EXHIBIT 10.3
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PLEASE PRINT:
NAME OF SUBSCRIBER: ____________________________________
SUBSCRIPTION AMOUNT: __________ UNITS
PRICE PER UNIT: $3.40
AGGREGATE PURCHASE PRICE: $________________
SUBSCRIPTION AGREEMENT
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This Subscription Agreement (this "Agreement") is being delivered to you
in connection with your investment in RedRoller Holdings, Inc., a Delaware
corporation (f/k/a Aslahan Enterprises Ltd.) whose shares of common stock, par
value $0.001 per share (the "Common Stock"), are currently quoted on the NASD's
Over The Counter Bulletin Board under the symbol "RROL.OB" ("Pubco"), a
wholly-owned subsidiary of which will acquire by merger (the "Merger") all of
the issued and outstanding capital stock and the business of RedRoller, Inc., a
Delaware corporation ("RedRoller"). Pubco is conducting a private placement (the
"Offering") of units (the "Units"), at a purchase price of $3.40 per Unit. Each
Unit shall consist of (i) four shares (the "Shares") of Common Stock and (ii) a
warrant to purchase one share of Common Stock at an initial exercise price of
$1.28 per share exercisable for 60 months after the closing of the Merger (the
"Warrant").
All funds received in the Offering prior to the Closing (as defined below)
shall be held in escrow by U.S. Bank N.A. (the "Escrow Agent") and, upon
fulfillment of the other conditions precedent set forth herein, shall be
released from escrow and delivered to Pubco, at which time certificates for the
shares of Common Stock and the Warrants underlying the Units subscribed for
shall be delivered, subject to Section 6 hereof and as further described below,
to you.
1. SUBSCRIPTION AND PURCHASE PRICE
(a) Subscription. Subject to the conditions set forth in Section 2 hereof,
the undersigned (the "Investor" and, together with the other purchasers of
Units, the "Investors") hereby subscribes for and agrees to purchase the number
of Units indicated above on the terms and conditions described herein. The
minimum number of Units that may be purchased is 29,412. Subscriptions for
lesser amounts may be accepted at the discretion of Pubco. This Agreement
together with the Confidential Investor Questionnaire attached hereto as Exhibit
A are collectively referred to as the "Subscription Documents." The Subscription
Documents together with the Registration Rights Agreement attached hereto as
Exhibit B and the Warrant are collectively referred to as the "Transaction
Documents."
(b) Purchase of Units. The Investor understands and acknowledges that the
purchase price to be remitted to Pubco in exchange for the Units shall be $3.40
per Unit, for an aggregate purchase price as set forth on Page 18 hereof (the
"Aggregate Purchase Price"). The Investor's delivery of this Agreement to Pubco
shall be accompanied by payment, to the Escrow Agent, of the Aggregate Purchase
Price, payable in United States dollars, by wire transfer of immediately
available funds. The Investor understands and agrees that, subject to Section 2
hereof and applicable laws, by executing this Agreement, he, she or it is
entering into a binding agreement.
2. ACCEPTANCE, OFFERING TERM AND CLOSING PROCEDURES
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(a) Acceptance or Rejection. The obligation of the Investor to purchase
the Units shall, subject to the investor accreditation process, applicable
securities laws and the closing conditions contained in Section 6 hereof, be
irrevocable and the Investor shall be legally bound to purchase the Units
subject to the terms set forth in this Agreement. The Investor understands and
agrees that Pubco reserves the right to reject this subscription for Units in
whole or in part in any order at any time prior to the Closing if, in its
reasonable judgment, it deems such action to be in the best interest of Pubco,
notwithstanding the Investor's prior receipt of notice of acceptance of the
Investor's subscription. In the event of rejection of this subscription by Pubco
in accordance with this Section 2, or the sale of the Units is not consummated
by Pubco for any reason, this Agreement and any other agreement entered into
between the Investor and Pubco relating to the Investor's subscription for Units
shall thereafter have no force or effect, and Pubco shall promptly return or
cause to be returned to the Investor the Aggregate Purchase Price remitted to
the Escrow Agent, without interest thereon or deduction therefrom.
(b) Closing/Offering Term. The subscription period for the Offering will
begin as of October 17, 2007. The closing of the Offering (the "Closing") will
occur upon the later of: (i) receipt of acceptable subscriptions equal to
$6,000,000 (or 1,764,706 Units) or (ii) the closing of the Merger. The Offering
will terminate on October 31, 2007, unless extended without notice by Pubco and
the placement agent (the "Placement Agent") for the Offering for no more than
two 30 day periods thereafter. If Pubco elects to extend the Offering period
beyond October 31, 2007 and subscriptions for at least 1,764,706 Units have not
been received and accepted by Pubco or the closing of the Merger has not
occurred by such date, Pubco shall provide all prospective subscribers notice of
its intention to so extend the offer and provide such subscribers with the
opportunity to have all of such subscriber's funds on deposit with the Escrow
Agent returned, without interest or deduction. The Closing of the Merger shall
be a condition to closing the Offering.
3. REPRESENTATIONS AND WARRANTIES
3.1 INVESTOR REPRESENTATIONS: The Investor hereby acknowledges, agrees
with and represents and warrants to Pubco, as follows:
(a) The Investor has full power and authority to enter into and deliver
this Agreement and to perform the obligations hereunder, and the execution,
delivery and performance of this Agreement has been duly authorized, if
applicable, and this Agreement constitutes a valid and legally binding
obligation of the Investor.
(b) The Investor acknowledges his, her or its understanding that the
offering and sale of the Shares and Warrants comprising the Units (the
"Underlying Securities") is intended to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section
4(2) of the Securities Act and the provisions of Regulation D promulgated
thereunder ("Regulation D"). In furtherance thereof, the Investor represents and
warrants to Pubco as follows:
(i) The Investor is acquiring the Underlying Securities solely for
the Investor's own beneficial account, for investment purposes, and not with
view to, or resale in connection with, any distribution of the Underlying
Securities, in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such Underlying
Securities in violation of the Securities Act or any applicable state securities
law and has no direct or indirect arrangement or understandings with any other
persons to distribute or regarding the distribution of the Underlying Securities
(this representation and warranty not limiting the Investor's right to sell the
Underlying Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws) in violation of
the Securities Act or any applicable state securities law.
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(ii) The Investor has the financial ability to bear the economic
risk of his, her or its investment, has adequate means for providing for its
current needs and contingencies, and has no need for liquidity with respect to
the investment in Pubco.
(iii) The Investor and the Investor's attorney, accountant,
purchaser representative and/or tax advisor, if any (collectively, "Advisors"),
have received, carefully reviewed and understand the information contained in
the Confidential Private Placement Memorandum, dated October 17, 2007, together
with all appendices and exhibits thereto (as such documents may be amended or
supplemented, the "Memorandum"), relating to the Offering.
(iv) The Investor (together with his, her or its Advisors, if any)
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of the prospective investment in the
Units. If other than an individual, the Investor also represents it has not been
organized solely for the purpose of acquiring the Units.
(c) The information in the Confidential Investor Questionnaire attached
hereto as Exhibit A and completed and executed by the Investor is true and
accurate in all respects, and the Investor is an "accredited investor," as that
term is defined in Rule 501(a) of Regulation D.
(d) The Investor is not relying on Pubco or its affiliates or agents with
respect to economic considerations involved in this investment. The Investor has
relied on the advice of, or has consulted with, only his, her or its Advisors.
Each Advisor, if any, is capable of evaluating the merits and risks of an
investment in the Units as such are described in the Memorandum, and each
Advisor, if any, has disclosed to the Investor in writing (a copy of which is
annexed to this Agreement) the specific details of any and all past, present or
future relationships, actual or contemplated, between the Advisor and the
Placement Agent or any affiliate or sub-agent thereof.
(e) The Investor represents, warrants and agrees that he, she or it will
not sell or otherwise transfer the Underlying Securities without registration
under the Securities Act or an exemption therefrom, and fully understands and
agrees that the Investor must bear the economic risk of his, her or its purchase
because, among other reasons, the Underlying Securities have not been registered
under the Securities Act or under the securities laws of any state and,
therefore, cannot be resold, pledged, assigned or otherwise disposed of unless
they are subsequently registered under the Securities Act and under the
applicable securities laws of such states, or an exemption from such
registration is available. In particular, the Investor is aware that the
Underlying Securities are "restricted securities," as such term is defined in
Rule 144 promulgated under the Securities Act ("Rule 144"), and they may not be
sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
Investor also understands that, except as otherwise provided in Section 4
hereof, Pubco is under no obligation to register the Underlying Securities on
his, her or its behalf or to assist them in complying with any exemption from
registration under the Securities Act or applicable state securities laws. The
Investor understands that any sales or transfers of the Underlying Securities
are further restricted by state securities laws and the provisions of this
Agreement.
(f) The Investor understands and agrees that the certificates for the
Underlying Securities shall bear substantially the following legend until (i)
the Shares shall have been registered under the Securities Act and effectively
disposed of in accordance with a registration statement that has been declared
effective or (ii) in the opinion of counsel for Pubco, the Shares may be sold
without registration under the Securities Act, as well as any applicable "blue
sky" or state securities laws:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE
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SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON
[EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that the Investor may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Underlying Securities to a
financial institution that is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and the Registration Rights Agreement and, if required under the terms
of such arrangement, the Investor may transfer pledged or secured Underlying
Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At the
Investor's expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Underlying Securities may
reasonably request in connection with a pledge or transfer of the Underlying
Securities, including, if the Underlying Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) under the Securities Act or
other applicable provision of the Securities Act.
(g) No representations or warranties have been made to the Investor by
Pubco or RedRoller, or any of their respective officers, employees, agents,
sub-agents, affiliates or subsidiaries, other than any representations of Pubco
or RedRoller contained in the Memorandum or this Agreement, and in subscribing
for the Units the Investor is not relying upon any representations other than
those contained in the Memorandum or this Agreement.
(h) The Investor understands and acknowledges that his, her or its
purchase of the Units is a speculative investment that involves a high degree of
risk and the potential loss of the Investor's entire investment and has
carefully read and considered the matters set forth in the Memorandum, in
particular the matters discussed in the Section contained therein entitled "RISK
FACTORS," and, in particular, acknowledges that Pubco has a limited operating
history and, subsequent to the Merger, will be engaged in a highly-competitive
business sector.
(i) The Investor's overall commitment to investments that are not readily
marketable is not disproportionate to the Investor's net worth, and an
investment in the Units will not cause such overall commitment to become
excessive.
(j) Neither the U.S. Securities and Exchange Commission (the "SEC") nor
any state securities commission has approved the Underlying Securities or passed
upon or endorsed the merits of the Offering or confirmed the accuracy or
determined the adequacy of the Memorandum. The Memorandum has not been reviewed
by any federal, state or other regulatory authority. Any representation to the
contrary is a crime.
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(k) The Investor and his, her or its Advisors, if any, have had a
reasonable opportunity to ask questions of and receive answers from a person or
persons acting on behalf of Pubco and XxxXxxxxx concerning the offering of the
Units and the business, financial condition, results of operations and prospects
of Pubco and XxxXxxxxx, and all such questions have been answered to the full
satisfaction of the Investor and his, her or its Advisors, if any.
(l) The Investor is unaware of, is in no way relying on, and did not
become aware of the offering of the Units through or as a result of, any form of
general solicitation or general advertising including, without limitation, any
article, notice, advertisement or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
electronic mail over the Internet, in connection with the offering and sale of
the Units and is not subscribing for Units and did not become aware of the
offering of the Units through or as a result of any seminar or meeting to which
the Investor was invited by, or any solicitation of a subscription by, a person
not previously known to the Investor in connection with investments in
securities generally.
(m) The Investor has taken no action which would give rise to any claim by
any person for brokerage commissions, finders, fees or the like relating to this
Agreement or the transactions contemplated hereby (other than commissions to be
paid by Xxxxx and RedRoller to the Placement Agent, its sub-agents or as
otherwise described in the Memorandum).
(n) The Investor is not relying on Pubco, RedRoller, the Placement Agent,
or any of their respective employees, agents or sub-agents with respect to the
legal, tax, economic and related considerations of an investment in the Units,
and the Investor has relied on the advice of, or has consulted with, only his,
her or its own Advisors.
(o) The Investor acknowledges that any estimates or forward-looking
statements or projections included in the Memorandum were prepared by the future
management of Pubco in good faith, but that the attainment of any such
projections, estimates or forward-looking statements cannot be guaranteed by
Pubco, RedRoller or their respective management and should not be relied upon.
(p) No oral or written representations have been made, or oral or written
information furnished, to the Investor or his, her or its Advisors, if any, in
connection with the offering of the Units which are in any way inconsistent with
the information contained in the Memorandum.
(q) The Investor's substantive relationship with the Placement Agent or
sub-agents through which the Investor is subscribing for Units predates the
Placement Agent's or such sub-agents' contact with the Investor regarding an
investment in the Units.
(r) (For ERISA plans only) The fiduciary of the ERISA plan (the "Plan")
represents that such fiduciary has been informed of and understands Pubco's
investment objectives, policies and strategies, and that the decision to invest
"plan assets" (as such term is defined in ERISA) in Pubco is consistent with the
provisions of ERISA that require diversification of plan assets and impose other
fiduciary responsibilities. The subscriber or Plan fiduciary (a) is responsible
for the decision to invest in Pubco; (b) is independent of Pubco and any of its
affiliates; (c) is qualified to make such investment decision; and (d) in making
such decision, the subscriber or Plan fiduciary has not relied primarily on any
advice or recommendation of Pubco or any of its affiliates or its agents.
3.2 COMPANY REPRESENTATIONS: For purposes of this Section 3.2 the Company
shall mean Pubco after giving effect to the Merger and the closing of the
Offering. The Company hereby acknowledges, agrees with and represents and
warrants to the Investor, as follows:
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(a) RESERVED.
(b) The authorized capital stock of the Company consists of 225,000,000
shares of which 200,000,000 shares are designated Common Stock and 25,000,000
are designated as preferred stock. As of the closing of the Offering and the
Merger there will be 24,842,041 shares of Common Stock issued and outstanding,
2,622,382 shares of Common Stock underlying Warrants issued in connection with
the Offering and the warrants issued to the Placement Agent on connection with
the Offering, and 7,999,928 shares of Common Stock underlying stock options
granted to various employees, consultants and advisors of the Company. All
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and non-assessable. Other than (i) the Underlying Securities
issued in connection with the Offering and (ii) the stock options to purchase
shares of Common Stock issued in connection with the Offering to former holders
of stock options to purchase shares of RedRoller common stock, the Company has
not issued any other options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or entered into
any agreement giving any Person any right to subscribe for or acquire, any
shares of Common Stock, or securities or rights convertible or exchangeable into
shares of Common Stock. Except for customary adjustments as a result of stock
dividends, stock splits, combinations of shares, reorganizations,
recapitalizations, reclassifications or other similar events, there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any agreement providing rights to security holders) and the
issuance and sale of the Underlying Securities will not obligate the Company to
issue shares of Common Stock or other securities to any Person (other than the
investors in the Offering) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price
under such securities.
(c) The Units and Underlying Securities are duly authorized and, when
issued and paid for in accordance with the Transaction Documents, will be duly
and validly issued, fully paid and non-assessable, free and clear of all liens
and shall not be subject to preemptive or similar rights of stockholders (other
than those imposed by the investors in the Offering).
(d) The execution, delivery and performance of each of the Transaction
Documents has been duly and validly authorized by the Company and is a valid and
binding obligation of the Company, enforceable in accordance with its respective
terms, except to the extent that (a) the enforceability hereof or thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect and affecting the rights of creditors generally, (b)
the enforceability hereof or thereof is subject to general principles of equity;
or (c) the indemnification provisions hereof or thereof may be held to be
violative of public policy.
(e) The issuance, sale and delivery by the Company of the Underlying
Securities have been or will be prior to the Closing duly authorized by all
requisite corporate action of the Company. The Warrant Shares are duly reserved
for issuance upon exercise of the Warrants.
(f) Each of the Company and its subsidiaries has good and marketable title
to, or valid and enforceable leasehold estates in, all items of real and
personal property necessary to conduct its business (including, without
limitation, any real or personal property stated in the Subscription Documents
to be owned or leased by the Company and its subsidiaries), free and clear of
all liens, encumbrances, claims, security interests and defects of any nature
whatsoever, other than those set forth in the Subscription Documents, and liens
for taxes not yet due and payable. All of the leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee are in full force
and effect, and the Company is not in default with respect to any of the terms
or provisions of any of such leases or subleases, and no claim has been asserted
by
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anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease.
(g) There is no litigation or governmental proceeding pending or, to the
best of the Company's knowledge, threatened against, or involving the Company or
its subsidiaries or their properties or business, except as set forth in the
Subscription Documents. The Company is not a party to any order, writ,
injunction, judgment or decree of any court.
(h) Each of the Company and its subsidiaries is duly organized and is
validly existing as a corporation in good standing under its respective
jurisdiction of incorporation. Except for RedRoller and TSE and except as set
forth in the Subscription Documents, the Company does not own or control,
directly or indirectly, an interest in any other corporation, partnership,
trust, joint venture or other business entity. The Company owns 100% of the
outstanding capital stock of RedRoller. RedRoller owns 100% of the outstanding
capital stock of TSE. Each of the Company and its subsidiaries is duly qualified
or licensed and in good standing as a foreign corporation in each jurisdiction
in which the character of its operations requires such qualification or
licensing and where failure to so qualify would have a Company Material Adverse
Effect (as defined below). Each of the Company and its subsidiaries has all
requisite corporate power and authority, and all material and necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies (domestic and foreign) to
conduct its businesses (and proposed business), and each of the Company and its
subsidiaries is doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates and permits and all foreign, federal,
state and local laws, rules and regulations concerning the business in which it
is engaged, except where failure to so comply would not have a Company Material
Adverse Effect. The Company has all corporate power and authority to enter into
the Subscription Documents and to carry out the provisions and conditions hereof
and thereof and to issue, sell and deliver the Underlying Securities. No
consents, authorizations, approvals, or orders of, or registration,
qualification, declaration or filing with, any federal, state or local
governmental authority on the part of the Company is required in connection
herewith and therewith or to issue, sell and deliver the Underlying Securities,
other than registration or qualification, or taking such action to secure
exemption from such registration or qualification, of the Underlying Securities
under applicable state, federal or foreign securities laws. For purposes of this
Agreement, "Company Material Adverse Effect" means a material adverse effect on
the assets, business, condition (financial or otherwise), results of operations
or future prospects of the Company.
(i) Except as set forth in the Subscription Documents, each of the Company
and its subsidiaries is not in breach of, or in default under, any term or
provision of any indenture, mortgage, deed of trust, lease, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which it is a party or
by which it or any of its properties may be bound, except for any breach or
default that has not had or would not be reasonably likely to have a Company
Material Adverse Effect and excluding trade payables and purchase orders as
generally described in the Subscription Documents. Each of the Company and its
subsidiaries is not in violation of any provision of its charter or Bylaws or in
violation of any franchise, license, permit, judgment, decree or order, or in
violation of any statute, rule or regulation, except for the violation of
statutes, rules or regulations would not that would not be reasonably likely to
have a Company Material Adverse Effect. Neither the execution and delivery of
this Agreement and the Subscription Documents, nor the issuance and sale or
delivery of the Underlying Securities, nor the consummation of any of the
transactions contemplated herein or in the Subscription Documents, nor the
compliance by each of the Company and its subsidiaries with the terms and
provisions hereof or thereof, has conflicted with or will conflict with, or has
resulted in or will result in a breach of, any of the terms and provisions of,
or has constituted or will constitute a default under, or has resulted in or
will result in the creation or imposition
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of any lien, charge or encumbrance upon any property or assets of the Company
and its subsidiaries pursuant to the terms of any indenture, mortgage, deed of
trust, note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company or its subsidiaries may be bound or to which any
of the property or assets of the Company or its subsidiaries is subject except
where such default, lien, charge or encumbrance would not have a Company
Material Adverse Effect; nor will such action result in any violation of the
provisions of the charter or the Bylaws of each of the Company and its
subsidiaries or, assuming the due performance by the Placement Agent of its
obligations in connection with the Offering, any statute, order, rule or
regulation applicable to the Company or its subsidiaries of any court or of any
foreign, federal, state or other regulatory authority or other government body
having jurisdiction over each of the Company and its subsidiaries.
(j) Except as set forth on Schedule 3.2(j) hereto, neither the Company nor
any of its officers, directors, employees or stockholders has employed any
broker or finder in connection with the transactions contemplated by this
Agreement other than the Placement Agent and there are no claims for services in
the nature of a finder's or origination fee with respect to the sale of the
Underlying Securities.
(k) Each of the Company and its subsidiaries owns or possesses, free and
clear of all liens or encumbrances and rights thereto or therein by third
parties, the requisite licenses or other rights to use all trademarks, service
marks, copyrights, service names, trade names, patents, patent applications and
licenses necessary to conduct its business (including, without limitation, any
such license, patent or rights described in the Subscription Documents as being
owned or possessed by each of the Company and its subsidiaries) and there is no
claim or action by any person pertaining to, or proceeding, pending or to the
Company's knowledge, threatened, which challenges the rights of each of the
Company and its subsidiaries with respect to any trademarks, service marks,
copyrights, service names, trade names, patents, patent applications and
licenses used in the conduct of each of the Company's and its subsidiaries'
businesses (including, without limitation, any such licenses or rights described
in the Subscription Documents as being owned or possessed by each of the Company
and its subsidiaries); each of the Company's and its subsidiaries' current
products, services or processes do not infringe or will not infringe on the
patents currently held by any third party.
(l) Each of the Company and its subsidiaries is not under any obligation
to pay royalties or fees of any kind whatsoever to any third party with respect
to any trademarks, service marks, copyrights, service names, trade names,
patents, patent applications, licenses or technology it has developed, uses,
employs or intends to use or employ, other than to their respective licensors.
(m) Subject to the performance by the Placement Agent of its obligations
in connection with the Offering and the accuracy of the representations and
warranties made by the investors in the Offering in the Subscription Documents,
the Subscription Documents and the offer and sale of the Underlying Securities
comply, and will continue to comply, through the closing of the Offering with
the requirements of Rule 506 of Regulation D promulgated by the Commission
pursuant to the Underlying Securities Act and any other applicable federal and
state laws, rules, regulations and executive orders. Neither the Subscription
Documents nor any amendment or supplement thereto, nor any other documents
prepared by the Company in connection with the Offering contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All statements of
material facts in the Subscription Documents are true and correct as of the date
of the Subscription Documents and will be true and correct in all material
respects on the date of the closing of the Offering.
(n) RESERVED.
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(o) The financial statements of XxxXxxxxx included in the Memorandum
fairly present the financial position, results of operations, stockholders
equity and cash flows, in all material respects, of RedRoller at the respective
dates thereof and for the periods referred to therein.
(p) Neither the Company nor its subsidiaries, nor any of their respective
officers, directors, employees or agents, nor any other person acting on behalf
of the Company or its subsidiaries has, directly or indirectly, given or agreed
to give any money, gift or similar benefit (other than legal price concessions
to customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any
governmental agency or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or other
person who is or may be in a position to help or hinder the business of each of
the Company or its subsidiaries (or assist it in connection with any actual or
proposed transaction) which (A) might subject the Company and its subsidiaries
to any material damage or penalty in any civil, criminal or governmental
litigation or proceeding, or (B) if not given in the past, might have had a
Company Material Adverse Effect on the assets, business or operations of the
Company or its subsidiaries, or (C) if not continued in the future, might
adversely affect the assets, business or operations of the Company or its
subsidiaries in the future.
(q) Assuming (i) the accuracy of the information provided by the Investor
and the other investors in the Offering in the Subscription Documents and (ii)
that the Placement Agent has complied in all material respects with their
obligations under the Placement Agent Agreement, the offer and sale of the Units
pursuant to the terms of the Subscription Documents are exempt from the
registration requirements of the Securities Act and the rules and regulations
promulgated thereunder.
(r) When the Warrant Shares shall have been duly delivered to the
purchaser and payment shall have been made therefor, the purchasers shall have
good and marketable title to the Warrant Shares free and clear of all liens,
encumbrances and claims whatsoever and the Company shall have paid all taxes, if
any, in respect of the original issuance thereof.
(s) The Company understands that the representations and warranties set
forth in this Section 3.2 shall be deemed material and to have been relied upon
by the Investor. No representation or warranty by the Company in this Agreement,
and no written statement contained in any document, certificate or other writing
delivered by the Company to the Investor contains any untrue statement of
material fact or omits to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
(t) RESERVED.
(u) RESERVED.
(v) Except as set forth on Schedule 3.2(v) hereto, as of the date hereof,
the Company has no contractual liability or any other liability, whether
accrued, contingent, absolute, determined, indeterminable or otherwise, which
was not (i) reflected or reserved against in the financial statements of
RedRoller included in the Memorandum or (ii) incurred in the ordinary course of
business, consistent with past practice since its inception.
(w) To the best of Company's knowledge, since September 30, 2007, the
Company has not incurred any liabilities or obligations, direct or contingent,
not consistent with its past practices, or entered into any transaction not
consistent with its past practices, which is material to the business of the
Company, and, since the date of the Memorandum, except for the transactions
contemplated by or occurring in connection with the Merger and the Offering,
there has not been any change in the capital
9
stock of, or any incurrence of funded debt by, the Company, or any issuance of
options, warrants or other rights to purchase the capital stock of the Company,
or any adverse change or any development involving, so far as the Company can
now reasonably foresee, a prospective adverse change in the condition (financial
or otherwise), net worth, results of operations, business, key personnel or
properties which would be material to the business or financial condition of the
Company, and the Company has not become a party to, and neither the business nor
the property of the Company has become the subject of, any material litigation
whether or not in the ordinary course of business.
(x) The Company has filed all Federal, State, local and foreign tax
returns, if any, which are required to be filed by it to the relevant agencies
and all such returns are true and correct in all material respects except as the
Company has paid all taxes pursuant to such returns or pursuant to any
assessments received by it or which it is obligated to withhold from amounts
owing to any employee, creditor or third party. The Company has properly accrued
all taxes required to be accrued by generally accepted accounting principals
consistently applied. To the best of current management's knowledge, the tax
returns of the Company have never been audited by any state, local or Federal
authorities. The Company has not waived any statute of limitations with respect
to taxes or agreed to any extension of time with respect to any tax assessment
or deficiency.
(y) Except with respect to holders of the Units, no person has any right
to cause the Company to effect the registration under the Securities Act of any
securities of the Company. The Company shall grant registration rights under the
Securities Act to the investors in the Offering and/or their transferees as more
fully described in the Registration Rights Agreement attached hereto as Exhibit
B (the "Registration Rights Agreement"). No person, firm or other business
entity is a party to any agreement, contract or understanding, written or oral
entitling such party to a right of first refusal with respect to offerings by
the Company.
(z) Except as described in Schedule 3.2(z), there is no control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
charter documents or the laws of its state of incorporation ("Takeover
Protections") that is or could become applicable to any of the investors in the
Offering as a result of such investors and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including, without limitation, as a result of the Company's issuance of the
Underlying Securities and the investors' ownership of the Underlying Securities.
(aa) The Company and its subsidiaries own, or possess adequate rights or
licenses to use, all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights ("Intellectual Property Rights") necessary to
conduct their respective businesses as presently conducted. There is no current
claim, action or proceeding, or to the knowledge of the Company, being
threatened or brought, against the Company or any of its subsidiaries regarding
its Intellectual Property Rights. The Company is unaware of any facts or
circumstances, which might give rise to any of the foregoing infringements or
claims, actions or proceedings. The Company and its subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights. None of the Company's Intellectual
Property Rights have expired, terminated or have been abandoned, or are expected
to expire or terminate without renewal, or be abandoned, within three years from
the date of this Agreement, except for such expirations or terminations without
renewal, or abandonments, in either case which would not, individually or in the
aggregate have a Company Material Adverse Effect.
(bb) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the
10
businesses and location in which the Company and the subsidiaries are engaged.
Neither the Company nor any Subsidiary has any knowledge that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(cc) None of the officers, directors or employees of the Company is a
party to any transaction that would be required to be reported on Form 10-KSB
with the Company or any of its subsidiaries (other than for ordinary course
services as employees, officers or directors), including any contract, agreement
or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
Company's knowledge, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
(dd) The Company is in compliance with applicable requirements of the
Xxxxxxxx-Xxxxx Act of 2002 and applicable rules and regulations promulgated by
the SEC thereunder, except where such noncompliance would not have, individually
or in the aggregate, a Company Material Adverse Effect.
(ee) RESERVED.
(ff) RESERVED.
(gg) Except as set forth on Schedule 3.2 (gg) hereto, neither the Company
nor any of its subsidiaries (i) has any outstanding Indebtedness (as defined
below), (ii) is in violation of any term of or in default under any contract,
agreement or instrument relating to any Indebtedness, except where such
violations and defaults would not result, individually or in the aggregate, in a
Company Material Adverse Effect, or (iii) is a party to any contract, agreement
or instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company's officers, has or is expected to have a Company
Material Adverse Effect. Schedule 3.2(gg) provides a detailed description of the
material terms of any such outstanding Indebtedness. For purposes of this
Agreement: (x) "Indebtedness" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such
11
liability will be paid or discharged, or that any agreements relating thereto
will be complied with, or that the holders of such liability will be protected
(in whole or in part) against loss with respect thereto; and (z) "Person" means
an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(hh) Neither Company nor any of its subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The Company
and its subsidiaries believe that their relations with their employees are good.
No executive officer of the Company or any of its subsidiaries (as defined in
Rule 501(f) of the Securities Act) has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer's employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its subsidiaries, to
the knowledge of the Company or any such Subsidiary, is now, or expects to be,
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract, agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any
such Subsidiary to any liability with respect to any of the foregoing matters.
The Company and its subsidiaries are in compliance with all federal, state,
local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. There are no material complaints or charges against the
Company or its subsidiaries pending or, to the knowledge of the Company and its
subsidiaries, threatened to be filed with any Governmental Authority or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment by the Company or its
subsidiaries of any individual.
(ii) The Company and its subsidiaries (i) are in compliance with any and
all Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each of
the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Company
Material Adverse Effect. The term "Environmental Laws" means all federal, state,
local or foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
4. REGISTRATION RIGHTS
The Investor shall have registration rights with respect to the Shares
issued and held of record by the Investor and the shares of Common Stock
underlying the Warrants, as set forth in greater detail in the Registration
Rights Agreement.
5. XXXXXXX XXXXXXX PROHIBITION; INDEMNITY; ESCROW RELEASE
(a) The Company shall, by 8:30 a.m. (New York City time) on the day
following the Closing, issue a Current Report on Form 8-K disclosing the
material terms of the transactions
12
contemplated hereby and attaching the Transaction Documents as exhibits thereto.
Until the filing by Pubco of a current report on Form 8-K with the SEC
describing the Merger and the Offering, the Investor hereby agrees to (i)
refrain from (A) engaging in any transactions with respect to the capital stock
of Pubco or securities exercisable or convertible into or exchangeable for any
shares of capital stock of Pubco, and (B) entering into any transaction which
would have the same effect, or entering into any swap, hedge or other
arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of the capital stock of Pubco and (ii) indemnify and
hold harmless Pubco, the Placement Agent, and their respective officers and
directors, employees, agents, sub-agents and affiliates and each other Person,
if any, who controls any of the foregoing, against any loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any violation of this Section 5 by the Investor.
(b) The Investor agrees to indemnify and hold harmless Pubco, the
Placement Agent, the Escrow Agent and their respective officers and directors,
employees, agents, sub-agents and affiliates and each other Person, if any, who
controls any of the foregoing, against any loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation commenced or threatened or any claim whatsoever) arising out of
or based upon any false representation or warranty by the Investor, or the
Investor's breach of, or failure to comply with, any covenant or agreement made
by the Investor herein or in any other document furnished by the Investor to
Pubco, the Placement Agent, the Escrow Agent and their respective officers and
directors, employees, agents, sub-agents and affiliates and each other Person,
if any, who controls any of the foregoing in connection with the Offering.
(c) The subscriber acknowledges that the Placement Agent may act on behalf
of the subscribers, solely for the sake of convenience, in connection with
confirmation to the Escrow Agent that the Closing has occurred and thereby
direct the Escrow Agent to disburse the subscription funds held in escrow to
Pubco at such time.
6. CONDITIONS TO ACCEPTANCE OF SUBSCRIPTION
Pubco's right to accept the subscription of the Investor is conditioned
upon satisfaction of the following conditions precedent on or before the date
Pubco accepts such subscription (any or all of which may be waived by the
Investor in his, her or its sole discretion):
(a) On the date of the Closing, no legal action, suit or proceeding shall
be pending which seeks to restrain or prohibit the transactions contemplated by
this Agreement.
(b) The closing of the Merger shall occur concurrently with or prior to
the acceptance of this subscription.
7. NOTICES TO SUBSCRIBERS
(a) THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH LAWS. THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SEC, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR
HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
13
(b) THE UNDERLYING SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT, AND APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. SUBSCRIBERS SHOULD BE AWARE
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
(c) THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS OFFERING HAS
NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL, UNLESS THE SALE OF THE SECURITIES IS EXEMPT FROM QUALIFICATION BY
SECTION 25000, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF
ALL PARTIES ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
8. INDEMNIFICATION
8.1 The Company agrees to indemnify and hold harmless the Investor, its
directors, officers and employees, and each other person or entity, if any, who
controls the Investor (within the meaning of Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (each a "Company Indemnified Person"), from and against, and the Company
agrees that no Indemnified Person shall have any liability to the Company or its
owners, parents, affiliates, securityholders or creditors for, any losses,
claims, damages, liabilities or expenses (including actions, claims or
proceedings in respect thereof brought by or against any person, including
stockholders of the Company, and the cost of any investigation and preparation
therefore and defense thereof) (collectively, "Investor Losses") related to or
arising out of or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or (ii) any
breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents.
8.2 The Investor agrees to indemnify and hold harmless the Company, its
directors, officers and employees, and each other person or entity, if any, who
controls the Company (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) (collectively, "Investor Indemnified Persons
and, together with the Company Indemnified Persons, the "Indemnified Persons"),
from and against, and the Investor agrees that no Investor Indemnified Person
shall have any liability to the Investor or its owners, parents, affiliates,
securityholders or creditors for any for, any losses, claims, damages,
liabilities or expenses (including actions, claims or proceedings in respect
thereof) brought by or against any person, and the cost of any investigation and
preparation therefore and defense thereof (collectively, "Company Losses" and,
together with the Investor Losses, "Losses") arising out of or relating to any
misrepresentation or breach of any representation or warranty made by the
Investor to the Company in the Transaction Documents. The maximum aggregate
payment that the Investor shall be liable to pay out hereunder in respect of
indemnification of the Investor Indemnified Persons shall be limited, in the
aggregate, to the Aggregate Purchase Price.
8.3 Promptly after receipt by an Indemnified Person (each an "indemnified
party") under this Section 8 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify in writing the indemnifying
party of the commencement thereof, however, that no delay on the part of the
indemnified party in notifying the indemnifying party shall relieve the
indemnifying party from any obligation hereunder unless the indemnifying party
is prejudiced by such delay. In case any such action is brought
14
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent that it may wish, jointly with any other indemnifying
party, similarly notified, to assume the defense thereof, with counsel who shall
be to the reasonable satisfaction of such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that
if, in the reasonable judgment of the indemnified party, it is advisable for the
indemnified party to be represented by separate counsel, the indemnified party
shall have the right to employ a single counsel only to represent the
indemnified parties who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the indemnified parties thereof
against the indemnifying party, in which event the fees and expenses of such
separate counsel shall be borne by the indemnifying party. Any such indemnifying
party shall not be liable to any such indemnified party on account of any
settlement of any claim or action effected without the consent of such
indemnifying party.
If such an indemnity provided for in this Agreement is unavailable or
insufficient for any Indemnified Person with respect to any Losses (other than
by reason of the gross negligence or bad faith of such indemnifying party), then
the indemnifying party, in lieu of indemnifying such Indemnified Person, will
contribute to the amount paid or payable by such Indemnified Person as a result
of such Losses (i) in such proportion as it is appropriate to reflect the
relative benefits received by the Company on the one hand, and the Investor, on
the other hand, from the transactions contemplated hereunder (the
"Transactions"), or (ii) if the allocation provided by (i) above is not
permitted by applicable law in such proportion as is appropriate to reflect not
only the relative benefits referred to in (i) above, but also the relative fault
on the Company, on the one hand, and of the Investor on the other hand in
connection with statements or omissions that resulted in Losses as well as any
other relevant equitable considerations.
The Company and the Investor agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
THE INVESTOR XXXXXX AGREES AND THE COMPANY HEREBY AGREES, ON ITS OWN BEHALF AND
ON BEHALF OF ITS SECURITYHOLDERS, TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY CLAIM, COUNTER-CLAIM OR ACTION ARISING OUT OF THIS AGREEMENT.
9. PUBCO COVENANTS
(a) Furnishing of Information. Until the earliest of the time that (i) the
requirements of Rule 144(k) have been met with respect to the Underlying
Securities or (ii) the Warrants have expired, Pubco covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by Pubco after the date hereof pursuant
to the Exchange Act even if Pubco is not then subject to the reporting
requirements of the Exchange Act. Until the requirements of Rule 144(k) have
been met with respect to the Underlying Securities, if Pubco is not required to
file reports pursuant to the Exchange Act, it will prepare and furnish to the
Investor and make publicly available in accordance with Rule 144(c) such
information as is required for the Investor to sell the Underlying Securities
under Rule 144. Pubco further covenants that it will take such further action as
the Investor may reasonably request, to the extent required from time to time to
enable the Investor to sell such Underlying Securities without registration
under the Securities Act within the requirements of the exemption provided by
Rule 144 thereunder.
15
(b) Integration. Pubco shall not sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any Security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Underlying Securities to the Investor in a manner that would require the
registration under the Securities Act of the sale of the Underlying Securities
to the Investor or that would be integrated with the offer or sale of the
Underlying Securities for purposes of the rules and regulations of any Trading
Market.
(c) Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, Pubco
covenants and agrees that neither it nor any other person acting on its behalf
will provide the Investor or its agents or counsel with any information that
Pubco believes constitutes material non-public information, unless prior thereto
the Investor shall have executed a written agreement regarding the
confidentiality and use of such information. Xxxxx understands and confirms that
the Investor shall be relying on the foregoing covenant in effecting
transactions in securities of Pubco.
(d) Use of Proceeds. Pubco shall use the net proceeds from the sale of the
Units hereunder for working capital purposes and shall not use such proceeds for
(a) the satisfaction of any portion of Pubco's debt (other than payment of trade
payables in the ordinary course of Pubco's business and prior practices), (b)
the redemption of any shares of Common Stock or Common Stock equivalents or (c)
the settlement of any outstanding litigation.
(e) Subsequent Equity Sales. From the date hereof until 60 days after the
Effective Date, neither the Company nor any subsidiary thereof shall issue
shares of Common Stock or Common Stock Equivalents; provided, however, that the
60 day period set forth in this Section 9(e) shall be extended for the number of
Trading Days during such period in which (i) trading in the Common Stock is
suspended by any Trading Market, or (ii) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Investor for the resale of the
Shares and the shares of Common Stock issuable upon exercise of the Warrants.
(f) Variable Rate Transactions. From the date hereof until such time as
the Investor does not hold any of the Underlying Securities, the Company shall
be prohibited from effecting or entering into an agreement to effect any
Subsequent Financing involving a Variable Rate Transaction. Notwithstanding the
foregoing, this Section 9(f) shall not apply in respect of an Exempt Issuance,
except that no Variable Rate Transaction shall be an Exempt Issuance.
(g) Form D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Underlying Securities as required under Regulation D of the
Securities Act and to provide a copy thereof, promptly upon request of the
Investor. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the
Underlying Securities for, sale to the Investors under applicable securities or
"Blue Sky" laws of the states of the United States, and shall provide evidence
of such actions promptly upon request of the Investor.
(h) Legends. Certificates evidencing the Underlying Securities shall not
contain any legend (including the legend set forth in Section 3.1(f) hereof):
(i) while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act, or
(ii) following any sale of such Underlying Securities pursuant to Rule 144, or
(iii) if such Underlying Securities are eligible for sale under Rule 144(k), or
(iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the SEC). The Company shall cause its counsel to issue a legal
opinion to its transfer agent promptly after the Effective Date if required by
the transfer agent to effect the removal of the legend
16
hereunder. If all or any portion of a Warrant is exercised (as applicable) at a
time when there is an effective registration statement to cover the resale of
the shares of Common Stock issuable upon exercise of the Warrant, or if such
shares of Common Stock may be sold under Rule 144(k) or if such legend is not
otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the SEC), then such shares of Common Stock shall be issued free of all legends.
The Company agrees that following the Effective Date or at such time as such
legend is no longer required under this Section 9(h), it will, no later than
three Trading Days following the delivery by the Investor to the Company or its
transfer agent of a certificate representing Shares or shares of Common Stock
issued upon exercise of the Warrant, as applicable, issued with a restrictive
legend (such third Trading Day, the "Legend Removal Date"), deliver or cause to
be delivered to the Investor a certificate representing such shares that is free
from all restrictive and other legends. The Company may not make any notation on
its records or give instructions to its transfer agent that enlarge the
restrictions on transfer set forth in this Section. Certificates for Shares or
shares of Common Stock issued upon exercise of the Warrant subject to legend
removal hereunder shall be transmitted by the Company's transfer agent to the
Investor by crediting the account of the Investor's prime broker with the
Depository Trust Company System as directed by the Investor.
10. CERTAIN DEFINITIONS
"Common Stock Equivalents" means any securities of the Company or any
subsidiary thereof which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"Effective Date" means the date that the initial Registration Statement
filed by the Company pursuant to the Registration Rights Agreement is first
declared effective by the SEC.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any stock
or option plan duly adopted for such purpose by a majority of the non-employee
members of the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Underlying Securities issued
hereunder and/or other securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities or to decrease the
exercise, exchange or conversion price of such securities, (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds as
reasonably determined by the Board of Directors, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or (d) any securities issued in connection with the Merger.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated the date hereof, among the Company and the Investors.
17
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Securities by each Investor as provided for in the
Registration Rights Agreement.
"Subsequent Financing" means the issuance of Common Stock or Common Stock
Equivalents by the Company or any subsidiary thereof.
"Trading Day" means a day on which the New York Stock Exchange is open for
trading.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market,
the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin
Board.
"Variable Rate Transaction" means a transaction in which the Company
issues or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock or (ii) enters into any
agreement, including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price.
11. MISCELLANEOUS PROVISIONS
(a) Confidential Information. The subscriber agrees that no portion of the
Confidential Information (as defined below) shall be disclosed to third parties,
except as may be required by law, without the prior express written consent of
Pubco; PROVIDED, HOWEVER, that the subscriber may share such information with
such of its officers and professional advisors as may need to know such
information to assist the subscriber in its evaluation thereof on the condition
that such parties agree to be bound by the terms hereof. "Confidential
Information" means the existence and terms of this Agreement, the transactions
contemplated hereby, and the disclosures and other information contained herein
or in the Memorandum, excluding any disclosures or other information that are
publicly available.
(b) Modification. Neither this Agreement, nor any provisions hereof, shall
be waived, modified, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, modification, discharge or
termination is sought.
(b) Survival. The Company's and the Investor's representations and
warranties made in this Agreement shall survive until the second anniversary of
the Closing.
(c) Notices. Any party may send any notice, request, demand, claim or
other communication hereunder to the Investor at the address set forth on the
signature page of this Agreement or to Pubco at the address set forth above
using any means (including personal delivery, expedited courier, messenger
service, fax, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication will be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any party
may change the address to which notices, requests,
18
demands, claims and other communications hereunder are to be delivered by giving
the other parties written notice in the manner herein set forth.
(d) Binding Effect. Except as otherwise provided herein, this Agreement
shall be binding upon, and inure to the benefit of, the parties to this
Agreement and their heirs, executors, administrators, successors, legal
representatives and permitted assigns. If the Investor is more than one person
or entity, the obligation of the Investor shall be joint and several and the
agreements, representations, warranties and acknowledgments contained herein
shall be deemed to be made by, and be binding upon, each such person or entity
and his or its heirs, executors, administrators, successors, legal
representatives and permitted assigns. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter thereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them, as to the subject matter hereof.
(e) Assignability. This Agreement is not transferable or assignable by the
Investor.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of law principles.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Further Assurances. Each of the parties shall execute such documents
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations, or other actions by, or giving any notices
to, or making any filings with, any governmental authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Agreement.
(i) Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
[REMAINDER OF XXXX LEFT INTENTIONALLY BLANK - SCHEDULES TO SUBSCRIPTION
AGREEMENT AND SIGNATURE PAGES FOLLOW]
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ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
---------------------------------------
IN WITNESS WHEREOF, the undersigned has executed this Agreement on the ___
day of ____________ 2007.
____________________ x $3.40 for each Unit = $________________________
Units subscribed for Aggregate Purchase Price
Manner in which title is to be held (please check one):
1. ___ Individual 7. ___ Trust/Estate/Pension or Profit
sharing Plan Date Opened:
______________
2. ___ Joint Tenants with Right of 8. ___ As a Custodian for
Survivorship ____________________________
Under the Uniform Gift to
Minors Act of the State of
____________________________
3. ___ Community Property 9. ___ Married with Separate Property
4. ___ Tenants in Common 10. ___ Xxxxx
5. ___ Corporation/Partnership/ 11. ___ Tenants by the Entirety
Limited Liability Company
6. ___ IRA
IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE PAGE 20.
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 21.
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EXECUTION BY NATURAL PERSONS
----------------------------
--------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
--------------------------------- -----------------------------------
Name (Please Print) Name of Additional Purchaser
--------------------------------- -----------------------------------
Residence: Number and Street Address of Additional Purchaser
--------------------------------- -----------------------------------
City, State and Zip Code City, State and Zip Code
--------------------------------- -----------------------------------
Social Security Number Social Security Number
--------------------------------- -----------------------------------
Telephone Number Telephone Number
--------------------------------- -----------------------------------
Fax Number (if available) Fax Number (if available)
--------------------------------- -----------------------------------
E-Mail (if available) E-Mail (if available)
--------------------------------- -----------------------------------
(Signature) (Signature of Additional Purchaser)
ACCEPTED this __ day of _________ 2007, on behalf of Pubco.
By:
--------------------------------
Name:
Title:
21
EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, LLC, Trust, Etc.)
--------------------------------------------------------------------------------
Name of Entity (Please Print)
Date of Incorporation or Organization: _________________________________________
State of Principal Office: _____________________________________________________
Federal Taxpayer Identification Number: _______________________________________
--------------------------------------------
Office Address
--------------------------------------------
City, State and Zip Code
--------------------------------------------
Telephone Number
--------------------------------------------
Fax Number (if available)
--------------------------------------------
E-Mail (if available)
By:
-------------------------------
Name:
Title:
ACCEPTED this ___ day of _________ 2007, on behalf of Pubco.
By:
-------------------------------
Name:
Title:
22
