AND SECURITY Agreement. The Purchasers, the Company and certain
holders of the Company's Common Stock shall enter into a Shareholders'
Agreement in the form attached hereto as EXHIBIT G. The Company and certain
holders of the Company's Common Stock shall enter into a Contribution and
Assumption Agreement in the form attached hereto as EXHIBIT H. The Company
and the Purchasers shall enter into the Security Agreement.
9.5 PURCHASERS' RIGHTS AGREEMENT. The Purchasers and the
Company shall enter into a Purchasers' Rights Agreement in the form attached
hereto as EXHIBIT I.
9.6 CO-SALE AGREEMENT. Each officer, director or five
percent or greater holder of the Company shall enter into a Co-Sale Agreement
in the form attached hereto as EXHIBIT J.
9.7 BLUE SKY. The Company shall have obtained all necessary
Blue Sky law permits and qualifications, or secured an exemption therefrom,
required by any state for the offer and sale of the Notes, and the Common
Stock issuable upon conversion of the Notes.
9.8 LEGAL MATTERS. All matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby shall have
been approved by counsel to the Purchaser.
18
SECTION 10. CONDITIONS OF COMPANY'S OBLIGATIONS TO CLOSE. The
obligations of the Company under Section 3 of this Agreement are subject to
the fulfillment at or before the Closing of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of each of the Purchasers contained in Section
5 hereof shall be true when made and shall be true on and as of the Closing
Date with the same effect as though said representations and warranties had
been made on and as of the Closing Date.
10.2 PERFORMANCE. All matters of a legal nature which
pertain to this Agreement and the transactions contemplated hereby shall have
been approved by Company counsel.
SECTION 11. GENERAL PROVISIONS.
11.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS. The representations, warranties, covenants and agreements
contained in this Agreement shall survive the execution of this Agreement.
11.2 NOTICES. All notices, requests, demands and other
communications which are required to be or may be given under this Agreement
to any party by any of the other parties shall be in writing and shall be
deemed to have been duly given when (a) delivered in person, (b) the day
following dispatch by a nationally recognized overnight courier service (such
as Federal Express or UPS, etc.) for next day delivery or (c) five (5) days
after dispatch by certified or registered first class mail, postage prepaid,
return receipt requested, to the party to whom the same is so given or made.
Any notice or other communication given hereunder shall be addressed to the
Company, at its principal offices as set forth above or to the Purchaser at
his address indicated on the signature page hereto.
11.3 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
11.4 HEADINGS. All headings are inserted for convenience of
reference only and shall not affect the meaning or interpretation of any such
provisions or of this Agreement, taken as an entirety.
11.5 SEVERABILITY. If and to the extent that any court of
competent jurisdiction holds any provision (or any part thereof) of this
Agreement to be invalid or unenforceable, such holding shall in no way affect
the validity of the remainder of this Agreement.
11.6 CHANGES, WAIVERS, ETC. Subject to Section 11.13,
neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but rather
19
may only be changed by a statement in writing signed by the party against
which enforcement of the change, waiver, discharge or termination is sought.
It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any
subsequent breach by that same party.
11.7 EXPENSES. Each party hereto shall bear its own legal
and other expenses in connection with the preparation of this Agreement and
any other documents or certificates executed concurrently herewith and the
closing of the transactions contemplated hereby.
11.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. The parties
hereby agree that any dispute which may arise between them arising out of or
in connection with this Agreement shall be adjudicated before a court located
in Wilmington, Delaware and they hereby submit to the exclusive jurisdiction
of the courts of the State of Delaware located in Wilmington, Delaware and of
the federal courts in the State of Delaware with respect to any action or
legal proceeding commenced by any party, and irrevocably waive any objection
they now or hereafter may have respecting the venue of any such action or
proceeding brought in such a court or respecting the fact that such court is
an inconvenient forum, relating to or arising out of this Agreement or any
acts or omissions relating to the sale of the securities hereunder, and
consent to the service of process in any such action or legal proceeding by
means of registered or certified mail, return receipt requested, in care of
the address set forth below or such other address as the undersigned shall
furnish in writing to the other.
11.9 BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns.
11.10 INDEMNIFICATION. The Company agrees to indemnify and
hold harmless the Purchasers and their affiliates, and their respective
partners, officers, directors, representatives, employees and agents from and
against all losses, claims, damages and liabilities in connection with or
arising out of this Agreement or the Purchasers' Rights Agreement, Co-Sale
Agreement or the transactions contemplated hereby or thereby or in connection
with or arising out of any litigation, investigation or proceeding initiated
or brought by any third party (other than any affiliate, partner, officer,
director, agent, employee or representative of a Purchaser) relating hereto
or thereto, and to reimburse upon demand each of such indemnifiable parties
currently and from time to time for any reasonable legal or other expenses
incurred in connection with investigating or defending any of the foregoing;
provided that the foregoing indemnity shall not apply to any losses, claims,
damages, liabilities or related expenses to the extent a court of competent
jurisdiction shall have determined in a final judgment that is not subject to
further appeal that the foregoing shall have resulted primarily and directly
from the willful misconduct or gross negligence of such indemnifiable party.
11.11 ENTIRE AGREEMENT. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject
mater thereof and incorporates and supersedes all prior discussions,
agreements and understandings of any and every nature among them.
20
11.12 FURTHER ASSURANCES. The parties agree to execute and
deliver all such further documents, agreements and instruments and take such
other and further action as may be necessary or appropriate to carry out the
purposes and intent of this Agreement.
11.13 WAIVERS AND AMENDMENTS. With the written consent of
Purchasers holding a majority of the then outstanding principal amount of the
Notes, the obligations of the Company under this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), and with the same consent the Company may enter into a
supplementary agreement for the purpose of adding any provisions to this
Agreement or to any supplemental agreement or modifying in any manner the
rights and obligations of the holders of the Notes and of the Company;
PROVIDED, HOWEVER, that no such waiver or supplemental agreement shall reduce
the aforesaid percentage of holders of the Notes who are required to consent
to any waiver or supplemental agreement without the consent of all of the
holders of the Notes. Written notice of any such waiver, consent or agreement
of amendment, modification or supplement shall be given by the Company to
holders of the Notes who have not previously consented thereto in writing.
11.13 SUCCESSORS AND ASSIGNS. The terms and conditions of
this Subscription Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Subscription Agreement, except as expressly provided in this Subscription
Agreement. Neither this Subscription Agreement, nor its rights and
obligations hereunder can be assigned by the Company, and any such attempted
assignment will be void.
21
IN WITNESS WHEREOF, the parties hereto have executed this
Subscription Agreement as of the day and year first above written.
COMPANY:
COMPLIANCE1, INC.
By: /s/ Xxxxxx X. Xxxxxx
---------------------
Name: Xxxxxx X. Xxxxxx
Its: President
Address:
0000 Xxxxxxxxx Xxxxx Xxxx
Xxxxx 000
XxXxxx, Xxxxxxxx 00000
22
IN WITNESS WHEREOF, the parties hereto have executed this Subscription
Agreement as of the day and year first above written.
PURCHASER:
XXXXXXX HEALTHCARE, INC.
By: /s/ Xxxxxx X. Xxxxxxx, Xx.
---------------------------
Name: Xxxxxx X. Xxxxxxx, Xx.
Its: Chairman and Chief Executive Officer
Address: 000 Xxxxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
23
IN WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement
as of the day and year first above written.
PURCHASER:
XXXXXXX X. XXXXXXXXX SEP
By: /s/ Xxxxxxx X. Xxxxxxxxx
----------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Its: Owner
Address: Suite 3801
405 north Wabash
Xxxxxxx, XX 00000
24
IN WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement
as of the day and year first above written.
PURCHASER:
/s/ Xxxxxxx Xxxxxxxxx
-----------------------
XXXXXXX XXXXXXXXX
Address:
25
26
LIST OF EXHIBITS
SCHEDULE OF PURCHASERS EXHIBIT A
FORM OF 10% CONVERTIBLE SECURED NOTE EXHIBIT B
SECURITY AGREEMENT EXHIBIT C
CAPITALIZATION MILESTONES EXHIBIT D
CAPITALIZATION TABLE EXHIBIT E
PURCHASER QUESTIONNAIRE EXHIBIT F
SHAREHOLDERS' AGREEMENT EXHIBIT G
CONTRIBUTION AND ASSUMPTION AGREEMENT EXHIBIT H
PURCHASERS' RIGHTS AGREEMENT EXHIBIT I
CO-SALE AGREEMENT EXHIBIT J
27
EXHIBIT A
SCHEDULE OF PURCHASERS
NAME AGGREGATE PURCHASE PRICE
---- ------------------------
CLOSING
Xxxxxxx Healthcare, Inc. $300,000
Mr. and Mrs. Xxxxxxx Xxxxxxxxx $25,000
Xxxxxxx X. Xxxxxxxxx SEP $50,000
(as soon as possible after Closing)
SECOND CLOSING
Xxxxxxx Healthcare, Inc. $625,000
28
EXHIBIT B
FORM OF 10% CONVERTIBLE SECURED NOTE
BEGINS ON THE FOLLOWING PAGE
29
