HANDHELD ENTERTAINMENT, INC. SUBSCRIPTION AGREEMENT
Name
of
Subscriber: _______________________
000
Xxxxxx Xxxxxx, Xxxxx 000
Xxx
Xxxxxxxxx, XX 00000
Ladies
and Gentlemen:
1. Subscription.
(a)
The
undersigned, intending to be legally bound, hereby irrevocably subscribes to
purchase from Handheld Entertainment, Inc., a Delaware corporation (the
“Company”),
for a
purchase price equal to the face value thereof, the principal amount of 8%
Notes
due 2007 of the Company (the “Offering
Notes”)set
forth on the signature page hereof. This subscription is made in accordance
with
and subject to the terms and conditions described in this Subscription Agreement
(this “Agreement”).
The
terms of the Offering Notes shall be substantially as set forth in the form
of
8% Note due 2007 attached hereto as Exhibit
A.
The
terms of certain warrants (the “Warrants”)
that
may be issued pursuant to the terms of the Offering Notes shall be substantially
as set forth in the form attached hereto as Exhibit
B.
The
Offering Notes that are the subject of this Agreement are part of an offering
by
the Company (the “Offering”)
of up
to $3,000,000 aggregate principal amount of Offering Notes (the “Maximum
Amount”).
The
Company is offering Offering Notes until June 15, 2007, although the Company
reserves the right, in its sole discretion, to extend the Offering period until
some later date (such date, as the same may be extended, the “Expiration
Date”).
The
Company may hold the first closing of the Offering (the “First
Closing”)
at any
time on or prior to the Expiration Date. Following the First Closing, the
Company may continue to sell Offering Notes up to the Maximum Amount and may
conduct closings from time to time for additional shares sold. A final closing
will be held promptly after the earlier to occur of (i) the Expiration Date
and
(ii) acceptance of subscriptions for sale of the Maximum Amount. The Company
may
terminate the Offering at any time without prior notice. Also, the Company
may
reject any subscription for Offering Notes in whole or in part for any reason
in
its sole discretion. The Company and the undersigned intend that the Offering
be
a short-term “bridge” financing, and the Company is seeking to consummate an
acquisition, debt or equity raise or other transaction (alternatively, the
“Refinancing”)
the
proceeds of which may be used to repay the Offering Notes. The Company shall
use
its commercially reasonable efforts to consummate the Refinancing within 180
days of the date hereof; however,
the
undersigned acknowledges that there can be no assurance that the Company will
effect any Refinancing on a timely basis, on reasonable terms or at
all.
The
Units being sold in the Offering and all of the Subject Securities (as defined
below) are speculative and investment therein involves a high degree of risk.
Prospective investors are urged to carefully consider examine the business
and
prospects of the Company. Investors must be prepared to bear the economic risk
of their investment for an indefinite period and be able to withstand a total
loss of their investment.
The
undersigned understands that the Offering Notes are being offered and issued
pursuant to an exemption from the registration requirements of the Securities
Act, provided by Section 4(2) of such Act. As such, the Offering Notes are
being
offered and sold only to investors who qualify as “Accredited Investors” (as
defined in Rule 501 promulgated under the Securities Act), and the Company
is
relying on the representations made by the undersigned in this Agreement in
determining the availability of such exemption. The Offering Notes are, and
any
Warrants issued pursuant to the Offering Notes and any shares of common stock,
par value $0.001 per share, of the Company (the “Common Stock”) issued upon
exercise of the Warrants will be, “restricted securities” for purposes of the
United States securities laws and cannot be transferred except as permitted
under those laws.
(b) The
undersigned is delivering (i) an executed copy of the signature page of and
Exhibit
C
to this
Agreement and (ii) the subscription payment, in immediately available funds,
which may be made by wire transfer to the Company pursuant to the following
instructions:
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If
the
Offering is oversubscribed, or for any other reason determined by the Company
in
its discretion, the Company may determine to reject a subscription or to accept
a subscription for only a portion of the Offering Notes for which the
undersigned has subscribed in this Agreement. If this subscription is accepted
by the Company, in whole or in part, then the Company will deliver to the
undersigned the principal amount of Offering Notes for which the undersigned’s
subscription is accepted. If this subscription is rejected in whole or in part,
then the Company shall promptly refund to the undersigned, without interest,
any
funds that the undersigned had delivered to the Company in excess of the
aggregate purchase price of any Offering Notes for which the undersigned’s
subscription is accepted.
2
(c) The
undersigned may not withdraw this subscription or any amount paid pursuant
thereto except as otherwise provided below.
2. Piggy-Back
Registration Rights.
(a) The
Company shall notify the undersigned in writing at least twenty (20) days prior
the filing of any registration statement under the Securities Act of 1933,
as
amended (the “Securities
Act”),
in
connection with a public offering of shares of Common Stock (including, but
not
limited to, registration statements relating to secondary offerings of
securities of the Company but excluding any registration statements (i) on
Form
S-4 or S-8 (or any successor or substantially similar form), or of any employee
stock option, stock purchase or compensation plan or of securities issued or
issuable pursuant to any such plan, or a dividend reinvestment plan, (ii)
otherwise relating to any employee, benefit plan or corporate reorganization
or
other transactions covered by Rule 145 promulgated under the Securities Act,
or
(iii) on any registration form which does not permit secondary sales or does
not
include substantially the same information as would be required to be included
in a registration statement covering the resale of the shares of Common Stock
issuable upon conversion of the Warrants (the “Warrant
Shares”))
and
will afford the undersigned an opportunity to include in such registration
statement all or part of the Warrant Shares held by the undersigned. In the
event the undersigned desires to include in any such registration statement
all
or any part of the Warrant Shares held by the undersigned, the undersigned
shall
within ten (10) days after the above-described notice from the Company, so
notify the Company in writing, including the number of such Warrant Shares
the
undersigned wishes to include in such registration statement. If the undersigned
decides not to include all of its Warrant Shares in any registration statement
thereafter filed by the Company the undersigned shall nevertheless continue
to
have the right to include any Warrant Shares in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to the offering of the securities, all upon the terms and conditions set forth
herein.
(b) Notwithstanding
the foregoing, if the managing underwriter or underwriters of any such proposed
public offering advise the Company that the total amount or kind of securities
which the undersigned, the Company and any other Persons intended to be included
in such proposed public offering is sufficiently large to adversely affect
the
success of such proposed public offering, then the amount or kind of securities
to be offered for the amount of the various parties wishing to have shares
of
Common Stock registered shall be included in the following order:
(i) If
the
Company proposed to register treasury shares or authorized but unissued shares
of Common Stock (collectively, “Primary
Securities”):
(A) first,
the Primary Securities;
3
(B) second,
the Warrant Shares requested to be included in such registration, together
with
shares of Common Stock which do not constitute Warrant Shares or Primary
Securities (“Other
Securities”)
held
by parties exercising similar piggy-back registration rights (or if necessary,
such Warrant Shares and Other Securities pro rata among the holders thereof
based upon the number of such Warrant Shares and Other Securities requested
to
be registered by each such holder).
(ii) If
the
Company proposed to register Other Securities:
(A) first,
the Other Securities requested to be included in such registration by holders
exercising demand registration rights;
(B) second,
the Warrant Shares requested to be included in such registration, together
with
Other Securities held by parties exercising similar piggy-back registration
rights (or if necessary, such Warrant Shares and Other Securities pro rata
among
the holders thereof based upon the number of such Warrant Shares and Other
Securities requested to be registered by each such holder).
Anything
to the contrary in this Agreement notwithstanding, the Company may withdraw
or
postpone a registration statement referred to herein (a “Registration
Statement”)
at any
time before it becomes effective or withdraw, postpone or terminate the offering
after it becomes effective without obligation to the undersigned.
(c) In
connection with its obligation under this Section
2,
the
Company will (i) furnish to undersigned without charge, at least one copy of
any
effective Registration Statement and any post-effective amendments thereto,
including financial statements and schedules, and, if the undersigned so
requests in writing, all documents incorporated therein by reference and all
exhibits (including those incorporated by reference) in the form filed with
the
Securities and Exchange Commission; and (ii) deliver to the undersigned and
the
underwriters, if any, without charge, as many copies of the then effective
the
prospectus included the Registration Statement, as the same may be amended
or
supplemented, (including such prospectus subject to completion) (the
“Prospectus”) and any amendments or supplements thereto as such Persons may
reasonably request.
(d) As
a
condition to the inclusion of its Warrant Shares, the undersigned shall furnish
to the Company such information regarding the undersigned and the distribution
proposed by the undersigned as the Company may request in writing or as shall
be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
(e) The
undersigned agrees by acquisition of Warrant Shares that, upon receipt of any
notice from the Company of the happening of any event that, in the good faith
judgment of the Company’s Board of Directors, requires the suspension of the
undersigned’s rights under this Section
2,
undersigned will forthwith discontinue disposition of Warrant Shares pursuant
to
the then current Prospectus until undersigned is advised in writing by the
Company that the use of the Prospectus may be resumed. If so directed by the
Company, on the happening of such event, undersigned will deliver to the Company
(at the Company’s expense) all copies, other than permanent file copies then in
buyer’s possession, of the Prospectus covering such Warrant Shares at the time
of receipt of such notice.
4
(f) The
undersigned hereby covenants with the Company (i) not to make any sale of
Warrant Shares without effectively causing the prospectus delivery requirements
under the Securities Act to be satisfied, and (ii) if such Warrant Shares are
to
be sold by any method or in any transaction other than on a national securities
exchange, the Nasdaq National market, Nasdaq SmallCap Market or in the
over-the-counter market, in privately negotiated transactions, or in a
combination of such methods, to notify the Company at least 5 business days
prior to the date on which the undersigned first offers to sell any such Warrant
Shares.
(g) The
undersigned acknowledges and agrees that the Warrant Shares sold pursuant to
the
Registration Statement described in this Agreement are not transferable on
the
books of the Company unless the stock certificate submitted to the transfer
agent evidencing such Warrant Shares is accompanied by a certificate reasonably
satisfactory to the Company to the effect that (x) the Warrant Shares have
been
sold in accordance with such Registration Statement and (y) the requirement
of
delivering a current Prospectus has been satisfied.
(h) The
undersigned shall not take any action with respect to any distribution deemed
to
be made pursuant to such Registration Statement, which would constitute a
violation of Regulation M under the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”),
or
any other applicable rule, regulation or law.
(i) Upon
the
expiration of the effectiveness of any Registration Statement, the undersigned
shall discontinue sales of shares pursuant to such Registration Statement upon
receipt of notice from the Company of its intention to remove from registration
the shares covered by such Registration Statement which remain unsold, and
the
undersigned shall notify the Company of the number of shares registered which
remain unsold immediately upon receipt of such notice from the
Company
(j) In
the
case of the registration of any underwritten primary offering initiated by
the
Company (other than any registration by the Company on Form S-4 or Form S-8
(or
any successor or substantially similar form), or of (i) an employee stock
option, stock purchase or compensation plan or of securities issued or issuable
pursuant to any such plan, or (ii) a dividend reinvestment plan) or any
underwritten secondary offering initiated at the request of a holder of
securities of the Company pursuant to registration rights granted by the
Company. The undersigned agrees not to effect any public sale or distribution
of
securities of the Company, except as part of such underwritten registration,
during the period beginning fifteen (15) days prior to the closing date of
such
underwritten offering and during the period ending ninety (90) days after such
closing date (or such longer period as may be reasonably requested by the
Company or by the managing underwriter or underwriters).
5
(k) Anything
to the contrary contained in this Agreement notwithstanding, when, in the
opinion of counsel for the Company, registration of the Warrant Shares is not
required by the Securities Act, in connection with a proposed sale of such
Warrant Shares, the undersigned shall have no rights pursuant to this
Section
2.
In
furtherance and not in limitation of the foregoing, the undersigned shall have
no rights pursuant to this Section
2
at such
time as all of the undersigned’s Warrant Shares may be sold in a three-month
period pursuant to Rule 144.
3. Representations
and Warranties of the Company.
The
Company represents and warrants to the undersigned as follows, in each case
as
of the date hereof and in all material respects as of the date of any closing,
except for any changes resulting solely from the Offering:
(a) The
Company is duly organized, validly existing and in good standing under the
laws
of the jurisdiction of its organization with full power and authority to own,
lease, license and use its properties and assets and to carry out the business
in which it proposes to engage.
(b) The
Company has all requisite corporate power and authority to execute, deliver
and
perform its obligations under this Agreement and to issue and sell the
Offering Notes subscribed for hereunder, the Exchange Notes (as defined below),
the Warrants issuable pursuant to such Offering Notes and the shares of Common
Stock issuable upon exercise of such Warrants (collectively, the “Subject
Securities”).
All
necessary proceedings of the Company have been duly taken to authorize the
execution, delivery, and performance of this Agreement, the Offering Notes
and
the Warrants (collectively, the “Transaction
Documents”).
The
Transaction Documents have been duly authorized by the Company and, when
executed and delivered by the Company, will constitute the legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with their terms. The Common Stock issuable upon exercise of the Warrants,
when
issued in compliance with the provisions of the Transaction Documents, will
be
validly issued, fully paid and nonassessable and free of any liens or
encumbrances other than any liens or encumbrances that result from such Common
Stock being held by any person other than the Company. The Offering Notes and
Warrants are duly authorized, and when issued pursuant to the Transaction
Documents, will be validly issued.
(c) No
consent of any party to any contract, agreement, instrument, lease or license
to
which the Company is a party or to which any of its properties or assets are
subject is required for the execution, delivery or performance by the Company
of
any of the Transaction Documents or the issuance and sale of the Subject
Securities.
6
(d) The
execution, delivery and performance of Transaction Documents and the issuance
and sale of the Subject
Securities will
not
violate or result in a breach of, or entitle any party (with or without the
giving of notice or the passage of time or both) to terminate or call a default
under any contract or agreement to which the Company is a party or violate
or
result in a breach of any term of the certificate of incorporation or by-laws
of
the Company, or, assuming compliance with applicable state securities or “blue
sky” laws, violate any law, rule, regulation, order, judgment or decree binding
upon, the Company, or to which any of their respective operations, businesses,
properties or assets are subject, the breach, termination or violation of which,
or default under which, would have a material adverse effect on the operations,
business, properties or assets of the Company.
(e) Except
to
the extent modified by the Offering, the Company’s capitalization is disclosed
in the Handheld SEC Filings.
(f) Except
as
set forth on Schedule
3(f),
there
are no brokerage commissions, finder’s fees or similar fees or commissions
payable by the Company in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with or known to the
Company.
(g) Except
as
would not reasonably be expected to have a Material Adverse Effect, the Company
is not in violation or default of any provisions of its certificate of
incorporation or bylaws, as may be amended, as applicable, any instrument,
judgment, order, writ or decree, or any material provision of any contract
or
agreement, to which it is a party or by which it is bound or of any provision
of
federal, state or local statute, rule or regulation applicable to the Company
or
its business. Except as would not reasonably be expected to have a Material
Adverse Effect, the execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby will
not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree, contract or
agreement, or require any consent, waiver or approval thereunder, or constitute
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company (solely except as provided in this
Agreement).
(h) Except
as
disclosed in the Handheld SEC Filings, the Company is not a party to any
litigation, action, suit, proceeding or investigation, nor, to the knowledge
of
the Company, has any litigation, action, suit, proceeding or investigation
been
threatened against the Company where such litigation, action, suit, proceeding
or investigation would, if adversely determined, reasonably be expected to
(i)
have a material adverse affect on the financial condition of the Company or
(ii)
have a material adverse effect on the ability of the Company to perform its
obligations under this Agreement or any of the other Transaction Documents
(either (i) or (ii), a “Material Adverse Effect”).
(i) The
Company has good and marketable title to its properties and assets held in
each
case free and clear of all liens, pledges, security interests, encumbrances,
attachments or charges of any kind (each a “Lien”),
except for (i) Liens for taxes that are not yet due and payable, (ii) Liens
that
do not or are not reasonably likely to result in a Material Adverse Effect
or
(iii) Liens disclosed in the Handheld SEC Filings (Liens described in clauses
(i), (ii) and (iii) are referred to as “Permitted
Liens”).
With
respect to the property and assets it leases, the Company is in compliance
with
such leases and, to the best of the Company’s knowledge, the Company holds valid
leasehold interests in such property and assets free and clear of any Liens
of
any other party other than the lessors of such property and assets, except
for
Permitted Liens.
7
(j) Except
as
disclosed in the Financial Statements (as defined below), incurred pursuant
to
the Offering or incurred in the ordinary course of business, the Company has
no
obligations or liabilities of any kind (absolute or contingent, direct or
indirect) pursuant to any agreement of any kind related to any indebtedness
of
any kind.
(k) The
Company owns, free and clear of all Liens other than Permitted Liens, or is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks and copyrights material to the operation
of the Company’s business, and any applications related to any of the foregoing
(collectively, “Intellectual
Property”).
(l) All
reports required to be filed by the Company since and including the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2006, to and
including the relevant Closing (collectively, the “Handheld
SEC Filings”)
have
been duly filed with the Securities and Exchange Commission, complied at the
time of filing in all material respects with the requirements of their
respective forms and were complete and correct in all material respects as
of
the dates at which the information was furnished, and contained (as of such
dates) no untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements contained therein, in light
of
the circumstances under which they were made, not misleading. The parties agree
that it shall not be a breach of this Section
3(l)
if the
Company did not timely file any report.
(m) The
financial statements and supporting schedules (the “Financial
Statements”)
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2006 (the “Balance
Sheet Date”)
are
complete and correct in all material respects and present fairly the financial
position of the Company as of the dates specified and the results of operations
for the periods specified, in each case, in conformity with generally accepted
accounting principles applied on a consistent basis during the periods involved,
except as indicated therein or in the notes thereto. Since the Balance Sheet
Date, there has not been, except where it was either disclosed in the Handheld
SEC Filings or would not reasonably be expected to have a Material Adverse
Effect, (a) any payment of dividends on, or other distribution with respect
to,
or any direct or indirect redemption, purchase or acquisition of, any shares
of
the capital stock or other securities of the Company, (b) any disposition of
any
tangible or intangible material asset of the Company, (c) any damage,
destruction or loss (whether or not covered by insurance) of any material asset
of the Company, or (d) any change in the accounting methods, practices or
policies followed by the Company or any change in depreciation or amortization
policies or rates theretofore adopted, which has not been adequately provided
for or disclosed in the Financial Statements.
8
4. Representations,
Warranties and Covenants of the Subscriber.
The
undersigned hereby represents and warrants to, and agrees with, the Company
as
follows:
(a) The
undersigned is an Accredited Investor, as specifically indicated in Exhibit
C
to this
Agreement, which is being delivered to the Company herewith.
(b) If
a
natural person, the undersigned is: a bona fide resident of the state or
non-United States jurisdiction contained in the address set forth on the
signature page of this Agreement as the undersigned’s home address; at least
twenty-one (21) years of age; and legally competent to execute the Transaction
Documents. If an entity, the undersigned has its principal offices or principal
place of business in the state or non-United States jurisdiction contained
in
the address set forth on the signature page of this Agreement, the individual
signing on behalf of the undersigned is duly authorized to execute the
Transaction Documents.
(c) Each
of
the Transaction Documents to which the undersigned is party has been duly
executed and delivered by the undersigned and constitutes the legal, valid
and
binding obligation of the undersigned, enforceable against the undersigned
in
accordance with its terms.
(d) Neither
the execution, delivery nor performance of the Transaction Documents by the
undersigned violates or conflicts with, creates (with or without the giving
of
notice or the lapse of time, or both) a default under or a lien or encumbrance
upon any of the undersigned’s assets or properties pursuant to, or requires the
consent, approval or order of any government or governmental agency or other
person or entity under (i) any note, indenture, lease, license or other
agreement to which the undersigned is a party or by which it or any of its
assets or properties is bound or (ii) any statute, law, rule, regulation or
court decree binding upon or applicable to the undersigned or its assets or
properties. If the undersigned is not a natural person, the execution, delivery
and performance by the undersigned of the Transaction Documents, have been
duly
authorized by all necessary corporate or other action on behalf of the
undersigned and such execution, delivery and performance does not and will
not
constitute a breach or violation of, or default under, the charter or by-laws
or
equivalent governing documents of the undersigned.
(e) The
undersigned has received, read carefully and is familiar with the Transaction
Documents and the Handheld SEC Filings.
(f) The
undersigned is familiar with the business, plans and financial condition of
the
Company, the terms of the Offering and any other matters relating to the
Offering; the undersigned has received all materials which have been requested
by the undersigned; the undersigned has had a reasonable opportunity to ask
questions of the Company and its representatives, and the Company has answered
to the satisfaction of the undersigned all inquiries that the undersigned or
the
undersigned’s representatives have put to it. The undersigned has had access to
all additional information that the undersigned has deemed necessary to verify
the accuracy of the information set forth in this Agreement and the Handheld
SEC
Filings, and has taken all the steps necessary to evaluate the merits and risks
of an investment as proposed under this Agreement.
9
(g) The
undersigned acknowledges that this subscription is and shall be irrevocable
and
this subscription and the agreements contained herein shall survive the
insolvency, death or disability of the undersigned (as applicable), except
that
the undersigned shall have no obligation hereunder in the event that its
subscription is for any reason rejected or the Offering is cancelled or
terminated by the Company, which the Company reserves the right to do in its
sole and absolute discretion and for any reason.
(h) The
undersigned hereby acknowledges and represents that: (i) the undersigned has
prior investment experience, including investment in securities which are
non-listed, unregistered and/or not traded on an automated quotation system;
(ii) the undersigned recognizes the highly speculative nature of an investment
in the Subject Securities; and (iii) the undersigned is able to bear the
economic risk which the undersigned hereby assumes.
(i) The
undersigned understands the various risks of an investment in the Company as
proposed herein and can afford to bear such risks, including, without
limitation, the risks of losing the entire investment.
(j) The
undersigned acknowledges that the undersigned has been informed by the Company
of, or is otherwise familiar with, the nature of the limitations imposed by
the
Securities Act and the rules and regulations thereunder on the transfer of
the
Subject Securities. In particular, the undersigned agrees that no sale,
assignment or transfer of any of the Subject Securities acquired by the
undersigned shall be valid or effective, and the Company shall not be required
to give any effect to such a sale, assignment or transfer, unless (i) the sale,
assignment or transfer of such Subject Securities is registered under the
Securities Act, it being understood that the Subject Securities are not
currently registered for sale and that the Company has no obligation or
intention to so register the Subject Securities, except as contemplated by
Section
2;
(ii)
the Subject Securities are sold, assigned or transferred in accordance with
all
the requirements and limitations of an exemption from registration under the
Securities Act. The undersigned further understands that an opinion of counsel
satisfactory to the Company and other documents may be required to transfer
the
Subject Securities.
(k) The
undersigned acknowledges that the Subject Securities to be acquired will be
subject to a stop transfer order and any certificate or certificates evidencing
any Subject Securities shall bear the following or a substantially similar
legend and such other legends as may be required by state blue sky
laws:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT OR AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS.”
10
(l) The
undersigned will acquire the Subject Securities for the undersigned’s own
account (or, if such individual is married, for the joint account of the
undersigned and the undersigned’s spouse either in joint tenancy, tenancy by the
entirety or tenancy in common) for investment and not with a view to the sale
or
distribution thereof or the granting of any participation therein in violation
of the securities laws, and has no present intention of distributing or selling
to others any of such interest or granting any participation therein in
violation of the securities laws.
(m) In
subscribing for Offering Notes, the undersigned is not relying on any
representations and warranties of the Company other than those in this
Agreement.
(n) The
undersigned is not subscribing for Offering Notes as a result of or subsequent
to any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio,
or
presented at any seminar or meeting, or any solicitation of a subscription
by a
person other than a representative of the Company with which the undersigned
had
a pre-existing relationship in connection with investments in securities
generally.
(o) The
undersigned is not relying on the Company or its officers, directors or
professional advisors for advice with respect to the tax and other economic
considerations of an investment.
(p) The
undersigned understands that the net proceeds from all subscriptions paid and
accepted pursuant to the Offering (after deduction for any commissions,
discounts, consulting fees and other expenses of the Offering) may be used
for
such purposes as the Company determines from time to time.
(q) Except
as
set forth on the signature page hereto, the undersigned has not engaged any
broker or other person or entity that is entitled to a commission, fee or other
remuneration as a result of the execution, delivery or performance of this
Agreement.
(r) The
undersigned represents, warrants and covenants to the Company as set forth
in
Schedule
4(r),
which
is incorporated herein by reference.
(s) The
undersigned represents and warrants that the undersigned has not during the
last
thirty (30) days, and hereby agrees that from the date hereof and continuing
until the undersigned no longer holds any Subject Securities the undersigned
shall not, without the prior written consent of the Company, directly or
indirectly, through related parties, affiliates or otherwise, (i) sell “short”
or “short against the box” (as those terms are generally understood) any equity
security of the Company or (ii) otherwise engage in any transaction which
involves hedging of the undersigned’s position in any equity security of the
Company, provided, however, that it shall not be a violation of this
Section
4(s),
if the
undersigned places a sell order for shares of Common Stock issuable upon
conversion of the Warrants at or following the time exercise of such Warrants
is
requested and all conditions to such exercise have been satisfied, relies on
the
Company to deliver such Common Stock in accordance with the Warrants and
completes the sale of such Common Stock before the Company delivers the Common
Stock to the undersigned.
11
5. Participation
Rights.
As
provided in the Offering Notes, if the Company enters into any private placement
of equity securities or securities convertible into equity securities while
any
Offering Notes or 8% Notes due 2008 of the Company that may be issued in
exchange for such Offering Notes (the “Exchange
Notes”)
are
outstanding (a “Subsequent
Offering”),
then
the Company shall provide each holder of Offering Notes or Exchange Notes (a
“Holder”)
with
notice (a “Subsequent
Offering Notice”)
describing in reasonable detail the terms and pricing of such Subsequent
Offering. Each Holder shall then be entitled, subject to the terms of the
Offering Notes and Exchange Notes, to participate in such Subsequent Offering
on
the same terms and conditions as the other investors therein, except that,
in
lieu of paying a cash purchase price in the Subsequent Offering, a Holder shall
exchange such Holder’s Offering Note or Exchange Note for the Company securities
being sold in the Subsequent Offering (the “Subsequent
Offering Exchange”).
Furthermore, if any Subsequent Offering raises gross proceeds in excess of
$5,000,000, then, subject to the terms of the Offering Notes and Exchange Notes,
each Holder that did not elect to participate in the Subsequent Offering may
elect to have the entire principal and accrued interest on such Holder’s
Offering Note or Exchange Note prepaid (the “Subsequent
Offering Prepayment”).
Any
such Subsequent Offering Exchange or Subsequent Offering Prepayment shall
constitute a Prepayment (as defined in the Offering Notes) and may trigger
the
Company’s obligations to issue Warrants pursuant to the Offering Notes (but not
the Exchange Notes).
6. Indemnification.
(a) General.
The
undersigned understands the meaning and legal consequences of the
representations, warranties and agreements contained in this Agreement and
the
other Transaction Documents, including without limitation Section
4
hereof,
and agrees to indemnify and hold harmless the Company and each officer,
director, partner, employee, agent and controlling person of the Company, past,
present or future, from and against any and all loss, damage or liability
(collectively, “Losses”)
due to
or arising out of a breach of any such representation, warranty or agreement.
The Company shall indemnify and hold harmless the undersigned and each officer,
director, partner, employee, agent and controlling person of the undersigned,
past, present or future, from and against any and all Losses due to or arising
out of a breach of any representation, warranty or agreement by the Company
in
this Agreement or any other Transaction Document.
12
Without
limiting the foregoing, the undersigned acknowledges that he/she understands
the
meaning and legal consequences of the representations and warranties contained
hereof, and he/she hereby agrees to indemnify and hold harmless Chicago
Investment Group from and against any and all Losses due to or arising out
of a
breach of any representation or warranty of the undersigned contained in this
Agreement. This paragraph is expressly intended to be for the benefit of, and
enforceable by, Chicago Investment Group, and shall survive any termination
of
this Agreement.
(b) Limitation
on Indemnification.
The
maximum amount payable by the undersigned, on the one hand, or the Company,
on
the other hand, to all indemnified parties in respect of claims made for
indemnification under Section 6(a) shall not exceed, in the aggregate, the
aggregate purchase price of Offering Notes paid by the undersigned in the
Offering.
(c) Sole
Remedy.
The
parties hereto agree and acknowledge that subsequent to the Closing, the
indemnification rights provided in this Section
6
shall be
the exclusive remedy of each party hereto against each other party hereto for
breaches of the representations and warranties contained in this Agreement
except with respect to (i) claims involving fraud or (ii) any injunctive relief
to which any party may be entitled.
(d) Notice.
(a) A
party
which is entitled to indemnification under this Section
6
(in such
capacity, individually and collectively, an “Indemnified
Party”)
with
respect to any Loss shall give written notice thereof to the party required
to
provide such indemnification hereunder (in such capacity, individually and
collectively, an “Indemnifying
Party”)
promptly after receipt of any written claim by any third party and in any event
not later than twenty (20) business days after receipt of any such written
claim
(or not later than ten (10) business days after the receipt of any such written
claim in the event such written claim is in the form of a formal complaint
filed
with a court of competent jurisdiction and served on the Indemnified Party),
specifying in reasonable detail the amount, nature and source of the claim,
and
including therewith copies of any notices or other documents received from
third
parties with respect to such claim; provided,
however,
that
failure to give such notice shall not limit the right of an Indemnified Party
to
recover indemnity or reimbursement except to the extent that the Indemnifying
Party suffers any prejudice or harm with respect to such claim as a result
of
such failure. The Indemnified Party shall also provide the Indemnifying Party
with such further information concerning any such claims as the Indemnifying
Party may reasonably request by written notice.
(e) Payment
of Losses.
Within
thirty (30) calendar days after receiving notice of a claim for indemnification
or reimbursement, the Indemnifying Party shall, by written notice to the
Indemnified Party, either (i) concede or deny liability for the claim in whole
or in part, or (ii) in the case of a claim asserted by a third party, advise
that the matters set forth in the notice are, or will be, subject to contest
or
legal proceedings not yet finally resolved. If the Indemnifying Party concedes
liability in whole or in part, it shall, within twenty (20) business days of
such concession, pay the amount of the claim to the Indemnified Party to the
extent of the liability conceded. Any such payment shall be made in immediately
available funds equal to the amount of such claim so payable. If the
Indemnifying Party denies liability in whole or in part or advises that the
matters set forth in the notice are, or will be, subject to contest or legal
proceedings not yet finally resolved, then the Indemnifying Party shall make
no
payment (except for the amount of any conceded liability payable as set forth
above) until the matter is resolved in accordance with this
Agreement.
13
(f) Defense
of Claims.
In the
case of any third party claim, if within 20 days after receiving the notice
described in the preceding Section
6(d),
the
Indemnifying Party or Parties (i) gives written notice to the Indemnified Party
stating that the Indemnifying Party would be liable under the provisions hereof
for indemnity in the amount of such claim if such claim were valid and that
the
Indemnifying Party disputes and intends to defend against such claim, liability
or expense at the Indemnifying Party’s own cost and expense and (ii) provides
assurance reasonably acceptable to such Indemnified Party that such
indemnification will be paid fully and promptly if required and such Indemnified
Party will not incur cost or expense during the proceeding, then the
Indemnifying Party shall be entitled to assume the defense of such claim and
to
choose counsel for the defense (subject to the consent of such Indemnified
Party
which consent shall not be unreasonably withheld) and such Indemnified Party
shall not be required to make any payment with respect to such claim, liability
or expense as long as the Indemnifying Party is conducting a good faith and
diligent defense at its own expense; provided, however, that the assumption
of
the defense of any such matters by the Indemnifying Party shall relate solely
to
the claim, liability or expense that is subject or potentially subject to
indemnification. If the Indemnifying Party assumes such defense in accordance
with the preceding sentence, it shall have the right to settle (provided that
any such settlement which results in any adverse consequences to the Indemnified
Party shall require the consent of such Indemnified Party, which consent shall
not be unreasonably withheld) all indemnifiable matters related to claims by
third parties which are susceptible to being settled provided the Indemnifying
Party’s obligation to indemnify such Indemnified Party therefor will be fully
satisfied by payment of money by the Indemnifying Party pursuant to a settlement
which includes a complete release of such Indemnified Party. The Indemnified
Party shall not settle any claim with respect to which the Indemnifying Party
has assumed the defense, without the prior written consent of the Indemnifying
Party. The Indemnifying Party shall keep such Indemnified Party apprised of
the
status of the claim, liability or expense and any resulting suit, proceeding
or
enforcement action, shall furnish such Indemnified Party with all documents
and
information that such Indemnified Party shall reasonably request and shall
consult with such Indemnified Party prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated, such Indemnified
Party shall at all times have the right to participate in, but not control,
such
defense at its own expense directly or through counsel; provided,
however,
if the
named parties to the action or proceeding include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate under applicable standards of professional conduct,
the
reasonable expense of separate counsel for such Indemnified Party shall be
paid
by the Indemnifying Party provided that such Indemnifying Party shall be
obligated to pay for only one such counsel. If no such notice of intent to
dispute and defend is given by the Indemnifying Party, or if such diligent
good
faith defense is not being or ceases to be conducted, such Indemnified Party
may
undertake the defense of (with counsel selected by such Indemnified Party and
paid by the Indemnifying Party), and shall have the right to compromise or
settle, such claim, liability or expense (exercising reasonable business
judgment) with the consent of the Indemnifying Party, which consent shall not
be
unreasonably withheld. Such Indemnified Party shall make available all
information and assistance that the Indemnifying Party may reasonably request
and shall cooperate with the Indemnifying Party in such defense.
14
7. Transferability.
Neither
this Agreement, nor any interest of the undersigned herein, shall be assignable
or transferable by the undersigned in whole or in part except by operation
of
law. Any attempt to assign or transfer this agreement or any interest therein
other than by operation of law shall be void.
8. Confidentiality.
The
undersigned acknowledges and agrees that all information, written and oral,
concerning the Company furnished from time to time to the undersigned,
including, without limitation, the Memorandum, has been and is provided on
a
confidential basis pursuant to a confidentiality agreement between the
undersigned and the Company.
9. Miscellaneous.
(a) This
Agreement, including the exhibits hereto, sets forth the entire understanding
of
the parties with respect to the undersigned’s purchase of Offering Notes from
the Company, supersedes all existing agreements among them concerning such
subject matter, and may be modified only by a written instrument duly executed
by the party to be charged.
(b) Except
as
otherwise specifically provided herein, any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
mailed by certified mail, return receipt requested, or by Federal Express,
Express Mail or similar guaranteed overnight delivery or courier service or
delivered in person against receipt to the party to whom it is to be
given,
|
(i)
|
if
to the Company,
000
Xxxxxx Xxxxxx, Xxxxx 000
Xxx
Xxxxxxxxx, XX 00000
Attn:
President
|
|
(ii)
|
with
a copy to,
Xxxxxx
and Xxxxx, LLP
000
Xxxx 00xx Xxxxxx
Xxxxx
0000
Xxx
Xxxx, Xxx Xxxx 00000
Attn:
Xxxxxx X. Xxxxxx,
Esq.
|
15
|
(iii)
|
if
to the undersigned, at the address set forth on the signature page
hereof,
|
or
in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section
9(b).
Any
notice given by means permitted by this Section
9(b)
shall be
deemed given at the time of receipt thereof at the address specified in this
Section
9(b).
(c) This
Agreement shall be binding upon and inure to the benefit of the parties hereto,
the successors and assigns of the Company, and the permitted successors,
assigns, heirs and personal representatives of the undersigned, not including,
however, any transferees of the Subject Securities.
(d) The
headings in this Agreement are solely for convenience of reference and shall
be
given no effect in the construction or interpretation of this
Agreement.
(e) This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
(f) This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York, without giving effect to principles governing conflicts
of
law that would defer to the substantive law of another
jurisdiction.
(g) In
the
event that any provision of this Agreement shall be determined to be illegal
or
unenforceable, that provision will be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force
and
effect and enforceable.
(h) Except
as
otherwise expressly set forth herein, this Agreement does not create, and shall
not be construed as creating, any rights enforceable by any person not a party
to this Agreement.
(i) The
parties hereto irrevocably consent to the jurisdiction of the courts of the
State of New York and of any federal court located in such State in connection
with any action or proceeding arising out of or relating to this Agreement,
any
document or instrument delivered pursuant to, in connection with or
simultaneously with this Agreement, or a breach of this Agreement or any such
document or instrument.
[Signature
page follows immediately]
16
SIGNATURE
PAGE
IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement, which shall be effective as of
the
day and year this subscription has been accepted by the Company as set forth
below.
|
Principal
amount of Offering Notes subscribed for (and purchase price): $____________
|
Print
Name of Subscriber:
_________________________________
_________________________________
Social
Security Number or other Taxpayer ID Number
By:
______________________________
(Signature
of Subscriber or Authorized Signatory)
Name:
Title:
Address:
__________________________
__________________________
Telephone:_________________________
Fax:_______________________________
|
If
the
Subject Securities will be held as joint tenants, tenants in common, or
community property, please complete the following:
|
_________________________________
Print
name of spouse or other co-subscriber
_________________________________
Signature
of spouse or other co-subscriber
_________________________________
Social
Security Number or other Taxpayer ID Number
_________________________________
Print
manner in which shares will be
held
|
If
the
Offering Notes have been purchased through a broker or other intermediary,
please identify such entity: ___________
[Please
complete Signature Page for each
subscriber.]
ACCEPTANCE
OF SUBSCRIPTION
_____________________________
Name
of
Subscriber
ACCEPTED
BY:
By:
___________________________________
Name:
Title:
Date:
_______________________, 2007
Accepted
for $_________ principal amount of Offering Notes.
