SUBSCRIPTION AGREEMENT
Exhibit
2(a)(i)
THIS
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
dated
as of August 5 2005, by and among Valcent Products Inc. (formerly known as
Xxxxxxx.xxx, Inc.), an Alberta, Canada corporation (the “Company”),
and
the subscribers identified on the signature page hereto (each a “Subscriber”
and
collectively “Subscribers”).
WHEREAS,
the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “1933
Act”).
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided
herein,
and the Subscribers, in the aggregate, shall purchase for not less than $750,000
and up to $1,500,000 (the "Purchase
Price")
of
principal amount of promissory notes of the Company (“Note”
or
“Notes”)
(see
Exhibit
A Form of Convertible Note)
which
Notes are convertible into shares of the Company's common stock, no par value
(the "Common
Stock")
at a
per share conversion price set forth in the Note (“Conversion
Price”);
and
share purchase warrants (the “Warrants”)
in the
forms attached hereto as Exhibit
B to
purchase shares of Common Stock (the “Warrant
Shares”).
The
Notes, shares of Common Stock issuable upon conversion of the Notes (the
“Shares”),
the
Warrants and the Warrant Shares are collectively referred to herein as the
"Securities";
and
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:
1. Closing.
Subject
to the satisfaction or waiver of the terms and conditions of this Agreement,
on
each Closing Date (as defined in Section 2 below), each Subscriber shall
purchase and the Company shall sell to each Subscriber a Note in the principal
amount designated on the signature page hereto for the consideration set
forth
on the signature page hereto, and the amount of Warrants determined pursuant
to
Section 3 below.
2. Closing
Date.
The
consummation of the transactions contemplated herein shall take place, from
time
to time, at the offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of all conditions to
Closing set forth in this Agreement (“Closing
Date”).
In
the event there is more than one Closing, then the first Closing Date shall
be
the date employed to calculate all time related requirements hereunder for
all
Subscribers.
3. Warrants.
(a) Class
A Warrants.
On the
Closing Date, the Company will issue and deliver Class A Warrants to the
Subscribers. One Class A Warrant will be issued for each $0.75 of Purchase
Price
paid by a Subscriber on a Closing Date. The exercise price to acquire a Warrant
Share upon exercise of a Class A Warrant shall be $0.50, subject to reduction
as
described in the Class A Warrant. The Class A Warrants shall be exercisable
until three years after the Closing Date.
(b) Class
B Warrants.
On
the
Closing Date, the Company will issue and deliver Class B Warrants to the
Subscribers. One Class B Warrant will be issued for each $0.75 of Purchase
Price
paid by a Subscriber on a Closing Date. The exercise price to acquire a Warrant
Share upon exercise of a Class B Warrant shall be $1.00, subject to reduction
as
described in the Class B Warrant. The Class B Warrants shall be exercisable
until three years after the Closing Date.
4. Subscriber's
Representations and Warranties.
Each
Subscriber hereby represents and warrants to and agrees with the Company
only as
to such Subscriber that:
(a) Organization
and Standing of the Subscribers.
If the
Subscriber is an entity, such Subscriber is a corporation, partnership or
other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization
and Power.
Each
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and to purchase the Notes and Warrants being sold to it hereunder.
The
execution, delivery and performance of this Agreement by such Subscriber
and the
consummation by it of the transactions contemplated hereby and thereby have
been
duly authorized by all necessary corporate or partnership action, and no
further
consent or authorization of such Subscriber or its Board of Directors,
stockholders, partners, members, as the case may be, is required. This Agreement
has been duly authorized, executed and delivered by Subscriber and constitutes,
or shall constitute when executed and delivered, a valid and binding obligation
of the Subscriber enforceable against the Subscriber in accordance with the
terms thereof.
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
Subscriber of the transactions contemplated hereby or relating hereto do
not and
will not (i) result in a violation of such Subscriber’s charter documents or
bylaws or other organizational documents or (ii) conflict with, or constitute
a
default (or an event which with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument or
obligation to which such Subscriber is a party or by which its properties
or
assets are bound, or result in a violation of any law, rule, or regulation,
or
any order, judgment or decree of any court or governmental agency applicable
to
such Subscriber or its properties (except for such conflicts, defaults and
violations as would not, individually or in the aggregate, have a material
adverse effect on such Subscriber). Such Subscriber is not required to obtain
any consent, authorization or order of, or make any filing or registration
with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or to purchase the Notes or acquire
the Warrants in accordance with the terms hereof, provided that for purposes
of
the representation made in this sentence, such Subscriber is assuming and
relying upon the accuracy of the relevant representations and agreements
of the
Company herein.
(d) Information
on Company.
The
Subscriber has been furnished with or has had access at the XXXXX Website
of the
Commission to the Company's Form 20-F for the year ended March 31, 2004 as
filed
with the Commission, together with all subsequently filed Forms 6-F, and
filings
made with the Commission available at the XXXXX website (hereinafter referred
to
collectively as the "Reports").
The
Subscriber has had an opportunity to ask questions and receive answers from
representatives of the Company. In addition, the Subscriber has received
in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in
writing
(such other information is collectively, the "Other
Written Information"),
and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(e) Information
on Subscriber.
The
Subscriber is, and will be at the time of the conversion of the Notes and
exercise of the Warrants, an "accredited
investor",
as
such term is defined in Regulation D promulgated by the Commission under
the
1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with
its
representatives, has such knowledge and experience in financial, tax and
other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make
an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and
is
duly and legally qualified to purchase and own the Securities. The Subscriber
is
able to bear the risk of such investment for an indefinite period and to
afford
a complete loss thereof. The information set forth on the signature page
hereto
regarding the Subscriber is accurate.
(f) Purchase
of Notes and Warrants.
On the
Closing Date, the Subscriber will purchase the Notes, and Warrants as principal
for its own account for investment only and not with a view toward, or for
resale in connection with, the public sale or any distribution
thereof.
(g) Compliance
with Securities Act.
The
Subscriber understands and agrees that the Securities have not been registered
any applicable securities laws and that such Securities must be held
indefinitely unless a subsequent disposition is registered under any applicable
securities laws or is exempt from such registration.
(h) Shares
Legend.
The
Shares, and the Warrant Shares shall bear the following or similar legend,
or
such
other legend as may be required by Canadian securities regulations:
“Unless
permitted under securities legislation, the holder of this security must
not
trade the security before November
25, 2005
(i) Warrants
Legend.
The
Warrants shall bear the following or similar legend, or such other legend
as may
be required by Canadian securities regulations.
“Unless
permitted under securities legislation, the holder of this security must
not
trade the security before November 25, 2005 or the common shares issuable
upon
its exercise”.]
(j) Note
Legend.
The
Note shall bear the following legend, or such other legend as may be required
by
Canadian securities regulations:
“Unless
permitted under securities legislation, the holder of this security must
not
trade the security before November 25, 2005 or the common shares issuable
upon
its exercise”
(k) Communication
of Offer.
The
offer to sell the Securities was directly communicated to the Subscriber
by the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(l) Authority;
Enforceability.
This
Agreement and other agreements delivered together with this Agreement or
in
connection herewith have been duly authorized, executed and delivered by
the
Subscriber and are valid and binding agreements enforceable in accordance
with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights generally and to general principles of equity;
and Subscriber has full corporate power and authority necessary to enter
into
this Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Subscriber relating
hereto.
(m) Restricted
Securities.
Subscriber understands that the Securities are subject to certain resale
restrictions as per applicable securities laws.
(n) No
Governmental Review.
Each
Subscriber understands that no United States federal or state agency or any
other governmental or state agency has passed on or made recommendations
or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the
offering of the Securities.
(o) Correctness
of Representations.
Each
Subscriber represents as to such Subscriber that the foregoing representations
and warranties are true and correct as of the date hereof and, unless a
Subscriber otherwise notifies the Company prior to the Closing Date shall
be
true and correct as of the Closing Date.
(p) Survival.
The
foregoing representations and warranties shall survive the Closing Date for
a
period of three years.
5. Company
Representations and Warranties.
The
Company represents and warrants to and agrees with each Subscriber
that:
(a) Due
Incorporation.
The
Company and each of its Subsidiaries is a corporation or other entity duly
incorporated or organized, validly existing and in good standing under the
laws
of the jurisdiction of its incorporation or organization and has the requisite
corporate power to own its properties and to carry on its business as
presently
conducted. The Company and each of its Subsidiaries is duly qualified as
a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes
such
qualification necessary, other than those jurisdictions in which the failure
to
so qualify would not have a Material Adverse Effect. For purposes of this
Agreement, a “Material
Adverse Effect”
shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company and its Subsidiaries taken
as
a whole. For purposes of this Agreement, “Subsidiary”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity of which more than 50% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited
liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by
such
entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
5(a)
hereto.
(b) Outstanding
Stock.
All
issued and outstanding shares of capital stock of the Company has been duly
authorized and validly issued and are fully paid and nonassessable.
(c) Authority;
Enforceability.
This
Agreement, the Note, the Warrants and any other agreements delivered together
with this Agreement or in connection herewith (collectively “Transaction
Documents”)
have
been duly authorized, executed and delivered by the Company and are valid
and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
(d) Additional
Issuances.
There
are no outstanding agreements or preemptive or similar rights affecting the
Company's common stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described on Schedule
5(d).
(e) Consents.
No
consent, approval, authorization or order of any court, governmental agency
or
body or arbitrator having jurisdiction over the Company, or any of its
Affiliates, the OTC Bulletin Board (“Bulletin
Board”)
nor
the Company's shareholders is required for the execution by the Company of
the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation,
the
issuance and sale of the Securities.
(f) No
Violation or Conflict.
Assuming the representations and warranties of the Subscribers in Section
4 are
true and correct, neither the issuance and sale of the Securities nor the
performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (B) to the Company's knowledge,
any decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or over the properties or
assets
of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option
or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to
which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
or
(ii) result
in
the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except
as described herein; or
(iii) result
in
the activation of any anti-dilution rights or a reset or repricing of any
debt
or security instrument of any other creditor or equity holder of the Company,
nor result in the acceleration of the due date of any obligation of the Company;
or
(iv) result
in
the activation of any piggy-back registration rights of any person or entity
holding securities of the Company or having the right to receive securities
of
the Company.
(g) The
Securities.
The
Securities upon issuance:
(i) are,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon under any applicable securities
laws;
(ii) have
been, or will be, duly and validly authorized and on the date of issuance
of the
Shares and upon exercise of the Warrants, the Shares and Warrant Shares will
be
duly and validly issued, fully paid and nonassessable or if registered pursuant
to the 1933 Act, and resold pursuant to an effective registration statement
and
prospectus delivery requirements are satisfied, will be free trading and
unrestricted);
(iii) will
not
have been issued or sold in violation of any preemptive or other similar
rights
of the holders of any securities of the Company;
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders; and
(v) assuming
the representations warranties of the Subscribers as set forth in Section
4
hereof are true and correct, will not result in a violation of any applicable
securities laws.
(h) Litigation.
There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates
that
would affect the execution by the Company or the performance by the Company
of
its obligations under the Transaction Documents. Except as disclosed in the
Reports or in the schedules hereto, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit, proceeding
or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect.
(i) Reporting
Company.
The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13 of the 1934
Act
and has
a class of common shares registered pursuant to Section 12(g) of the 1934
Act.
Pursuant to the provisions of the 1934 Act, the Company has filed all reports
and other materials required to be filed thereunder with the Commission during
the preceding twelve months.
(j) No
Market Manipulation.
The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected
to,
cause or result in stabilization or manipulation of the price of the Common
Stock to
facilitate the sale or resale of the Securities or affect the price at which
the
Securities may be issued or resold.
(k) Information
Concerning Company.
The
Reports contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other Written
Information or in the Schedules hereto, there has been no Material Adverse
Event
relating to the Company's business, financial condition or affairs not disclosed
in the Reports. The Reports, including the financial statements included
therein, do not contain any untrue statement of a material fact or omit to
state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when
made.
(l) Stop
Transfer.
The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Securities, except as may be required by
any
applicable federal or state securities laws and unless contemporaneous notice
of
such instruction is given to the Subscriber.
(m) Defaults.
The
Company is not in violation of its articles of incorporation or bylaws. The
Company is (i) not in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect,
(ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under
any
statute or other law respecting antitrust, monopoly, restraint of trade,
unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority
which
violation would have a Material Adverse Effect.
(n) No
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the
rules
and regulations of the Bulletin Board. Nor will the Company or any of its
Affiliates take any action or steps that would cause the offer or issuance
of
the Securities to be integrated with other offerings. The Company will not
conduct any offering other than the transactions contemplated hereby that
will
be integrated with the offer or issuance of the Securities, which would impair
the exemption relied upon in this Offering.
(o) No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person
acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 0000 Xxx)
in
connection with the offer or sale of the Securities.
(p) Listing.
The
Common Stock is quoted on the Bulletin Board. The Company has not received
any
oral or written notice that the Common Stock is not eligible nor will become
ineligible for quotation on the Bulletin Board nor that the Common Stock
does
not meet all requirements for the continuation of such quotation and the
Company
satisfies all the requirements for the continued quotation of the Common
Stock
on the Bulletin Board.
(q) No
Undisclosed Liabilities.
The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company’s
businesses since March 31, 2004 and which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect,
except
as disclosed on Schedule
5(q).
(r) No
Undisclosed Events or Circumstances.
Since
March 31, 2004, no event or circumstance has occurred or exists with respect
to
the Company or its businesses, properties, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure
or
announcement prior to the date hereof by the Company but which has not been
so
publicly announced or disclosed in the Reports.
(s) Capitalization.
The
authorized and outstanding capital stock of the Company as of the date of
this
Agreement and the Closing Date (not including the Securities) are set forth
on
Schedule
5(d).
Except
as set forth on Schedule
5(d),
there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company or any of its
Subsidiaries. All of the outstanding shares of Common Stock of the Company
have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) Dilution.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment
that
the issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares
upon
conversion of the Notes, and the Warrant Shares upon exercise of the Warrants
is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company or parties entitled to receive equity of the Company.
(u) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited
to
disputes or conflicts over payment owed to such accountants and
lawyers.
(v) Investment
Company.
Neither
the Company nor any Affiliate is an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.
(w) Subsidiary
Representations.
The
Company makes each of the representations contained in Sections 5(a), (b),
(d),
(f), (h), (k), (m), (q) through (s), (u) and (v) of this Agreement, as same
relate to each Subsidiary of the Company.
(x) Company
Predecessor.
All
representations made by or relating to the Company of a historical or
prospective nature and all undertaking described in Sections 9(g) through
9(l)
shall relate and refer to the Company, its predecessors, and the
Subsidiaries.
(y) Correctness
of Representations.
The
Company represents that the foregoing representations and warranties are
true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to the Closing Date, shall
be
true and correct in all material respects as of the Closing Date.
(z) Survival.
The
foregoing representations and warranties shall survive the Closing Date for
a
period of three years.
6. Regulation
D Offering.
The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder or such other exemptions as may be allowed in Canada.
7.1. Conversion
of Note.
(a) Upon
the
conversion of a Note or part thereof, the Company shall, at its own cost
and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue
stock
certificates in the name of Subscriber (or its nominee) or such other persons
as
designated by Subscriber and in such denominations to be specified at conversion
representing the number of shares of Common Stock issuable upon such conversion.
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common Stock
and
that, unless waived by the Subscriber, the Shares will be free-trading, and
freely transferable, and will not contain a legend restricting the resale
or
transferability of the Shares provided the Shares are being sold pursuant
to an
effective registration statement covering the Shares (and prospectus delivery
requirements are satisfied) or are otherwise exempt from registration.
(b) Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, any sum due to the Subscriber under the Transaction Documents
including Liquidated Damages, or part thereof by telecopying an executed
and
completed Notice of Conversion (a form of which is annexed as Exhibit
A
to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement. The Subscriber will not be
required to surrender the Note
until
the Note has been fully converted or satisfied. Each date on which a Notice
of
Conversion is telecopied to the Company in accordance with the provisions
hereof
shall be deemed a Conversion
Date.
The
Company will itself or cause the Company’s transfer agent to transmit the
Company's Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt
by such
Subscriber within four (4) business days after receipt by the Company of
the
Notice of Conversion (such third day being the "Delivery
Date").
In
the event the Shares are electronically transferable, then delivery of the
Shares must
be made
by electronic transfer provided request for such electronic transfer has
been
made by the Subscriber
and the Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation,
the
prospectus delivery requirements. A Note representing the balance of the
Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided the Subscriber delivers the
original Note to the Company. In the event that a Subscriber elects not to
surrender a Note for reissuance upon partial payment or conversion, the
Subscriber hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual
amount
then due under the Note.
(c) The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
described in Section 7.2 hereof, respectively after the Delivery Date or
the
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty)
to
the Subscriber for late issuance of Shares in the form required pursuant
to
Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
business day after the Delivery Date for each $10,000 of Note principal amount
being converted of the corresponding Shares which are not timely delivered.
The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Subscriber, in the event that the Company fails
for any reason to effect delivery of the Shares by the Delivery Date or make
payment by the Mandatory Redemption Payment Date, the Subscriber will be
entitled to revoke all or part of the relevant Notice of Conversion or rescind
all or part of the notice of Mandatory Redemption by delivery of a notice
to
such effect to the Company whereupon the Company and the Subscriber shall
each
be restored to their respective positions immediately prior to the delivery
of
such notice, except that the liquidated damages described above shall be
payable
through the date notice of revocation or rescission is given to the
Company.
(d) Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed
by the
Company to the Subscriber and thus refunded to the Company.
7.2. Mandatory
Redemption at Subscriber’s Election.
In the
event the Company is prohibited from issuing Shares, or fails to timely deliver
Shares on a Delivery Date, or upon the occurrence of any other Event of Default
(as defined in the Note or in this Agreement) that is not cured during any
applicable cure period and an additional ten days thereafter, then at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber, at the Subscriber’s election, a sum of
money determined by (i) multiplying up to the outstanding principal amount
of
the Note designated by the Subscriber by 130%, or (ii) multiplying the number
of
Shares otherwise deliverable upon conversion of an amount of Note principal
and/or interest designated by the Subscriber (with the date of giving of
such
designation being a “Deemed
Conversion Date”)
at the
then Conversion Price that would be in effect on the Deemed Conversion Date
by
the closing price of the Common Stock on the Principal Market for the last
trading day preceding the Deemed Conversion Date, whichever is greater of
(i)
and (ii) above, together with accrued but unpaid interest thereon and any
other
sums arising and outstanding under the Transaction Documents ("Mandatory
Redemption Payment").
The
Mandatory Redemption Payment must be received by the Subscriber on the same
date
as the Company Shares otherwise deliverable or within ten (10) business days
after request, whichever is sooner ("Mandatory
Redemption Payment Date").
Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
for
the twenty day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment calculated pursuant to subsections (i) and (ii) above of this Section
7.2. In the event of a “Change
in Control”
(as
defined below), the Subscriber may demand, and the Company shall pay, a
Mandatory Redemption Payment equal to 130% of the outstanding principal amount
of the Note designated by the Subscriber together with accrued but unpaid
interest thereon and any other sums arising and outstanding under the
Transaction Documents. For purposes of this Section 7.2, “Change
in Control”
shall
mean (i) the Company no longer having a class of shares publicly tradable
and
listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
entity or merging into or with another entity, (iii) a majority of the board
of
directors of the Company as of the Closing Date no longer serving as directors
of the Company, other than due to (a) natural causes except in the normal
course
of business or as may have been disclosed in the Reports or Other Written
Information, (b) voluntary resignation, or (c) voluntary election not to
be
reappointed as director, (iv) if the holders of the Company’s Common Stock as of
the Closing Date beneficially owning at any time after the Closing Date less
than twenty-five percent of the Common stock owned by them on the Closing
Date,
or (v) the sale, lease, license or transfer of substantially all the assets
of
the Company or Subsidiaries.
7.3. Maximum
Conversion.
The
Subscriber shall not be entitled to convert on a Conversion Date that amount
of
the Note in connection with that number of shares of Common Stock which would
be
in excess of the sum of (i) the number of shares of common stock beneficially
owned by the Subscriber and its Affiliates on a Conversion Date, and (ii)
the
number of shares of Common Stock issuable upon the conversion of the Note
with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Subscriber
and its Affiliates of more than 4.99% of the outstanding shares of common
stock
of the Company on such Conversion Date. For the purposes of the provision
to the
immediately preceding sentence, beneficial ownership shall be determined
in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 4.99% and
aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber
may
waive the conversion limitation described in this Section 7.3, in whole or
in
part, or increase the permitted beneficial ownership amount upon and effective
after 61 days prior written notice to the Company. The Subscriber may allocate
which of the equity of the Company deemed beneficially owned by the Subscriber
shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
7.4. Injunction
Posting of Bond.
In the
event a Subscriber shall elect to convert a Note or part thereof or exercise
the
Warrant in whole or in part, the Company may not refuse conversion or exercise
based on any claim that such Subscriber or any one associated or affiliated
with
such Subscriber has been engaged in any violation of law, or for any other
reason, unless, an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of such Note or exercise of all or part
of
such Warrant shall have been sought and obtained by the Company
and the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 130% of the amount of the Note, or aggregate purchase price of
the
Warrant Shares which are sought to be subject to the injunction, which bond
shall remain in effect until the completion of arbitration/litigation of
the
dispute and the proceeds of which shall be payable to such Subscriber to
the
extent Subscriber obtains judgment.
7.5. Buy-In.
In
addition to any other rights available to the Subscriber, if the Company
fails
to deliver to the Subscriber such shares issuable upon conversion of a Note
by
the Delivery Date and if after seven (7) business days after the Delivery
Date
the Subscriber purchases (in an open market transaction or otherwise) shares
of
Common Stock to deliver in satisfaction of a sale by such Subscriber of the
Common Stock which the Subscriber was entitled to receive upon such conversion
(a "Buy-In"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored,
together with interest thereon at a rate of 15% per annum, accruing until
such
amount and any accrued interest thereon is paid in full (which amount shall
be
paid as liquidated damages and not as a penalty). For
example, if the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of note principal and/or interest, the Company shall
be
required to pay the Subscriber $1,000,
plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
7.6 Adjustments.
The
Conversion Price, Warrant exercise price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be equitably adjusted
and as otherwise described in the Transaction Documents.
7.7. Redemption.
The
Note shall not be redeemable or callable except as described in the Note.
The
Warrants shall not be callable or redeemable.
7.8. Trickle
Out.
Subscriber agrees
that commencing on the Closing Date and for so long as 70% of the average
of the
lowest five closing prices of the Common Stock (“Reported
Price”)
as
reported by Bloomberg L.P. for the Principal Market is less than $0.50 (a
“Trading
Period”),
the
Subscriber will not sell or otherwise dispose of, during any thirty day period,
more than 10% of the Shares receivable upon conversion of Notes (“Monthly
Amount”),
other
than in connection with an offer made to all shareholders of the Company
or any
merger, consolidation or similar transaction involving the Company. During
the
thirty day period following a Trading Period during which the Reported Price
is
$0.50 or higher but less than $1.00, the Monthly Amount shall be 15%. During
the
thirty day period following a Trading Period during which the Reported Price
is
$1.00 or higher but less than $1.50, the Monthly Amount shall be 20%. The
foregoing notwithstanding from and after any Trading Period during which
the
Reported Price is $1.50 or higher, the Monthly Amount Shall be 100%. Monthly
Amounts that may have been sold during a prior period may be sold in a
subsequent period in addition to such subsequent period’s Monthly Amount.
Subscriber further agrees that the Company is authorized to and the Company
may
place "stop orders" on its books to prevent any transfer of Shares in violation
of this Agreement. Notwithstanding the foregoing restrictions on transfer,
the
Subscriber may, at any time and from time to time transfer Shares (i) as
bona
fide gifts or transfers by will or intestacy, (ii) to any trust for the direct
or indirect benefit of the Subscriber or the immediate family of the Subscriber,
provided that any such transfer shall not involve a disposition for value,
(iii)
to a partnership which is the general partner of a partnership of which the
Subscriber is a general partner, provided, that, in the case of any gift
or
transfer described in clauses (i), (ii) or (iii), each donee or transferee
agrees in writing to be bound by the terms and conditions contained herein
in
the same manner as such terms and conditions apply to the Subscriber. For
purposes hereof, "immediate family" means any relationship by blood, marriage
or
adoption, not more remote than first cousin. The foregoing restrictions may
be
released by a majority of the board of directors of the Company, provided
such
release is proportional to all Subscribers. From and after the occurrence
of an
Event of Default (as defined in the Note), the Monthly Amount shall be
100%.
8. Finder’s
Fee/Legal Fees.
(a) Finder’s
Fee.
The
Company on the one hand, and each Subscriber (for himself only) on the other
hand, agree to indemnify the other against and hold the other harmless from
any
and all liabilities to any persons claiming brokerage commissions or finder’s
fees on account of services purported to have been rendered on behalf of
the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party’s actions. The Company expects
to pay finders fees as described on Schedule
8(a)
hereto.
(b) Legal
Fees.
The
Company shall pay to Grushko & Xxxxxxx, P.C., a fee of $15,000
(“Legal
Fees”)
as
reimbursement for services rendered to the Subscribers in connection with
this
Agreement and the purchase and sale of the Notes, and Warrants (the
“Offering”)..
9. Covenants
of the Company.
The
Company covenants and agrees with the Subscribers as follows:
(a) Stop
Orders.
The
Company will advise the Subscribers within two hours after it receives notice
of
issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in
any
jurisdiction, or the initiation of any proceeding for any such
purpose.
(b) Listing.
The
Company shall promptly secure the listing of the Shares and the Warrant Shares
upon each national securities exchange, or electronic or automated quotation
system upon which they are or become eligible for listing and shall maintain
such listing so long as any Notes or Warrants are outstanding and such listing
is maintained for any class of the Company’s securities. The Company will
maintain the listing of its Common Stock on the American Stock Exchange,
Nasdaq
SmallCap Market, Nasdaq National Market System, Bulletin Board, or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the “Principal
Market”)),
and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common
Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.
(c) Market
Regulations.
The
Company shall notify the Commission, the Principal Market and applicable
state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action
and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to Subscriber.
(d) Filing
Requirements.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitation, the Company will
(A)
cause its Common Stock to continue to be registered under Section 12(b) or
12(g)
of the 1934 Act, (B) comply in all respects with its reporting and filing
obligations under the 1934 Act, (C) comply with all reporting requirements
that
are applicable to an issuer with a class of shares registered pursuant to
Section 12(b) or 12(g) of the 1934 Act, as applicable, and (D) comply with
all
filing requirements related to any registration statement filed pursuant
to this
Agreement. The Company will use its best efforts not to take any action or
file
any document (whether or not permitted by the 1933 Act or the 1934 Act or
the
rules thereunder) to terminate or suspend such registration or to terminate
or
suspend its reporting and filing obligations under said acts until two (2)
years
after the Closing Date. Until the earlier of the resale of the Shares, and
Warrant Shares by each Subscriber or until two (2) years after the Warrants
have
been exercised, the Company will use its best efforts to continue the listing
or
quotation of the Common Stock on a Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under
the
bylaws or rules of the Principal Market. The Company agrees to timely file
a
Form D with respect to the Securities if required under Regulation D and
to
provide a copy thereof to each Subscriber promptly after such
filing.
(e) Use
of
Proceeds.
The
proceeds of the Offering are for general working capital purposes and for
the
purposes set forth on Schedule
9(e)
hereto.
Except as set forth on Schedule
9(e),
the
Purchase Price may not and will not be used for accrued and unpaid officer
and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company nor non-trade obligations outstanding
on a Closing Date. It is an express condition to Closing the proceeds of
the
Offering be employed to complete the acquisition of certain proprietary
technology on the terms described in the Company’s Form 6-K filed with the
Commission on March 17, 2005; which acquisition must close contemporaneously
with the Closing of the Offering.
(f) Reservation.
Prior
to the Closing Date, the Company undertakes to reserve, pro rata,
on
behalf of each holder of a Note or Warrant, from its authorized but unissued
common stock, a number of common shares equal to 200%
of
the amount of Common Stock necessary to allow each holder of a Note to be
able
to convert all such outstanding Notes and interest and reserve the amount
of
Warrant Shares issuable upon exercise of the Warrants. Failure to have
sufficient shares reserved pursuant to this Section 9(f) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company’s obligations under this Agreement and an Event of
Default under the Note.
(g) Taxes.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares, and Warrant Shares have been
resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
promptly pay and discharge, or cause to be paid and discharged, when due
and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid if
the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will
pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefore.
(h) Insurance.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares, and Warrant Shares have been
resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep its assets which are of an insurable character insured by financially
sound
and reputable insurers against loss or damage by fire, explosion and other
risks
customarily insured against by companies in the Company’s line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer, and
the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to
the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable
terms.
(i) Books
and Records.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares, and Warrant Shares have been
resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep true records and books of account in which full, true and correct entries
will be made of all dealings or transactions in relation to its business
and
affairs in accordance with generally accepted accounting principles applied
on a
consistent basis.
(j) Governmental
Authorities.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares, and Warrant Shares have been
resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company shall
duly observe and conform in all material respects to all valid requirements
of
governmental authorities relating to the conduct of its business or to its
properties or assets.
(k) Intellectual
Property.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares, and Warrant Shares have been
resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business.
(l) Properties.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares, and Warrant Shares have been
resold
or transferred by all the Subscribers pursuant to the Registration Statement
(as
defined in Section 11.1(iv) hereof) or pursuant to Rule 144, without regard
to
volume limitations, the Company will keep its properties in good repair,
working
order and condition, reasonable wear and tear excepted, and from time to
time
make all necessary and proper repairs, renewals, replacements, additions
and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to
have a
Material Adverse Effect.
(m) Confidentiality/Public
Announcement.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares, and Warrant Shares have been
resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company agrees
that except in connection with a Form 8-K or the Registration Statement,
it will
not disclose publicly or privately the identity of the Subscribers unless
expressly agreed to in writing by a Subscriber or only to the extent required
by
law and then only upon five days prior notice to Subscriber. In any event
and
subject to the foregoing, the Company shall file
a
Form 8-K or make a public announcement describing the Offering not later
than
the first business day after the Closing Date. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of common
stock
outstanding immediately after the Closing.
(n) Further
Registration Statements.
Except
for a registration statement filed on behalf of the Subscribers pursuant
to
Section 11 of this Agreement and as otherwise described on Schedule
11.1
hereto,
the Company will not file any registration statements or amend any already
filed
registration statement, including but not limited to Form S-8, with the
Commission or with state regulatory authorities without the consent of the
Subscriber until the sooner of (i) one year after the Closing Date, or (ii)
less
than 10% of the Note principal remains outstanding (“Exclusion
Period”).
The
Exclusion Period will be in effect during the pendency of an Event of Default
as
defined in the Note.
(o) Non-Public
Information.
The
Company covenants and agrees that neither it nor any other person acting
on its
behalf will provide any Subscriber or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber shall
be
relying on the foregoing representations in effecting transactions in securities
of the Company.
10. Covenants
of the Company and Subscriber Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation
by
Company or breach of any warranty by Company in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into by
the
Company and Subscriber relating hereto.
(b) Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, Affiliates, control
persons against any claim, cost, expense, liability, obligation, loss or
damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the
Company or any such person which results, arises out of or is based upon
(i) any
material misrepresentation by such Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by such Subscriber of any covenant or undertaking
to be
performed by such Subscriber hereunder, or any other agreement entered into
by
the Company and Subscribers, relating hereto.
(c) In
no
event shall the liability of any Subscriber or permitted successor hereunder
or
under any Transaction Document or other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber upon the sale of Registrable Securities
(as
defined herein).
(d) The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Sections 10(a) and 10(b) above.
11.1. Registration
Rights.
The
Company hereby grants the following registration rights to holders of the
Securities.
(i) On
one
occasion, for a period commencing one hundred and fifty-one (151) days after
the
Closing Date, but not later than two (2) years after the Closing Date
(“Request
Date”),
upon
a written request therefor from any record holder or holders of more than
50% of
the Shares issued and issuable upon conversion of the Notes and Warrant Shares
actually issued upon exercise of the Warrants and Finder’s Warrants, the Company
shall prepare and file with the Commission a registration statement under
the
1933 Act registering the Shares issuable upon conversion of all sums due
under
the Notes and Warrant Shares issuable upon exercise of the Warrants and Finder’s
Warrants (collectively “Registrable
Securities”)
which
are the subject of such request for unrestricted public resale by the holder
thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities
shall not include Securities (A) which are registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, or (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon the
receipt of such request, the Company shall promptly give written notice to
all
other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within
ten
(10) days after the Company gives such written notice. Such other requesting
record holders shall be deemed to have exercised their demand registration
right
under this Section 11.1(i).
(ii) If
the
Company at any time proposes to register any of its securities under the
1933
Act for sale to the public, whether for its own account or for the account
of
other security holders or both, except with respect to registration statements
on Forms X-0, X-0 or another form not available for registering the Registrable
Securities for sale to the public, provided the Registrable Securities are
not
otherwise registered for resale by the Subscribers or Holder pursuant to
an
effective registration statement, each such time it will give at least fifteen
(15) days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within ten (10) days after the giving of any such
notice
by the Company, to register any of the Registrable Securities not previously
registered, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities
to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the “Seller”
or
“Sellers”).
In
the event that any registration pursuant to this Section 11.1(ii) shall be,
in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in
such
an underwriting may be reduced by the managing underwriter if and to the
extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to
be sold
by the Company therein; provided, however, that the Company shall notify
the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or
suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.
(iii) If,
at
the time any written request for registration is received by the Company
pursuant to Section 11.1(i), the Company has determined to proceed with the
actual preparation and filing of a registration statement under the 1933
Act in
connection with the proposed offer and sale for cash of any of its securities
for the Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been
given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights
of the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv) The
Company shall file with the Commission a Form F-1 registration statement
(the
“Registration
Statement”)
(or
such other form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 0000 Xxx) not later
than
sixty
(60) days after the Closing Date (the “Filing
Date”),
and
cause it to be declared effective not
later
than one hundred and fifty (150) days after the Closing Date
(the
“Effective
Date”).
The
Company will register not less than a number of shares of Common Stock in
the
aforedescribed registration statement that is equal to 200%
of
the Shares issuable upon conversion of the Notes and all of the Warrant Shares
issuable upon exercise of the Warrants. The Registrable Securities shall
be
reserved and set aside exclusively for the benefit of each Subscriber and
Warrant holder, pro rata,
and not
issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder. The Registration Statement will immediately be amended or
additional registration statements will be immediately filed by the Company
as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Without the written consent of the Subscriber, no securities
of the
Company other than the Registrable Securities will be included in the
Registration Statement except as described on Schedule
11.1,
hereto.
It shall be deemed a Non-Registration Event if at any time after the date
the
Registration Statement is declared effective by the Commission (“Actual
Effective Date”),
the
Company has registered for unrestricted resale on behalf of a Subscriber
fewer
than 125%
of
the amount of Common Shares issuable upon full conversion of all sums due
under
the Notes and 100% of the Warrant Shares issuable upon exercise of the
Warrants.
(v) The
law
firm which will prepare and file the Registration Statement and all amendments
thereto will be subject to the approval of the Subscribers.
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 11.1(i), 11.1(ii),
or (iv) to effect the registration of any Registrable Securities under the
1933
Act, the Company will, as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect
to such
securities and use its best efforts to cause such registration statement
to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders
of the
Registrable Securities copies of all filings and Commission letters of comment
and notify Subscribers (by telecopier and by e-mail addresses provided by
Subscribers) and Grushko & Xxxxxxx, P.C. (by telecopier and by email to
Xxxxxxxxx@xxx.xxx)
on or
before 3:00 PM EST on the next business day that the Company receives notice
that (i) the Commission has no comments or no further comments on the
Registration Statement, and (ii) the registration statement has been declared
effective (failure to timely provide notice as required by this Section 11.2(a)
shall be a material breach of the Company’s obligation and an Event of Default
as defined in the Notes
and
a Non-Registration Event as defined in Section 11.4 of this Agreement);
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with
the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
(c) furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered
by
such registration statement;
(d) use
its
commercially
reasonable best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or “blue sky” laws
of New York and such jurisdictions as the Sellers shall request in writing,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service
of
process in any such jurisdiction;
(e) if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) notify
the Subscribers within two hours of the Company’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act,
of
the happening of any event of which the Company has knowledge as a result
of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the Shares;
and
(g) provided
same would not be in violation of the provision of Regulation FD under the
1934
Act, make available for inspection by the Sellers, and any attorney, accountant
or other agent retained by the Seller or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents
and
properties of the Company, and cause the Company's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the seller, attorney, accountant or agent in connection
with such registration statement.
11.3. Provision
of Documents.
In
connection with each registration described in this Section 11, each Seller
will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably
shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
11.4. Non-Registration
Events.
The
Company and the Subscribers agree that the Sellers will suffer damages if
the
Registration Statement is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any registration
statement required under Section 11.1(i) or 11.1(ii) is not filed within
60 days
after written request and declared effective by the Commission within 120
days
after such request, and maintained in the manner and within the time periods
contemplated by Section 11 hereof, and it would not be feasible to ascertain
the
extent of such damages with precision. Accordingly, if (A) the Registration
Statement is not filed on or before the Filing Date, (B) is not declared
effective on or before the Effective Date, (C) the Registration Statement
is not
declared effective within three (3) business days after receipt by the Company
or its attorneys of a written or oral communication from the Commission that
the
Registration Statement will not be reviewed or that the Commission has no
further comments, (D) if the registration statement described in Sections
11.1(i) or 11.1(ii) is not filed within 60 days after such written request,
or
is not declared effective within 120 days after such written request, or
(E) any
registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
is
filed and declared effective but shall thereafter cease to be effective (without
being succeeded within fifteen (15) business days by an effective replacement
or
amended registration statement) for a period of time which shall exceed 20
days
in the aggregate per year (defined as a period of 365 days commencing on
the
date the Registration Statement is declared effective) (each such event referred
to in clauses (A) through (E) of this Section 11.4 is referred to herein
as a
"Non-Registration Event"), then the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to two percent
(2%) for each thirty (30) days or part thereof during the pendency of such
default, of the Purchase Price of the Notes remaining unconverted and purchase
price of Shares issued upon conversion of the Notes owned of record by such
holder which are subject to such Non-Registration Event. The Company must
pay
the Liquidated Damages in cash. The Liquidated Damages must be paid within
ten
(10) days after the end of each thirty (30) day period or shorter part thereof
for which Liquidated Damages are payable. In the event a Registration Statement
is filed by the Filing Date but is withdrawn prior to being declared effective
by the Commission, then such Registration Statement will be deemed to have
not
been filed. All
oral
or written comments received from the Commission relating to the Registration
Statement must be satisfactorily responded to within
ten (10) business days after receipt of comments from the Commission.
Failure
to
timely respond to Commission comments is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders
of
Registrable Securities at the same rate set forth above. Notwithstanding
the
foregoing, the Company shall not be liable to the Subscriber under this Section
11.4 for any events or delays occurring as a consequence of the acts or
omissions of the Subscribers contrary to the obligations undertaken by
Subscribers in this Agreement. Liquidated Damages will not accrue nor be
payable
pursuant to this Section 11.4 nor will a Non-Registration Event be deemed
to
have occurred for times during which Registrable Securities are transferable
by
the holder of Registrable Securities pursuant to Rule 144(k) under the 1933
Act.
11.5. Expenses.
All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses,
fees
and disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky” laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer
agents
and registrars, costs of insurance and fee of one counsel for all Sellers
(not
to exceed $5,000) are called “Registration
Expenses.”
All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of one counsel
to
the Seller, are called "Selling
Expenses."
The
Company will pay all Registration Expenses in connection with the registration
statement under Section 11. Selling Expenses in connection with each
registration statement under Section 11 shall be borne by the Seller and
may be
apportioned among the Sellers in proportion to the number of shares sold
by the
Seller relative to the number of shares sold under such registration statement
or as all Sellers thereunder may agree.
11.6. Indemnification
and Contribution.
(a) In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions
of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
to
the Seller to the extent that any such damages arise out of or are based
upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered
by the
Company to the Seller with or prior to the delivery of written confirmation
of
the sale by the Seller to the person asserting the claim from which such
damages
arise, (ii) the final prospectus would have corrected such untrue statement
or
alleged untrue statement or such omission or alleged omission, or (iii) to
the
extent that any such loss, claim, damage or liability arises out of or is
based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller,
or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In
the
event of a registration of any of the Registrable Securities under the 1933
Act
pursuant to Section 11, each Seller severally but not jointly will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and
controlling person for any legal or other expenses reasonably incurred by
them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage
or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished
in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability
of
the Seller hereunder shall be limited to the net proceeds actually received
by
the Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party
other
than under this Section 11.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent
it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake
the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.6(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available
to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
11.6 but it is judicially determined (by the entry of a final judgment or
decree
by a court of competent jurisdiction and the expiration of time to appeal
or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act
may be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6;
then, and in each such case, the Company and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will
not be
required to contribute any amount in excess of the public offering price
of all
such securities sold by it pursuant to such registration statement; and (z)
no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the 0000 Xxx) will be entitled to contribution from any
person
or entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery
of Unlegended Shares.
(a) Within
four (4) business days (such fourth business day being the “Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a notice that Shares,
or
Warrant Shares have been sold pursuant to the Registration Statement or Rule
144
under the 1933 Act, (ii) a representation that the prospectus delivery
requirements, or the requirements of Rule 144, as applicable and if required,
have been satisfied, and (iii) the original share certificates representing
the
shares of Common Stock that have been sold, and (iv) in the case of sales
under
Rule 144, customary representation letters of the Subscriber and/or Subscriber’s
broker regarding compliance with the requirements of Rule 144, the Company
at
its expense, (y) shall deliver, and shall cause legal counsel selected by
the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery
of
shares of Common Stock without any legends including the legend set forth
in
Section 4(h)
above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the
1933
Act (the “Unlegended
Shares”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted certificates, if any, to the Subscriber at the address specified
in
the notice of sale, via express courier, by electronic transfer or otherwise
on
or before the Unlegended Shares Delivery Date. Transfer fees shall be the
responsibility of the Seller.
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, if
the
Company’s transfer agent is participating in the Depository Trust Company
(“DTC”)
Fast
Automated Securities Transfer program, upon request of a Subscriber, so long
as
the certificates therefor do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the
Company shall cause its transfer agent to electronically transmit the Unlegended
Shares by crediting the account of Subscriber’s prime Broker with DTC through
its Deposit Withdrawal Agent Commission system. Such delivery must be made
on or
before the Unlegended Shares Delivery Date.
(c) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof later than the Unlegended Shares Delivery Date
could result in economic loss to a Subscriber. As compensation to a Subscriber
for such loss, the Company agrees to pay late payment fees (as liquidated
damages and not as a penalty) to the Subscriber for late delivery of Unlegended
Shares in the amount of $100 per business day after the Delivery Date for
each
$10,000 of purchase price of the Unlegended Shares subject to the delivery
default. If during any 360 day period, the Company fails to deliver Unlegended
Shares as required by this Section 11.7 for an aggregate of thirty (30) days,
then each Subscriber or assignee holding Securities subject to such default
may,
at its option, require the Company to redeem all or any portion of the Shares,
and Warrant Shares subject to such default at a price per share equal to
130% of
the purchase price or value described in Section 12(e) hereof, of such Shares,
and Warrant Shares (“Unlegended
Redemption Amount”).
The
amount of the aforedescribed liquidated damages that have accrued or been
paid
for the twenty day period prior to the receipt by the Subscriber of the
Unlegended Redemption Amount shall be credited against the Unlegended Redemption
Amount. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand.
(d) In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber purchases (in an open market transaction or otherwise)
shares of common stock to deliver in satisfaction of a sale by such Subscriber
of the shares of Common Stock which the Subscriber was entitled to receive
from
the Company (a "Buy-In"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of common stock so purchased exceeds (B) the aggregate purchase
price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together
with interest thereon at a rate of 15% per annum, accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid
as
liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber
$1,000,
plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
(e) In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 11.7 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law,
or for
any other reason, unless, an injunction or temporary restraining order from
a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares or exercise of all or part of said Warrant shall have been sought
and
obtained
and the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 130% of the amount of the aggregate purchase price of the Common
Stock
and Warrant Shares which are subject to the injunction or temporary restraining
order, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be
payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor.
12. (a) Offering
Restrictions.
Except
in connection with (i) the
exercise of options or warrants or conversion of Notes or amounts which are
granted, issued or accrue pursuant to this Agreement, (ii)
as
has
been described in the Reports or Other Written Information filed with the
Commission or delivered to the Subscribers prior to the Closing Date, (iii)
full
or partial consideration in connection with a strategic merger, consolidation
or
purchase of substantially all of the securities or assets of corporation
or
other entity, (iv)
the
Company’s issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital, (v) the Company’s issuance of Common Stock or the
issuance or grants of options to purchase Common Stock pursuant to the Company’s
stock option plans and employee stock purchase plans as they now exist, which
copies of such plans have been delivered to the Subscribers, and (vi) sales
of
Common Stock without the grant of any registration rights to the purchasers
of
such Common Stock and which the Company irrevocably agrees not to register
for
public resale (collectively
the foregoing are “Excepted
Issuances”),
until
the Actual Effective Date and during the pendency of an Event of Default,
or
when any compensatory or liquidated damages are accruing or are outstanding,
the
Company will not enter into an agreement to nor issue any equity, convertible
debt or other securities convertible into common stock or equity of the Company
nor modify any of the foregoing which may be outstanding at anytime, without
the
prior written consent of the Subscriber, which consent may be withheld for
any
reason. For so long as the Notes are outstanding the Company will not enter
into
any equity line of credit or similar agreement, nor issue or agree to issue
any
floating or variable priced equity linked instruments nor any of the foregoing
or equity with price reset rights.
(b) Favored
Nations Provision.
Except
for the Excepted Issuances, if at any time Notes or Warrants are outstanding
the
Company shall offer, issue or agree to issue any common stock or securities
convertible into or exercisable for shares of common stock (or modify any
of the
foregoing which may be outstanding) to any person or entity at a price per
share
or conversion or exercise price per share which shall be less than the
Conversion Price in respect of the Shares, or if less than the Warrant exercise
price in respect of the Warrant Shares, without the consent of each Subscriber
holding Notes, Shares, Warrants, or Warrant Shares, then the Company shall
issue, for each such occasion, additional shares of Common Stock to each
Subscriber so that the average per share purchase price of the shares of
Common
Stock issued to the Subscriber (of only the Common Stock or Warrant Shares
still
owned by the Subscriber) is equal to such other lower price per share and
the
Conversion Price and Warrant Exercise Price shall automatically be reduced
to
such other lower price per share. The average Purchase Price of the Shares
and
average exercise price in relation to the Warrant Shares shall be calculated
separately for the Shares and Warrant Shares. The foregoing calculation and
issuance shall be made separately for Shares received upon Note conversion
and
separately for Warrant Shares. The delivery to the Subscriber of the additional
shares of Common Stock shall be not later than the closing date of the
transaction giving rise to the requirement to issue additional shares of
Common
Stock. The Subscriber is granted the registration rights described in Section
11
hereof in relation to such additional shares of Common Stock except that
the
Filing Date and Effective Date vis-à-vis such additional common shares shall be,
respectively, the thirtieth (30th)
and
sixtieth (60th)
date
after the closing date giving rise to the requirement to issue the additional
shares of Common Stock. For purposes of the issuance and adjustment described
in
this paragraph, the issuance of any security of the Company carrying the
right
to convert such security into shares of Common Stock or of any warrant, right
or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the sooner of the agreement to or actual issuance
of
such convertible security, warrant, right or option and again at any time
upon
any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price or Warrant exercise price in effect upon such issuance.
The
rights of the Subscriber set forth in this Section 12 are in addition to
any
other rights the Subscriber has pursuant to this Agreement, the Note, any
Transaction Document, and any other agreement referred to or entered into
in
connection herewith.
(c) Option
Plan Restrictions.
The
only officer, director, employee and consultant stock option or stock incentive
plan currently in effect or contemplated by the Company has been submitted
to
the Subscribers or is described with Reports. No other plan will be adopted
nor
may any options or equity not included in such plan be issued until after
the
Exclusion Period.
(d) Right
of First Offer.
Until
one year after the Closing Date, the Subscribers shall be given not less
than
ten (10) business days prior written notice of any proposed sale by the Company
of its common stock or other securities or debt obligations, except in
connection with the Excepted Issuances. The
Subscribers who exercise their rights pursuant to this Section 12(a) shall
have
the right during the ten (10) business days following receipt of the notice
to
purchase, in the aggregate, such offered common stock, debt or other securities
in accordance with the terms and conditions set forth in the notice of sale
in
the same proportion to each other as their purchase of Notes in the Offering.
In
the event such terms and conditions are modified during the notice period,
the
Subscribers shall be given prompt notice of such modification and shall have
the
right during the ten (10) business days following the notice of modification
to
exercise such right.
(e) Paid
In Kind.
The
Subscriber may demand that some or all of the sums payable to the Subscriber
pursuant to Sections 7.1(c), 7.2, 7.5, 11.4, 11.7(c), 11.7(d) and 11.7(e)
that
are not paid within ten business days of the required payment date be paid
in
shares of Common Stock valued at the Conversion Price in effect at the time
Subscriber makes such demand or, at the Subscriber’s election, at such other
valuation described in the Transaction Documents. In addition to any other
rights granted to the Subscriber herein, the Subscriber is also granted the
registration rights set forth in Section 11.1(ii) hereof in relation to such
shares of Common Stock and the Common Stock issuable pursuant to this Section
12(e). For purposes only of determining any liquidated damages pursuant to
the
Transaction Documents, the entire Purchase Price shall be allocated to the
Notes
and none to the Warrants; and the Warrant Shares shall be valued at the actual
exercise price thereof.
(f) Maximum
Exercise of Rights.
In the
event the exercise of the rights described in Sections 12(b), 12(d) and 12(e)
would
result in the issuance of an amount of common stock of the Company that would
exceed the maximum amount that may be issued to a Subscriber calculated in
the
manner described in Section 7.3 of this Agreement, then the issuance of such
additional shares of common stock of the Company to such Subscriber will
be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such common stock without exceeding the maximum amount set
forth calculated in the manner described in Section 7.3 of this Agreement.
The
determination of when such common stock may be issued shall be made by each
Subscriber as to only such Subscriber.
13. Miscellaneous.
(a) Notices.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or
the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: Valcent Products Inc.,
000-000 Xxxx Xxxxxx, Xxxxxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxx X0X 0X0, Attn: Xxxxxxx
X. Xxxx, President, telecopier number: (000) 000-0000, with an additional
copy
only by telecopier only to: Xxxxxx Xxx, Suite 000-000 Xxxx Xxxxxx, Xxxxxxxxx,
Xxxxxxx Xxxxxxxx, Xxxxxx X0X 0X0, telecopier
number: (000) 000-0000, and (ii) if to the Subscribers, to: the
one
or more addresses and telecopier numbers indicated on the signature pages
hereto, with an additional copy by telecopier only to: Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier
number:
(000) 000-0000.
(b) Entire
Agreement; Assignment.
This
Agreement and other documents delivered in connection herewith represent
the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No
right
or obligation of the Company shall be assigned without prior notice to and
the
written consent of the Subscribers.
(c) Counterparts/Execution.
This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d) Law
Governing this Agreement.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of New York without regard to conflicts
of laws principles
that would result in the application of the substantive laws of another
jurisdiction. Any action brought by either party against the other concerning
the transactions contemplated by this Agreement shall be brought only in
the
state courts of New York or in the federal courts located in the state of
New
York. The
parties and the individuals executing this Agreement and other agreements
referred to herein or delivered in connection herewith on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by
jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of
this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith
and
shall be deemed modified to conform with such statute or rule of law. Any
such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
(e) Specific
Enforcement, Consent to Jurisdiction.
The
Company and Subscriber acknowledge and agree that irreparable damage would
occur
in the event that any of the provisions of this Agreement were not performed
in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to one or more preliminary
and final injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled
by
law or equity. Subject to Section 13(d) hereof, each of the Company, Subscriber
and any signator hereto in his personal capacity hereby waives, and agrees
not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in New York of such court, that the
suit,
action or proceeding is brought in an inconvenient forum or that the venue
of
the suit, action or proceeding is improper. Nothing in this Section shall
affect
or limit any right to serve process in any other manner permitted by
law.
(f) Currency.
All
references to currency in the Transaction Documents shall mean the currency
of
the United States of America.
(g) Independent
Nature of Subscribers.
The
Company acknowledges that the obligations of each Subscriber under the
Transaction Documents are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The
Company acknowledges that each Subscriber has represented that the decision
of
each Subscriber to purchase Securities has been made by such Subscriber
independently of any other Subscriber and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company which may have been made or given
by any
other Subscriber or by any agent or employee of any other Subscriber, and
no
Subscriber or any of its agents or employees shall have any liability to
any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The
Company acknowledges that nothing contained in any Transaction Document,
and no
action taken by any Subscriber pursuant hereto or thereto (including, but
not
limited to, the (i) inclusion of a Subscriber in the Registration Statement
and
(ii) review by, and consent to, such Registration Statement by a Subscriber)
shall be deemed to constitute the Subscribers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that
the
Subscribers are in any way acting in concert or as a group with respect to
such
obligations or the transactions contemplated by the Transaction Documents.
The Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights
arising
out of the Transaction Documents, and it shall not be necessary
for
any other Subscriber to be joined as an additional party in any proceeding
for
such purpose. The Company acknowledges that it has elected to provide
all
Subscribers with the same terms and Transaction Documents for the convenience
of
the Company and not because Company was required or requested to do so by
the
Subscribers. The Company acknowledges that such procedure with respect
to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
an
Alberta, Canada corporation
By:
_________________________________
Name:
Xxxxxxx X. Xxxx
Title:
President
Dated:
July _____, 2005
|
SUBSCRIBER
|
NOTE
PRINCIPAL
|
|
_____________________________________
(Signature)
By:
|
$
|
LIST
OF EXHIBITS AND SCHEDULES
|
Exhibit
A
|
Form
of Convertible Note
|
|
Exhibit
B
|
Form
of Class A [Class B] Warrant
|
|
Exhibit
C
|
Canadian
Investor Representation Letters
|
|
Schedule
5(a)
|
Subsidiaries
|
|
Schedule
5(d)
|
Additional
Issuances / Capitalization
|
|
Schedule
5(q)
|
Undisclosed
Liabilities
|
|
Schedule
8(a)
|
Form
of Finder’s Fee
|
|
Schedule
9(e)
|
Use
of Proceeds
|
|
Schedule
11.1
|
Other
Securities to be Registered
|
|
Schedule
12(a)
|
Other
Excepted Issuances
|
