SUBSCRIPTION AGREEMENT
SUBSCRIPTION
AGREEMENT (this “Agreement”) made as of the last date set forth on the signature
page hereof between Healthcare Providers Direct Inc., a Nevada corporation
(the
“Company”), and the undersigned (the “Subscriber”).
W
I T N E
S S E T H:
WHEREAS,
the Company is conducting a private offering (the “Offering”) for which Axiom
Capital Management, Inc. (the “Placement Agent”) is acting as placement agent
and any other NASD Member firms which the Placement Agent may choose to engage
(the “Select Dealer”), consisting of a minimum of $500,000 (the “Minimum
Offering”) up to a maximum of $2,000,000 (the “Maximum Offering”) in the
aggregate face amount of 9% Senior Secured Convertible Debentures (the
“Debentures”), pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the “Securities Act”) and Rule 506 promulgated thereunder;
and
WHEREAS,
the Subscriber desires to purchase an aggregate principal amount of the
Debentures set forth on the signature page hereof on the terms and conditions
hereinafter set forth; and
WHEREAS,
in connection with the purchase of the Debentures, the Subscriber will receive
a
warrant to purchase such number of shares of common stock (the “Common Stock”)
of the Company (the “Warrants”) equal to the aggregate face amount of the
Debenture divided by the conversion price of the Debenture (the “Conversion
Price), and collectively with the Debenture, the “Securities”).
NOW,
THEREFORE, in consideration of the premises and the mutual representations
and
covenants hereinafter set forth, the parties hereto do hereby agree as
follows:
| I. |
SUBSCRIPTION
FOR SHARES AND REPRESENTATIONS AND COVENANTS BY
SUBSCRIBER
|
1.1 Subject
to the terms and conditions hereinafter set forth and in the Confidential
Offering Memorandum dated July 18, 2007 (such memorandum, together with all
amendments thereof and supplements and exhibits thereto, the “Memorandum”), the
Subscriber hereby irrevocably subscribes for and agrees to purchase from the
Company, and the Company agrees to sell to the Subscriber, such aggregate
principal amount of the Debentures as is set forth on the signature page hereof.
The purchase price is payable by wire transfer, to be held in escrow until
the
Minimum Offering is achieved, to:
Citibank
New
York, NY
A/C
of Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
A/C#: 92883436
ABA#: 000000000
SWIFT
Code: XXXXXX00
REMARK:
HEALTHCARE PROVIDERS/
[PURCHASER NAME]
1
1.2 Offering
Period; Maximum.
The
Securities will be offered for sale until the earlier of (i) the closing on
the
Maximum Offering or (ii) August 31, 2007, (the “Termination Date”), subject to
the right of the Company and the Placement Agent to extend the Termination
Date
for up to 30 additional days. The Offering is being conducted on a best-efforts
basis.
1.3 Closings.
The
Company may hold an initial closing (“Initial Closing”) at any time after the
receipt of accepted subscriptions for the Minimum Offering prior to the
Termination Date. After the Initial Closing, subsequent closings with respect
to
additional Securities may take place at any time prior to the Termination Date
as determined by the Company, with respect to subscriptions accepted prior
to
the Termination Date (each such closing, together with the Initial Closing,
being referred to as a “Closing”). The last Closing of the Offering, occurring
on or prior to the Termination Date, shall be referred to as the “Final
Closing”. Any subscription documents or funds received after the Final Closing
will be returned, without interest or deduction. In the event that the any
Closing does not occur prior to the Termination Date, all amounts paid by the
Subscriber shall be returned to the Subscriber, without interest or
deduction.
1.4 The
Subscriber recognizes that the purchase of the Securities involves a high degree
of risk including, but not limited to, the following: (a) the Company has
limited operating history and requires substantial funds in addition to the
proceeds of the Offering; (b) an investment in the Company is highly
speculative, and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Securities; (c)
the
Subscriber may not be able to liquidate its investment; (d) transferability
of
the Securities is extremely limited; (e) in the event of a disposition, the
Subscriber could sustain the loss of its entire investment; and (f) the Company
has not paid any dividends since its inception and does not anticipate paying
any dividends. Without limiting the generality of the representations set forth
in Section 1.5 below, the Subscriber represents that the Subscriber has
carefully reviewed the section of the Memorandum captioned “Risk Factors.”
1.5 The
Subscriber represents that the Subscriber is an “accredited investor” as such
term is defined in Rule 501 of Regulation D (“Regulation D”) promulgated under
the Securities Act, as indicated by the Subscriber’s responses to the questions
contained in Article VII hereof, and that the Subscriber is able to bear the
economic risk of an investment in the Securities.
1.6 The
Subscriber hereby acknowledges and represents that (a) the Subscriber has
knowledge and experience in business and financial matters, prior investment
experience, including investment in securities that are non-listed, unregistered
and/or not traded on a national securities exchange nor on the National
Association of Securities Dealers, Inc. (the “NASD”) automated quotation system
(“NASDAQ”), or the Subscriber has employed the services of a “purchaser
representative” (as defined in Rule 501 of Regulation D), attorney and/or
accountant to read all of the documents furnished or made available by the
Company both to the Subscriber and to all other prospective investors in the
Securities to evaluate the merits and risks of such an investment on the
Subscriber’s behalf; (b) the Subscriber recognizes the highly speculative nature
of this investment; and (c) the Subscriber is able to bear the economic risk
that the Subscriber hereby assumes.
2
1.7 The
Subscriber hereby acknowledges receipt and careful review of this Agreement,
the
Memorandum (which includes the Risk Factors), including the Warrant and the
Debenture (as defined below) and all other exhibits thereto, and any documents
which may have been made available upon request as reflected therein
(collectively referred to as the “Offering Materials”) and hereby represents
that the Subscriber has been furnished by the Company during the course of
the
Offering with all information regarding the Company, the terms and conditions
of
the Offering and any additional information that the Subscriber has requested
or
desired to know, and has been afforded the opportunity to ask questions of
and
receive answers from duly authorized officers or other representatives of the
Company concerning the Company and the terms and conditions of the Offering;
provided, however that no investigation performed by or on behalf of the
Subscriber shall limit or otherwise affect its right to rely on the
representations and warranties of the Company contained herein.
1.8 (a)In
making
the decision to invest in the Securities the Subscriber has relied solely upon
the information provided by the Company in the Offering Materials. To the extent
necessary, the Subscriber has retained, at its own expense, and relied upon
appropriate professional advice regarding the investment, tax and legal merits
and consequences of this Agreement and the purchase of the Securities hereunder.
The Subscriber disclaims reliance on any statements made or information provided
by any person or entity in the course of Subscriber’s consideration of an
investment in the Securities other than the Offering Materials.
(b) The
Subscriber represents that (i) the Subscriber was contacted regarding the sale
of the Securities by the Company (or another person whom the Subscriber believed
to be an authorized agent or representative thereof) with whom the Subscriber
had a prior substantial pre-existing relationship and (ii) it did not learn
of
the offering of the Securities by means of any form of general solicitation
or
general advertising, and in connection therewith, the Subscriber did not (A)
receive or review any advertisement, article, notice or other communication
published in a newspaper or magazine or similar media or broadcast over
television or radio, whether closed circuit, or generally available; or (B)
attend any seminar meeting or industry investor conference whose attendees
were
invited by any general solicitation or general advertising.
1.9 The
Subscriber hereby acknowledges that the Offering has not been reviewed by the
United States Securities and Exchange Commission (the “SEC”) nor any state
regulatory authority since the Offering is intended to be exempt from the
registration requirements of Section 5 of the Securities Act, pursuant to
Regulation D. The Subscriber understands that the Securities have not been
registered under the Securities Act or under any state securities or “blue sky”
laws and agrees not to sell, pledge, assign or otherwise transfer or dispose
of
the Securities unless they are registered under the Securities Act and under
any
applicable state securities or “blue sky” laws or unless an exemption from such
registration is available.
3
1.10 The
Subscriber understands that the Securities have not been registered under the
Securities Act by reason of a claimed exemption under the provisions of the
Securities Act that depends, in part, upon the Subscriber’s investment
intention. In this connection, the Subscriber hereby represents that the
Subscriber is purchasing the Securities for the Subscriber’s own account for
investment and not with a view toward the resale or distribution to others;
provided, however, that nothing contained herein shall constitute an agreement
by the Subscriber to hold the Securities for any particular length of time
and
the Company acknowledges that the Subscriber shall at all times retain the
right
to dispose of its property as it may determine in its sole discretion, subject
to any restrictions imposed by applicable law. The Subscriber, if an entity,
further represents that it was not formed for the purpose of purchasing the
Securities.
1.11 The
Subscriber understands that the Common Stock issuable upon conversion of the
Debentures (the “Conversion Shares”) and upon exercise of the Warrants (the
“Warrant Shares” and collectively with the Conversion Shares, the “Common
Shares”) is quoted on the OTC Bulletin Board and that there is a limited market
for the Common Stock. The Subscriber understands that even if a public market
develops for the Common Shares, Rule 144 (“Rule 144”) promulgated under the
Securities Act requires for non-affiliates, among other conditions, a one-year
holding period prior to the resale (in limited amounts) of securities acquired
in a non-public offering without having to satisfy the registration requirements
under the Securities Act. The Subscriber understands and hereby acknowledges
that the Company is under no obligation to register any of the Securities or
the
Common Shares under the Securities Act or any state securities or “blue sky”
laws other than as set forth in Article V.
1.12 The
Subscriber consents to the placement of a legend on any certificate or other
document evidencing the Securities and the Common Shares that such securities
have not been registered under the Securities Act or any state securities or
“blue sky” laws and setting forth or referring to the restrictions on
transferability and sale thereof contained in this Agreement. The Subscriber
is
aware that the Company will make a notation in its appropriate records with
respect to the restrictions on the transferability of such Securities. The
legend to be placed on each certificate shall be in form substantially similar
to the following:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES OR “BLUE
SKY LAWS,” AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY
HAS
RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND
ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
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1.13 It
is
agreed that the Company, at its sole discretion, reserves the unrestricted
right, without further documentation or agreement on the part of the Subscriber,
to reject or limit any subscription, to accept subscriptions for fractional
Shares and to close the Offering to the Subscriber at any time and that the
Company will issue stop transfer instructions to its transfer agent with respect
to such Securities.
1.14 The
Subscriber hereby represents that the address of the Subscriber furnished by
Subscriber on the signature page hereof is the Subscriber’s principal residence
if Subscriber is an individual or its principal business address if it is a
corporation or other entity.
1.15 The
Subscriber represents that the Subscriber has full power and authority
(corporate, statutory and otherwise) to execute and deliver this Agreement
and
to purchase the Securities. This Agreement constitutes the legal, valid and
binding obligation of the Subscriber, enforceable against the Subscriber in
accordance with its terms.
1.16 If
the
Subscriber is a corporation, partnership, limited liability company, trust,
employee benefit plan, individual retirement account, Xxxxx Plan, or other
tax-exempt entity, it is authorized and qualified to invest in the Company
and
the person signing this Agreement on behalf of such entity has been duly
authorized by such entity to do so.
1.17 The
Subscriber acknowledges that if he or she is a Registered Representative of
an
NASD member firm, he or she must give such firm the notice required by the
NASD’s Rules of Fair Practice, receipt of which must be acknowledged by such
firm in Section 7.4 below.
1.18 The
Subscriber acknowledges that at such time, if ever, as the Securities or the
Common Shares are registered (as such term is defined in Article V hereof),
sales of the Securities and the Common Shares will be subject to state
securities laws.
1.19 The
Subscriber agrees not to issue any public statement with respect to the
Subscriber’s investment or proposed investment in the Company or the terms of
any agreement or covenant between them and the Company without the Company’s
prior written consent, except such disclosures as may be required under
applicable law or under any applicable order, rule or regulation.
1.22
To
effectuate the terms and provisions hereof, the Subscriber hereby appoint the
Placement Agent as its attorney-in-fact (and the Placement Agent hereby accepts
such appointment) for the purpose of carrying out the provisions of the Escrow
Agreement by and between the Company, the Placement Agent and Sichenzia Xxxx
Xxxxxxxx Xxxxxxx LLP (the “Escrow
Agreement”)
including, without limitation, taking any action on behalf of, or at the
instruction of, the Subscribers and executing any release notices required
under
the Escrow Agreement and taking any action and executing any instrument that
the
Placement Agent may deem necessary or advisable (and lawful) to accomplish
the
purposes hereof.
All acts
done under the foregoing authorization are hereby ratified and approved and
neither the Placement Agent nor any designee nor agent thereof shall be liable
for any acts of commission or omission, for any error of judgment, for any
mistake of fact or law except for acts of gross negligence or willful
misconduct.
This
power of attorney, being coupled with an interest, is irrevocable while the
Escrow Agreement remains in effect.
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| II. |
REPRESENTATIONS
BY AND COVENANTS OF THE COMPANY
|
The
Company hereby represents and warrants to the Subscriber that:
2.1 Organization,
Good Standing and Qualification.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada and has full corporate power and authority
to own and use its properties and its assets and conduct its business as
currently conducted. Each of the Company’s subsidiaries (the “Subsidiaries”) is
an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority to own and use its properties and assets and to conduct its business
as currently conducted. Neither the Company, nor any of its Subsidiaries is
in
violation of any of the provisions of their respective articles of
incorporation, by-laws or other organizational or charter documents, including,
but not limited to the Charter Documents (as defined below). Each of the Company
and its Subsidiaries is duly qualified to conduct business and is in good
standing as a foreign corporation in each jurisdiction in which the nature
of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as
the case may be, would not result in a direct and/or indirect (i) material
adverse effect on the legality, validity or enforceability of any of the
Securities and/or this Agreement, (ii) material adverse effect on the
results of operations, assets, business, condition (financial and other) or
prospects of the Company and its Subsidiaries, taken as a whole, or (iii)
material adverse effect on the Company’s ability to perform in any material
respect on a timely basis its obligations under this Agreement, the Warrants,
the Debentures and the Memorandum.
2.2 Capitalization
and Voting Rights.
The
authorized, issued and outstanding capital stock of the Company is as set forth
in Schedule 2.2 hereto and all issued and outstanding shares of capital stock
of
the Company are validly issued, fully paid and nonassessable. Except as set
forth in Schedule 2.2 hereto, (i) there are no outstanding securities of the
Company or any of its Subsidiaries which contain any preemptive, redemption
or
similar provisions, nor is any holder of securities of the Company or any
Subsidiary entitled to preemptive or similar rights arising out of any agreement
or understanding with the Company or any Subsidiary by virtue of any of the
Transaction Documents, and there are no contracts, commitments, understandings
or arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (ii)
neither the Company nor any Subsidiary has any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement; and (iii)
there are no outstanding options, warrants, agreements, convertible securities,
preemptive rights or other rights to subscribe for or to purchase or acquire,
any shares of capital stock of the Company or any Subsidiary or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue any shares of capital stock of the
Company or any Subsidiary, or secur-ities or rights convertible or exchangeable
into shares of capital stock of the Company or any Subsidiary. Except as set
forth in Schedule 2.2 and as otherwise required by law, there are no
restrictions upon the voting or transfer of any of the shares of capital stock
of the Company pursuant to the Company’s Charter Documents, Bylaws or other
governing documents or any agreement or other instruments to which the Company
is a party or by which the Company is bound. All of the issued and outstanding
shares of capital stock of the Company are validly issued, fully paid and
nonassessable and the shares of capital stock of the Subsidiaries are owned
by
the Company, free and clear of any mortgages, pledges, liens, claims, charges,
encumbrances or other restrictions (collectively, “Encumbrances”). All of such
outstanding capital stock has been issued in compliance with applicable federal
and state securities laws. The issuance and sale of the Securities or the Common
Shares as contemplated hereby will not obligate the Company to issue shares
of
Common Stock or other securities to any other person (other than the
Subscribers) and will not result in the adjustment of the exercise, conversion,
exchange or reset price of any outstanding security. The Company does not have
outstanding stockholder purchase rights or “poison pill” or any similar
arrangement in effect giving any person the right to purchase any equity
interest in the Company upon the occurrence of certain events.
6
2.3 Authorization;
Enforceability.
The
Company has all corporate right, power and authority to enter into, execute
and
deliver this Agreement and each other agreement, document, instrument and
certificate to be executed by the Company in connection with the consummation
of
the transactions contemplated hereby, including, but not limited to the Warrants
and the Debentures (collectively, the “Transaction Documents”) and to perform
fully its obligations hereunder and thereunder. All corporate action on the
part
of the Company, its directors and stockholders necessary for the (a)
authorization execution, delivery and performance of this Agreement and the
Transaction Documents by the Company; and (b) authorization, sale, issuance
and
delivery of the Securities and the Common Shares contemplated hereby and the
performance of the Company’s obligations under this Agreement and the
Transaction Documents has been taken. This Agreement and the Transaction
Documents have been duly executed and delivered by the Company and each
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its respective terms, subject to laws
of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy. The Securities and
Common Shares, when issued and fully paid for in accordance with the terms
of
this Agreement, will be validly issued, fully paid and nonassessable, free
and
clear of all Encumbrances, except for restrictions on transfer set forth in
the
Transaction Documents or imposed by applicable securities laws. The Company
has
reserved a sufficient number of shares of Common Stock for issuance upon the
exercise of the Warrants, free and clear of all Encumbrances, except for
restrictions on transfer set forth in the Transaction Documents or imposed
by
applicable securities laws. The issuance and sale of the Securities and Common
Shares contemplated hereby will not give rise to any preemptive rights or rights
of first refusal on behalf of any person.
2.4 No
Conflict; Governmental Consents.
(a) The
execution and delivery by the Company of this Agreement and the Transaction
Documents, the issuance and sale of the Securities and the Common Shares and
the
consummation of the other transactions contemplated hereby or thereby do not
and
will not (i) result in the violation of any law, statute, rule, regulation,
order, writ, injunction, judgment or decree of any court or governmental
authority to or by which the Company is bound, (ii) conflict with or violate
any
provision of the Company’s Articles of Incorporation (the “Articles”), as
amended or the Bylaws, (and collectively with the Articles, the “Charter
Documents”) of the Company, and (iii) conflict with, or result in a material
breach or violation of, any of the terms or provisions of, or constitute (with
or without due notice or lapse of time or both) a default or give to others
any
rights of termination, amendment, acceleration or cancellation (with or without
due notice, lapse of time or both) under any agreement, credit facility, lease,
loan agreement, mortgage, security agreement, trust indenture or other agreement
or instrument to which the Company or any Subsidiary is a party or by which
any
of them is bound or to which any of their respective properties or assets is
subject, nor result in the creation or imposition of any Encumbrances upon
any
of the properties or assets of the Company or any Subsidiary.
7
(b) No
approval by the holders of Common Stock, or other equity securities of the
Company is required to be obtained by the Company in connection with the
authorization, execution, delivery and performance of this Agreement and the
other Transaction Documents or in connection with the authorization, issue
and
sale of the Securities and the Common Shares, except as has been previously
obtained.
(c) No
consent, approval, authorization or other order of any governmental authority
or
any other person is required to be obtained by the Company in connection with
the authorization, execution, delivery and performance of this Agreement and
the
other Transaction Documents or in connection with the authorization, issue
and
sale of the Securities and the Common Shares, except such post-sale filings
as
may be required to be made with the SEC, NASD, NASDAQ and with any state or
foreign blue sky or securities regulatory authority, all of which shall be
made
when required.
2.5 Consents
of Third Parties.
No
vote, approval or consent of any holder of capital stock of the Company or
any
other third parties is required or necessary to be obtained by the Company
in
connection with the authorization, execution, deliver and performance of this
Agreement and the other Transaction Documents or in connection with the
authorization, issue and sale of the Securities and the Common Shares, except
as
previously obtained, each of which is in full force and effect.
2.6 Licenses.
Except
as otherwise set forth in the SEC Reports (as defined below), the Company and
its Subsidiaries have sufficient licenses, permits and other governmental
authorizations currently required for the conduct of their respective businesses
or ownership of properties and is in all material respects in compliance
therewith.
2.7 Litigation.
Except
as set forth in the SEC Reports, the Company knows of no pending or threatened
legal or governmental proceedings against the Company or any Subsidiary which
could materially adversely affect the business, property, financial condition
or
operations of the Company and its Subsidiaries, taken as a whole, or which
materially and adversely questions the validity of this Agreement or the other
Transaction Documents or the right of the Company to enter into this Agreement
and the other Transaction Documents, or to perform its obligations hereunder
and
thereunder. Neither the Company nor any Subsidiary is a party or subject to
the
provisions of any order, writ, injunction, judgment or decree of any court
or
government agency or instrumentality which could materially adversely affect
the
business, property, financial condition or operations of the Company and its
Subsidiaries taken as a whole. There is no action, suit, proceeding or
investigation by the Company or any Subsidiary currently pending in any court
or
before any arbitrator or that the Company or any Subsidiary intends to initiate.
Neither the Company nor any Subsidiary, nor any director or officer thereof,
is
or since February 7, 2007 has been the subject of any action involving a claim
of violation of or liability under federal or state securities laws or a claim
of breach of fiduciary duty. There has not been, and to the Company’s knowledge,
there is not pending or contemplated, any investigation by the SEC involving
the
Company or any current or former director or officer of the Company. The SEC
has
not issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the federal
securities laws.
8
2.8 Disclosure.
The
information set forth in the Offering Materials as of the date hereof and as
of
the date of each Closing contains no untrue statement of a material fact nor
omits 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.
2.9 Investment
Company.
The
Company is not an “investment company” within the meaning of such term under the
Investment Company Act of 1940, as amended, and the rules and regulations of
the
SEC thereunder.
2.10 Brokers.
Except
for the Placement Agent or Select Dealers, neither the Company nor any of the
Company's officers, directors, employees or stockholders has employed or engaged
any broker or finder in connection with the transactions contemplated by this
Agreement and no fee or other compensation is or will be due and owing to any
broker, finder, underwriter, placement agent or similar person in connection
with the transactions contemplated by this Agreement. The Company is not party
to any agreement, arrangement or understanding whereby any person has an
exclusive right to raise funds and/or place or purchase any debt or equity
securities for or on behalf of the Company. The Company may pay a sales
commission of up to 8% of the gross proceeds of the sale of the Securities
in
cash and issue such number of Warrants equal to 8% of the aggregate amount
of
Securities Subscribed for to the Placement Agent or Select Dealers.
2.11 Intellectual
Property; Employees.
(a) The
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information
and
other proprietary rights and processes necessary for its business as now
conducted and as presently proposed to be conducted, without any known
infringement of the rights of others. Except as disclosed in the Memorandum,
there are no material outstanding options, licenses or agreements of any kind
relating to the foregoing proprietary rights, nor is the Company bound by or
a
party to any material options, licenses or agreements of any kind with respect
to the patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and processes of
any
other person or entity other than such licenses or agreements arising from
the
purchase of “off the shelf” or standard products. The Company has not received
any written communications alleging that the Company has violated or, by
conducting its business as presently proposed to be conducted, would violate
any
of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity.
9
(b) Except
as
disclosed in the SEC Reports, the Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments
of
any nature) or other agreement, or subject to any judgment, decree or order
of
any court or administrative agency, that would interfere with their duties
to
the Company or that would conflict with the Company’s business as presently
conducted.
(c) Neither
the execution nor delivery of this Agreement, nor the carrying on of the
Company’s business by the employees of the Company, nor the conduct of the
Company’s business as presently conducted, will, to the Company’s knowledge,
conflict with or result in a breach of the terms, conditions or provisions
of,
or constitute a default under, any contract, covenant or instrument under which
any employee is now obligated.
(d) To
the
Company’s knowledge, no employee of the Company, nor any consultant with whom
the Company has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating
to
the right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business conducted by the Company; and
to
the Company’s knowledge the continued employment by the Company of its present
employees, and the performance of the Company’s contracts with its independent
contractors, will not result in any such violation. The Company has not received
any written notice alleging that any such violation has occurred. Except as
described in the Memorandum, no employee of the Company has been granted the
right to continued employment by the Company or to any compensation following
termination of employment with the Company except for any of the same which
would not have a material adverse effect on the business of the Company. The
Company is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Company, nor does
the
Company have a present intention to terminate the employment of any officer,
key
employee or group of employees.
2.12 Title
to Properties and Assets; Liens, Etc.
Except
as described in the SEC Reports, the Company has good and marketable title
to
its properties and assets, including the properties and assets reflected in
the
most recent balance sheet included in the Company’s financial statements, and
good title to its leasehold estates, in each case subject to no Encumbrances,
other than (a) those resulting from taxes which have not yet become delinquent;
and (b) Encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company;
and
(c) those that have otherwise arisen in the ordinary course of business, none
of
which are material. The Company is in compliance with all material terms of
each
lease to which it is a party or is otherwise bound.
2.13 Obligations
to Related Parties.
Except
as described in the SEC Reports, there are no obligations of the Company to
officers, directors, stockholders, or employees of the Company other than (a)
for payment of salary or other compensation for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company and
(c)
for other standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company). Except as disclosed in
the
SEC Reports, none of the officers or directors of the Company and, to the
Company’s knowledge, none of the employees of the Company is presently a party
to any transaction with the Company or any Subsidiary (other than as holders
of
stock options and/or warrants, and for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Company’s knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is
an
officer, director, trustee or partner.
10
2.14 SEC
Reports; Financial Statements.
The
Company has filed all reports required to be filed by it under the Securities
Act and Securities Exchange Act of 1934 (the “Exchange Act”), including pursuant
to Section 13(a) or 15(d) thereof, for the twelve months preceding the date
hereof (or such shorter period as the Company was required by law to file such
reports) (the foregoing materials being collectively referred to herein as
the
"SEC Reports" and, together with the Schedules to this Agreement (if any),
the
"Disclosure Materials") on a timely basis or has timely filed a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the SEC with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the
footnotes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods
then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
2.15 Press
Releases.
The
press releases disseminated by the Company during the twelve months preceding
the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not
misleading.
2.16 Material
Changes.
Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in the SEC Reports, (i) there has
been
no event, occurrence or development that has had or that could reasonably be
expected to result in a material adverse effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade
payables, accrued expenses and other liabilities incurred in the ordinary course
of business consistent with past practice and (B) liabilities not required
to be
reflected in the Company's financial statements pursuant to generally accepted
accounting principles or required to be disclosed in filings made with the
SEC,
(iii) the Company has not altered its method of accounting or the identity
of
its auditors, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, and (v) the Company has not issued any equity securities to any officer,
director or affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the SEC any request for confidential
treatment of information.
11
2.17 Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company.
2.18 Compliance.
The
Company is in compliance with all effective requirements of the Xxxxxxxx-Xxxxx
Act of 2002, as amended, and the rules and regulations thereunder, that are
applicable to it, except where such noncompliance could not have or reasonably
be expected to result in a material adverse effect.
2.19 Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged. The Company has no reason to believe that it will not be able to renew
its and the Subsidiaries’ existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business on terms consistent with market for the Company’s and
such Subsidiaries’ respective lines of business.
2.20 Internal
Accounting Controls.
The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company’s Form 10-KSB or 10-QSB, as the case may be, is
being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures in accordance with Item
307 of Regulation S-B under the Exchange Act for the Company’s most recently
ended fiscal quarter or fiscal year-end (such date, the "Evaluation Date").
The
Company presented in its most recently filed Form 10-KSB or Form 10-QSB the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in the
Company’s internal controls (as such term is defined in Item 308(c) of
Regulation S-B under the Exchange Act) or, to the Company's knowledge, in other
factors that could significantly affect the Company's internal
controls.
12
2.21 Solvency.
Based
on the financial condition of the Company as of the Initial Closing (and
assuming that the Initial Closing shall have occurred), (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to be
paid
on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature, (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business
for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof, and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were
it to
liquidate all of its assets, after taking into account all anticipated uses
of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its
debt).
2.22 Certain
Registration Matters.
Assuming the accuracy of the Subscribers’ representations and warranties, no
registration under the Securities Act is required for the offer and sale of
the
Securities and/or the issuance of the Common Shares by the Company to the
Subscribers under the Agreement. The Company is eligible to register the resale
of its Common Shares under Form SB-2 promulgated under the Securities Act.
2.23 Listing
and Maintenance Requirements.
Except
as specified in the SEC Reports, the Company has not, in the two years preceding
the date hereof, received notice from any trading market to the effect that
the
Company is not in compliance with the listing or maintenance requirements
thereof. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with the listing and
maintenance requirements for continued listing or quotation of the Common Stock
on the trading market on which the Common Stock is currently listed or quoted.
The issuance and sale of the Securities and/or the issuance of the Common Shares
under the Agreement does not contravene the rules and regulations of the trading
market on which the Common Stock is currently listed or quoted, and no approval
of the shareholders of the Company thereunder is required for the Company to
issue and deliver to the Subscribers the Securities and Common Shares
contemplated by this Agreement.
2.24 No
General Solicitation.
None of
the Company, its Subsidiaries, any of their affiliates, and any person acting
on
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act)
in connection with the offer or sale of the Securities.
2.25 No
Integrated Offering.
None of
the Company, its Subsidiaries, any of their affiliates, and any person acting
on
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 require registration of any of the Securities under the Securities Act
or
cause this offering of the Securities to be integrated with prior offerings
by
the Company for purposes of the Securities Act or any applicable stockholder
approval provisions, including without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated. None of the Company, its
Subsidiaries, their affiliates and any person acting on their behalf will take
any action or steps referred to in the preceding sentence that would require
registration of any of the Securities under the Securities Act or cause the
offering of the Securities to be integrated with other offerings.
13
2.26 Application
of Takeover Protections.
The
Company has taken all necessary action, if any, in order to render inapplicable
any control share acquisition, business combination, poison pill (including
any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company's Charter Documents or the laws of its state of incorporation
that is or could become applicable to the Subscribers as a result of the
Subscribers and the Company fulfilling their obligations or exercising their
rights under this Agreement, including, without limitation, the Company's
issuance of the Securities and the Subscribers' ownership of the
Securities.
2.27 Privacy.
The
Company agrees not to disclose the names, addresses or any other information
about the Subscribers, except as required by law; provided, that the Company
may
use the name of the Subscriber in any registration statement filed pursuant
to
Article V in which the Subscriber’s Securities are included.
2.28 No
Additional Agreements.
The
Company does not have any agreement or understanding with any Subscribers with
respect to the transactions contemplated by this Agreement other than as
specified in this Agreement.
2.29 Taxes.
Each of
the Company and its subsidiaries has filed all U.S. federal, state, local and
foreign tax returns which are required to be filed by each of them and all
such
returns are true and correct in all material respects, except for such failures
to file which could not reasonably be expected to have a Material Adverse
Effect. The Company and each subsidiary has paid all taxes pursuant to such
returns or pursuant to any assessments received by any of them or by which
any
of them are obligated to withhold from amounts owing to any employee, creditor
or third party. The Company and each subsidiary has properly accrued all taxes
required to be accrued and/or paid, except where the failure to accrue would
not
have a Material Adverse Effect. To the knowledge of the Company, the tax returns
of the Company and its subsidiaries are not currently being audited by any
state, local or federal authorities. Neither the Company nor any subsidiary
has
waived any statute of limitations with respect to taxes or agreed to any
extension of time with respect to any tax assessment or deficiency. The Company
has set aside on its books adequate provision for the payment of any unpaid
taxes.
14
2.30 Questionable
Payments.
Since
February 7, 2007, neither the Company nor any of its Subsidiaries nor, to the
Company’s knowledge, any of their respective current or former stockholders,
directors, officers, employees, agents or other persons acting on behalf of
the
Company or any Subsidiary, has on behalf of the Company or any Subsidiary or
in
connection with their respective businesses: (a) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity; (b) made any direct or indirect unlawful payments to
any
governmental officials or employees from corporate funds; (c) established or
maintained any unlawful or unrecorded fund of corporate monies or other assets;
(d) made any false or fictitious entries on the books and records of the Company
or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence
payment, kickback or other unlawful payment of any nature.
| III. |
TERMS
OF SUBSCRIPTION
|
3.1 All
funds
shall be submitted directly to the Company’s account identified in Section 1.1
hereof.
3.2 The
Debentures and Warrants purchased by the Subscriber pursuant to this Agreement
will be prepared for delivery to the Subscriber as soon as practicable following
the Closing at which such purchase takes place. The Subscriber hereby authorizes
and directs the Company to deliver the Debentures and Warrants purchased by
the
Subscriber pursuant to this Agreement directly to the Subscriber’s residential
or business or brokerage house address indicated on the signature page hereto.
| IV. |
CONDITIONS
TO OBLIGATIONS OF THE
SUBSCRIBERS
|
4.1 The
Subscriber’s obligation to purchase the Securities at the Closing at which such
purchase is to be consummated is subject to the fulfillment on or prior to
such
Closing of the following conditions, which conditions may be waived at the
option of each Subscriber to the extent permitted by law:
(a) Representations
and Warranties; Covenants.
The
representations and warranties made by the Company in Section 3 hereof qualified
as to materiality shall be true and correct at all times prior to and on the
Closing Date, except to the extent any such representation or warranty expressly
speaks as of an earlier date, in which case such representation or warranty
shall be true and correct as of such earlier date, and, the representations
and
warranties made by the Company in Section 3 hereof not qualified as to
materiality shall be true and correct in all material respects at all times
prior to and on the Closing Date, except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct in all material respects
as
of such earlier date. All covenants, agreements and conditions contained in
this
Agreement to be performed by the Company on or prior to the date of such Closing
shall have been performed or complied with in all material
respects.
(b) No
Legal Order Pending.
There
shall not then be in effect any legal or other order enjoining or restraining
the transactions contemplated by this Agreement.
15
(c) No
Law
Prohibiting or Restricting Such Sale.
There
shall not be in effect any law, rule or regulation prohibiting or restricting
such sale or requiring any consent or approval of any person, which shall not
have been obtained, to issue the Securities (except as otherwise provided in
this Agreement).
(d) Required
Consents.
The
Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Securities and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall
be in
full force and effect.
(e) Adverse
Changes.
Since
the date of execution of this Agreement, no event or series of events shall
have
occurred that reasonably could have or result in a Material Adverse
Effect.
(f) No
Suspensions of Trading in Common Stock; Listing.
Trading
in the Common Stock shall not have been suspended by the SEC or any trading
market (except for any suspensions of trading of not more than one trading
day
solely to permit dissemination of material information regarding the Company)
at
any time since the date of execution of this Agreement, and the Common Stock
shall have been at all times since such date listed for trading on a trading
market.
(g) Blue
Sky.
The
Company shall have completed qualification for the Securities and the Common
Shares under applicable Blue Sky laws.
(h) Legal
Opinion.
The
Company’s corporate counsel shall have delivered a legal opinion addressed to
Subscribers and Placement Agent in a form reasonably acceptable to the
Subscriber and the Placement Agent.
| V. |
REGISTRATION
RIGHTS
|
5.1 Definitions.
As used
in this Agreement, the following terms shall have the following
meanings.
(a) The
term
“Holder” shall mean any person owning or having the right to acquire Registrable
Securities or any permitted transferee of a Holder.
(b) The
terms
“register,” “registered” and “registration” refer to a registration effected by
preparing and filing a registration statement or similar document in compliance
with the Securities Act.
(c) The
term
“Registrable Securities” shall mean the Conversion Shares issuable upon
conversion of the Debentures; the Warrant Shares issuable upon exercise of
the
Warrants (including any Warrants issued to the Placement Agent in connection
with the Offering); the Interest Shares (as such term is defined in the
Debentures), and any securities issuable upon any reclassification of any of
the
foregoing, provided,
however,
that
securities shall only be treated as Registrable Securities if and only for
so
long as they (A) have not been disposed of pursuant to a registration statement
declared effective by the SEC; (B) have not been sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities
Act
so that all transfer restrictions and restrictive legends with respect thereto
are removed upon the consummation of such sale; and (C) may not be disposed
of
by the Holder under Rule 144(k) under the Securities Act without restriction.
16
(d) The
term
“Selling Holder” shall mean any Holder whose Registrable Securities are included
in a registration statement under discussion herein.
5.2 Mandatory
Registration.
(a) The
Company shall prepare, and, within thirty (30) days following the Final Closing
of this Offering (the “Filing
Date”),
file
with the SEC a registration statement on Form SB-2 (or, if Form SB-2 is not
then
available, on such form of registration statement as is then available to effect
a registration of the Registrable Securities) covering the resale of the
Registrable Securities. The Company will use its best efforts to have such
registration statement declared effective within 90 days of the Filing Date
of
this Offering (within 150 days of the Filing Date if the SEC conducts a review
of such registration statement) (such date, the “Effectiveness
Date”).
The
Company agrees to use its best efforts to respond to any SEC comments within
10
days of receiving them. The Company shall seek to register the Registrable
Securities in the following order of priority: (i) first, all Conversion Shares
shall be registered, (ii) second, all Interest Shares shall be registered,
and
(iii) third, all Warrant Shares shall be registered. For the avoidance of doubt,
if less than 100% of the Conversion Shares are registered then no portion of
the
Interest Shares shall be registered by the Company and if less than 100% of
the
Interest Shares are registered then no portion of the Warrant Shares shall
be
registered by the Company.
(b) If:
(i) a
Registration Statement is not filed on or prior to its Filing Date, (ii) a
Registration Statement filed or required to be filed hereunder is not declared
effective by the Commission by its Effectiveness Date, or (iii) after a
Registration Statement has been declared effective by the SEC, sales cannot
be
made pursuant to such Registration Statement for any reason (including without
limitation by reason of a stop order, or the Company’s failure to update the
Registration Statement), but excluding any Allowed Delay (as defined below)
(any
such failure or breach being referred to as an “Event”,
and
for purposes of clause (i), (ii) or (iii) the date on which such Event occurs
being referred to as “Event
Date”),
then
in addition to any other rights the Holders may have hereunder or under
applicable law on each monthly anniversary of each such Event Date (if the
applicable Event shall not have been cured by such date) until the applicable
Event is cured, the Company shall pay to each Holder an amount payable in cash
as partial liquidated damages and not as a penalty, equal to 1.5% of the
aggregate Subscription Amount paid by such Holder hereunder, provided however,
in no event shall such liquidated damages exceed 12% the gross proceeds. If
the
Company fails to pay any liquidated damages pursuant to this Section in full
within seven days after the date payable, the Company will pay interest thereon
at a rate of 16% per annum (or such lesser maximum amount that is permitted
to
be paid by applicable law) to the Holder, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The liquidated damages pursuant to the terms hereof shall
apply on a daily pro-rata basis for any portion of a month prior to the cure
of
an Event. Notwithstanding the foregoing, the Company will not be liable for
liquidated damages for any delay in registration of the Registrable Securities
in the event that such delay is due to the fact that the SEC has limited the
amount of Registrable Securities that may be included and sold by selling
security holders in the Registration Statement pursuant to Rule 415 promulgated
under the Securities Act, as amended, or any other basis. Furthermore, the
Company shall not be liable for liquidated damages for any delay in registration
of the Interest Shares (as such term is defined in the Debentures) in the event
that such delay is due to the fact that the SEC either limits of prohibits
the
amount of Interest Shares that may be included under such Registration Statement
for any reason whatsoever.
17
(c) The
Company shall use its best efforts to file subsequent Registration Statements
to
register the Registrable Securities that were not registered in the initial
Registration Statement as promptly as possible and in a manner permitted by
the
SEC. For purposes of this Section 5.2(c), the earliest date with respect to
each
subsequent Registration Statement filed pursuant hereto, shall be no sooner
than
the later of (i) sixty (60) days following the sale of all of the Registrable
Securities included in the initial Registration Statement or any subsequent
Registration Statement and (ii) six (6) months following the effective date
of
the initial Registration Statement or any subsequent Registration Statement,
as
applicable, or such earlier date as permitted by the SEC.
5.3 Registration
Procedures.
Whenever required under this Article V to include Registrable Securities in
a
Company registration statement, the Company shall, as expeditiously as
reasonably possible:
(a) Use
best
efforts to (i) cause such registration statement to become effective, and (ii)
cause such registration statement to remain effective until the earliest to
occur of (A) such date as all of the Registrable Securities included in the
registration statement have been sold or (B) for a period of three (3) years
from Closing (such period, the “Effectiveness Period”). The Company will also
use its best efforts to, during the Effectiveness Period, file such
post-effective amendments and supplements thereto as may be required by the
Securities Act and the rules and regulations thereunder or otherwise to ensure
that the registration statement does not contain any untrue statement of
material fact or omit to state a fact required to be stated therein or necessary
to make the statements contained therein, in light of the circumstances under
which they are made, not misleading; provided, however, that if applicable
rules
under the Securities Act governing the obligation to file a post-effective
amendment permits, in lieu of filing a post-effective amendment that (i)
includes any prospectus required by Section 10(a)(3) of the Securities Act
or
(ii) reflects facts or events representing a material or fundamental change
in
the information set forth in the registration statement, the Company may
incorporate by reference information required to be included in (i) and (ii)
above to the extent such information is contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the registration
statement.
(b) Prepare
and file with the SEC such amendments and supplements to such registration
statement, and the prospectus used in connection with such registration
statement, as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Make
available for inspection upon reasonable notice during the Company’s regular
business hours by each Selling Holder, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such Selling Holder or underwriter, all
financial and other records, pertinent corporate documents and properties of
the
Company, and cause the Company’s officers, directors and employees to supply all
information reasonably requested by any such Selling Holder, underwriter,
attorney, accountant or agent in connection with such registration statement
(provided the Company shall not disclose any material non-public information
to
any such Selling Holder, underwriter, attorney, accountant or agent without
their prior written consent).
18
(d) Use
best
efforts to register and qualify the securities covered by such registration
statement under such other federal or state securities laws of such
jurisdictions as shall be reasonably requested by the Selling Holders; provided,
however, that the Company shall not be required in connection therewith or
as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company
is
already subject to service in such jurisdiction and except as may be required
by
the Securities Act.
(e) In
the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter of such offering. Each Selling Holder participating
in
such underwriting shall also enter into and perform its obligations under such
an agreement.
(f) Notify
each Selling Holder of Registrable Securities covered by such registration
statement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act within one (1) business day of the Company’s
receipt of notice, (i) when the registration statement or any post-effective
amendment and supplement thereto has become effective; (ii) of the issuance
by
the SEC of any stop order or the initiation of proceedings for that purpose
(in
which event the Company shall make every effort to obtain the withdrawal of
any
order suspending effectiveness of the registration statement at the earliest
possible time or prevent the entry thereof); (iii) of the receipt by the Company
of any notification with respect to the suspension of the qualification of
the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose; and (iv) of the happening of any event as a result
of which the prospectus included 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 the light of the circumstances then
existing.
(g) Cause
all
such Registrable Securities registered hereunder to be listed or quoted on
each
securities exchange or quotation service on which similar securities issued
by
the Company are then listed or quoted or, if no such similar securities are
listed or quoted on a securities exchange or quotation service, apply for
qualification and use best efforts to qualify such Registrable Securities for
inclusion on an applicable securities exchange or quotation
service.
(h)
Upon
the
written demand of the Subscriber and upon any change in the Conversion Price
(as
defined in the Debenture) or the Exercise Price (as defined in the Warrant)
such
that additional shares of Common Stock become issuable upon the conversion
of
the Debentures and/or the exercise of the Warrants (the “Additional Shares”),
the Company shall prepare and file with the SEC one or more Registration
Statements on Form SB-2 or amend the Registration Statement previously filed
by
the Company, if such Registration Statement has not previously been declared
effective (or, if Form SB-2 is not then available to the Company, on such form
of registration statement as is then available to effect a registration for
resale of the Additional Shares) covering the resale of the Additional Shares,
but only to the extent the Additional Shares are not at the time covered by
an
effective Registration Statement. Subject to any SEC comments, such
Registration Statement shall include the plan of distribution attached hereto
as
Exhibit A; provided, however, that no Subscriber shall be named as an
“underwriter” in the Registration Statement without the Subscriber's prior
written consent.. Such Registration Statement also shall cover, to the
extent allowable under the 1933 Act and the rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar transactions
with
respect to the Additional Shares. Notwithstanding the foregoing, the
Company will not be liable for liquidated damages for any delay in registration
of the Additional Shares in the event that such delay is due to the fact that
the SEC has limited the Additional Shares that may be included and sold by
selling security holders in the Registration Statement pursuant to Rule 415
promulgated under the Securities Act, as amended, or any other
basis.
19
5.4 Furnish
Information.
It
shall be a condition precedent to the obligation of the Company to take any
action pursuant to this Article V with respect to the Registrable Securities
of
any Selling Holder that such Selling Holder shall furnish to the Company such
information regarding the Selling Holder, the Registrable Securities held by
the
Selling Holder, and the intended method of disposition of such securities as
shall be reasonably required by the Company to effect the registration of such
Selling Holder’s Registrable Securities.
5.5 Registration
Expenses.
The
Company shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities with respect
to
registrations pursuant to Section V for each Selling Holder, including, without
limitation, in making filings with the SEC, the NASD or NASDR, and in connection
with applicable “blue sky” laws, but excluding underwriting discounts and
commissions relating to Registrable Securities and excluding any professional
fees or costs of accounting, financial or legal advisors to any of the Holders
other than the reasonable fees of a single legal counsel to the
Holders.
5.6 Underwriting
Requirements.
In
connection with any primary offering involving an underwriting of shares of
the
Company’s capital stock, the Company shall not be required under Section 5.3 to
include any of the Holders’ Registrable Securities in such underwriting unless
they accept the terms of the underwriting as agreed upon between the Company
and
the underwriters selected by it (or by other persons entitled to select the
underwriters), provided, however,
that
if
the total amount of securities, including Registrable Securities, requested
by
stockholders to be included in such offering exceeds the amount of securities
that the underwriters determine in their sole discretion is compatible with
the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering, provided,
however,
that
any reduction in the securities to be included in such registration statement
pursuant to the foregoing shall be apportioned among all of the securities
proposed to be included in such registration statement, including, but not
limited to, all other Registrable Securities (based upon the number of
Registrable Securities requested to be registered by each such Holder) on a
pro
rata basis, but not including securities to be sold by the Company.
20
5.7 Delay
of Registration.
No
Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this
Article.
5.8 Reports
Under Securities Exchange Act of 1934.
With a
view to making available to the Holders the benefits of Rule 144 and any other
rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant to
a
registration on Form S-3 (or other applicable form), the Company agrees
to:
(a) file
with
the SEC all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(b) furnish
to any Holder, so long as the Holder owns any Registrable Securities, forthwith
upon request (i) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (ii)
such other information as may be reasonably requested in availing any Holder
of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form; and
(c) cause
the
Company’s legal counsel to issue such legal opinions, at the Company’s expense,
as may be reasonably requested by the Holder in connection with any sales or
proposed sales of Registrable Securities pursuant to Rule 144 or other similar
rule or regulation that may be in effect at such time.
5.9 Permitted
Transferees.
The
rights to cause the Company to register Registrable Securities granted to the
Holders by the Company under this Article V may be assigned in full by a Holder
in connection with a transfer by such Holder of its Registrable Securities
if:
(a) such Holder gives prior written notice to the Company; (b) such transferee
agrees to comply with the terms and provisions of this Agreement and
(b) such transfer is otherwise effected in accordance with applicable
securities laws.
5.10 Termination
of Registration Rights
The
obligation of the Company to include a Holder’s Registrable Securities in any
registration pursuant to this Section V shall terminate if all shares of
Registrable Securities held by such Holder can immediately be sold under Rule
144(k) free of Securities Act restrictions.
5.11 Indemnification.
21
(a) Indemnification
by the Company.
The
Company will indemnify and hold harmless the Subscriber and its officers,
directors, members, employees and agents, successors and assigns, and each
other
person, if any, who controls such Subscriber within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which they may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
any preliminary Prospectus or final Prospectus, or any amendment or supplement
thereof; (ii) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by
the
Company filed in any state or other jurisdiction in order to qualify any or
all
of the Registrable Securities under the securities laws thereof (any such
application, document or information herein called a “Blue Sky Application”);
(iii) the omission or alleged omission to state in a Blue Sky Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (iv) any violation by the Company or its agents of
any
rule or regulation promulgated under the Securities Act applicable to the
Company or its agents and relating to action or inaction required of the Company
in connection with such registration; or (v) any failure to register or qualify
the Registrable Securities included in any such Registration Statement in any
state where the Company or its agents has affirmatively undertaken or agreed
in
writing that the Company will undertake such registration or qualification
on an
Subscriber’s behalf and will reimburse such Subscriber, and each such officer,
director or member 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 will not be liable in any such case if and to the extent that (i)
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 such Subscriber or any such
controlling person in writing specifically for use in such Registration
Statement or Prospectus or (ii) the use by such Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing
that
the Prospectus is outdated or defective.
(b) Indemnification
by the Subscriber.
The
Subscriber agrees, severally but not jointly with any other Subscriber, to
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors, officers, employees, stockholders and each person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expense (including reasonable attorney
fees) resulting from any untrue statement of a material fact or any omission
of
a material fact required to be stated in the Registration Statement or
Prospectus or preliminary Prospectus or amendment or supplement thereto or
necessary to make the statements therein not misleading, to the extent, but
only
to the extent that such untrue statement or omission is contained in any
information furnished in writing by such Subscriber to the Company specifically
for inclusion in such Registration Statement or Prospectus or amendment or
supplement thereto. In no event shall the liability of a Subscriber be greater
in amount than the dollar amount of the proceeds (net of all expense paid by
such Subscriber in connection with any claim relating to this Section 5.11(b)
and the amount of any damages such Subscriber has otherwise been required to
pay
by reason of such untrue statement or omission) received by such Subscriber
upon
the sale of the Registrable Securities included in the Registration Statement
giving rise to such indemnification obligation.
22
(c) Conduct
of Indemnification Proceedings.
Any
person entitled to indemnification hereunder shall (i) give prompt notice to
the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim
with
counsel reasonably satisfactory to the indemnified party; provided that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person unless
(a)
the indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party
with
respect to such claims (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such person); and
provided, further, that the failure of any indemnified party to give notice
as
provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall
materially adversely affect the indemnifying party in the defense of any such
claim or litigation. It is understood that the indemnifying party shall not,
in
connection with any proceeding in the same jurisdiction, be liable for fees
or
expenses of more than one separate firm of attorneys at any time for all such
indemnified parties. No indemnifying party will, except with the consent of
the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation.
(d) Contribution.
If for
any reason the indemnification provided for in the preceding paragraphs (a)
and
(b) is unavailable to an indemnified party or insufficient to hold it harmless,
other than as expressly specified therein, then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a result
of
such loss, claim, damage or liability in such proportion as is appropriate
to
reflect the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations. No person guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the
Securities Act shall be entitled to contribution from any person not guilty
of
such fraudulent misrepresentation. In no event shall the contribution obligation
of a holder of Registrable Securities be greater in amount than the dollar
amount of the proceeds (net of all expenses paid by such holder in connection
with any claim relating to this Section 5.11 and the amount of any damages
such
holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission) received by it upon the sale
of the Registrable Securities giving rise to such contribution
obligation.
| VI. |
COVENANTS
OF THE COMPANY
|
6.1 Integration.
The
Company shall not, and shall ensure that no affiliate of the Company shall,
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in Section 2 of the Securities Act) that would
be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Subscribers, or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any trading market
in a
manner that would require stockholder approval of the sale of the securities
to
the Subscribers.
23
6.2 Listing
of Securities.
The
Company agrees, (i) if the Company applies to have the Common Stock traded
on
any other trading market, it will include in such application the Registrable
Securities, and will take such other action as is necessary or desirable to
cause the Registrable Securities to be listed on such other trading market
as
promptly as possible, and (ii) it will take all action reasonably necessary
to
continue the listing and trading of its Common Stock on a trading market and
will comply in all material respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of the trading market.
6.3 Reservation
of Shares.
The
Company shall at all times while the Securities are outstanding maintain a
reserve from its duly authorized shares of Common Stock of a number of shares
of
Common Stock sufficient to allow for the issuance of all Conversion Shares
and
Warrant Shares.
6.4 Conversion
and Exercise Procedures.
The
conversion procedures described in and the form of Notice of Conversion included
in the Debentures set forth the totality of the procedures required by the
Subscribers in order to convert the Shares. The exercise procedures described
in
and the form of Form of Subscription included in the Warrant set forth the
totality of the procedures required by the Subscribers in order to exercise
the
warrants. The Company shall honor conversions of Shares and exercises of
Warrants and shall deliver Common Stock in accordance with the terms, conditions
and time periods set forth in this Agreement and the Certificate of Designation
or Warrant (as applicable).
6.5 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) this Agreement, whenever any Subscriber exercises a
right, election, demand or option under this Agreement and the Company does
not
timely perform its related obligations within the periods therein provided,
then
such Subscriber may rescind or withdraw, in its sole discretion from time to
time upon written notice to the Company, any relevant notice, demand or election
in whole or in part without prejudice to its future actions and
rights.
6.6 Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Securities.
If a replacement certificate or instrument evidencing any Securities is
requested due to a mutilation thereof, the Company may require delivery of
such
mutilated certificate or instrument as a condition precedent to any issuance
of
a replacement.
6.7 Right
of First Refusal.
For as
long as (i) at least $1 million of the Debentures remain unconverted or (ii)
two
(2) years after the Closing, whichever is sooner, except in connection with
the
issuance of securities associated with (i) shares issued to officers, directors
or employees of or consultants of the Company pursuant to any compensation
agreement, plan or arrangement (ii) the issuance of Common Stock upon the
exercise of any such options or warrants, provided such securities were issued
prior to the date hereof, (iii) pursuant to a stock option plan that was
approved by the board of directors and/or the stockholders of the Company or;
(iv) issued for consideration other than cash pursuant to a merger,
consolidation, acquisition, or similar business combination approved by the
Company’s Board of Directors; (“Excepted Issuances”), the holders of the
Debentures, shall have a pro-rata right (determined on an as-converted basis)
to
participate in subsequent issuances by the Company of debt, equity or other
securities (the “Right of First Refusal”). The Company shall give holders of the
Debentures 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. The holders of the Debentures who exercise their rights pursuant
to
this Right of First Refusal shall have the right during the ten (10) business
days following receipt of the notice to purchase such offered equity, 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 outstanding at that time.
In
the event such terms and conditions are modified during the notice period,
the
Company shall give holders of the Debentures 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. If a holder of Debentures elects to
not
participate in such financing, then the remaining holders shall have the right
to participate in that holder’s allocation on a pro rata basis. An election by a
holder not to exercise its Right of First Refusal with respect to a security
issuance shall not effect such holder’s Right of First Refusal with respect to
any other security issuance.
24
6.8 Indemnification.
(a) The
Company agrees to indemnify and hold harmless the Subscriber, its affiliates
and
their respective officers, directors, employees, agents and controlling persons
(collectively, the “Indemnified
Parties”)
from
and against , any and all loss, liability, damage or deficiency suffered or
incurred by any Indemnified Party by reason of any misrepresentation or breach
of warranty by the Company or nonfulfillment of any covenant or agreement to
be
performed or complied with by the Company under this Agreement, the Transaction
Documents; and will promptly reimburse the Indemnified Parties for all expenses
(including reasonable fees and expenses of legal counsel) as incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim related to or arising in any manner out of any of the
foregoing, or any action or proceeding arising therefrom (collectively,
“Proceedings”),
whether or not such Indemnified Party is a formal party to any such Proceeding.
(b) If
for
any reason (other than a final non-appealable judgment finding any Indemnified
Party liable for losses, claims, damages, liabilities or expenses for its gross
negligence or willful misconduct) the foregoing indemnity is unavailable to
an
Indemnified Party or insufficient to hold an Indemnified Party harmless, then
the Company shall contribute to the amount paid or payable by an Indemnified
Party as a result of such loss, claim, damage, liability or expense in such
proportion as is appropriate to reflect not only the relative benefits received
by the Company on the one hand and the Advisor on the other, but also the
relative fault by the Company and the Indemnified Party, as well as any relevant
equitable considerations.
6.9 Removal
of Legends.
Upon
the earlier of (i) registration for resale pursuant to Section V or (ii) Rule
144(k) becoming available the Company shall use best efforts (A) deliver to
the
transfer agent for the Common Stock (the “Transfer Agent”) irrevocable
instructions that the Transfer Agent shall reissue a certificate representing
shares of Common Stock without legends upon receipt by such Transfer Agent
of
the legended certificates for such shares, together with either (1) a customary
representation by the Subscriber that Rule 144(k) applies to the shares of
Common Stock represented thereby or (2) a statement by the Subscriber that
such
Subscriber has sold the shares of Common Stock represented thereby in accordance
with the Plan of Distribution contained in the Registration Statement, and
(B)
cause its counsel to deliver to the Transfer Agent one or more blanket opinions
to the effect that the removal of such legends in such circumstances may be
effected under the Securities Act. From and after the earlier of such dates,
upon an Subscriber’s written request, the Company shall promptly cause
certificates evidencing the Subscriber’s Securities to be replaced with
certificates which do not bear such restrictive legends, and Common Shares
subsequently issued upon due conversion of the Debentures or due exercise of
the
Warrants shall not bear such restrictive legends provided the provisions of
either clause (i) or clause (ii) above, as applicable, are satisfied with
respect to such Common Shares. When the Company is required to cause an
unlegended certificate to replace a previously issued legended certificate,
if:
(1) the unlegended certificate is not delivered to an Subscriber within three
(3) Business Days of submission by that Subscriber of a legended certificate
and
supporting documentation to the Transfer Agent as provided above and (2) prior
to the time such unlegended certificate is received by the Subscriber, the
Subscriber, or any third party on behalf of such Subscriber or for the
Subscriber’s account, purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Subscriber
of
shares represented by such certificate (a “Buy-In”), then the Company shall pay
in cash to the Subscriber (for costs incurred either directly by such Purchaser
or on behalf of a third party) the amount by which the total purchase price
paid
for Common Stock as a result of the Buy-In (including brokerage commissions,
if
any) exceeds the proceeds received by such Subscriber as a result of the sale
to
which such Buy-In relates. The Subscriber shall provide the Company written
notice indicating the amounts payable to the Subscriber in respect of the
Buy-In.
25
| VII. |
MISCELLANEOUS
|
7.1 Any
notice or other communication given hereunder shall be deemed sufficient if
in
writing and sent by registered or certified mail, return receipt requested,
or
delivered
by hand against written receipt therefor, addressed as follows:
if
to the
Company, to it at:
Healthcare
Providers Direct, Inc.
0000
Xxxxx Xxx, Xxxxx 000
Xxxxxxxxxxxxx,
Xxx Xxxxxx 00000
Attn:
Xxxxxx Xxxxxx, CEO
With
a
copy to (which shall not constitute notice):
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
00
Xxxxxxxx, 00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Attn:
Xxxxxxx X. Xxxxxxxx, Esq.
if
to the
Subscriber, to the Subscriber’s address indicated on the signature page of this
Agreement.
Notices
shall be deemed to have been given or delivered on the date of
receipt.
7.2 Except
as
otherwise provided herein, this Agreement shall not be changed, modified or
amended except by a writing signed by the parties to be charged, and this
Agreement
may not
be discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.
7.3 Subject
to the provisions of Section 5.11, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
7.4 Upon
the
execution and delivery of this Agreement by the Subscriber and the Company,
this
Agreement shall become a binding obligation of the Subscriber with respect
to
the purchase of Securities as herein provided, subject, however, to the right
hereby reserved by the Company to enter into the same agreements with other
subscribers and to reject any subscription, in whole or in part, provided the
Company returns to Subscriber any funds paid by Subscriber with respect to
such
rejected subscription or portion thereof, without interest or deduction.
7.5 NOTWITHSTANDING
THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES HERETO,
THE
PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND PROVISIONS HEREOF SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO SUCH STATE’S PRINCIPLES OF CONFLICTS OF LAW. IN THE EVENT THAT
A JUDICIAL PROCEEDING IS NECESSARY, THE SOLE FORUM FOR RESOLVING DISPUTES
ARISING OUT OF OR RELATING TO THIS AGREEMENT IS THE COURTS STATE OF NEW YORK
IN
AND FOR THE COUNTY OF NEW YORK OR THE FEDERAL COURTS FOR SUCH STATE AND COUNTY,
AND ALL RELATED APPELLATE COURTS, THE PARTIES HEREBY IRREVOCABLY CONSENT TO
THE
JURISDICTION OF SUCH COURTS AND AGREE TO SAID VENUE.
26
7.6 In
order
to discourage frivolous claims the parties agree that unless a claimant in
any
proceeding arising out of this Agreement succeeds in establishing his claim
and
recovering a judgment against another party (regardless of whether such claimant
succeeds against one of the other parties to the action), then the other party
shall be entitled to recover from such claimant all of its/their reasonable
legal costs and expenses relating to such proceeding and/or incurred in
preparation therefor.
7.7 The
holding of any provision of this Agreement to be invalid or unenforceable by
a
court of competent jurisdiction shall not affect any other provision of this
Agreement, which shall remain in full force and effect. If any provision of
this
Agreement shall be declared by a court of competent jurisdiction to be invalid,
illegal or incapable of being enforced in whole or in part, such provision
shall
be interpreted so as to remain enforceable to the maximum extent permissible
consistent with applicable law and the remaining conditions and provisions
or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provisions shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
7.8 It
is
agreed that a waiver by either party of a breach of any provision of this
Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
7.9 The
Company agrees to execute and deliver all such further documents, agreements
and
instruments and take such other and further action as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.
7.10 This
Agreement may be executed in two or more counterparts each of which shall be
deemed an original, but all of which shall together constitute one and the
same
instrument.
7.11 Nothing
in this Agreement shall create or be deemed to create any rights in any person
or entity not a party to this Agreement, except for the holders of Registrable
Securities.
7.12 Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Subscribers and the Company
will
be entitled to specific performance under this Agreement. The parties agree
that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
7.13 Independent
Nature of Subscribers' Obligations and Rights.
The
obligations of each Subscriber under this Agreement 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 this Agreement. The decision of each Subscriber to purchase
Securities pursuant to this Agreement has been made by such Subscriber
independently of any other Subscriber. Nothing contained herein, and no action
taken by any Subscriber pursuant thereto, 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 herein. Each Subscriber acknowledges that no other Subscriber
has
acted as agent for such Subscriber in connection with making its investment
hereunder and that no Subscriber will be acting as agent of such Subscriber
in
connection with monitoring its investment in the Securities or enforcing its
rights under this Agreement. Each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement, 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 each of the Subscribers has been provided with this same
Agreement for the purpose of closing a transaction with multiple Subscribers
and
not because it was required or requested to do so by any
Subscriber.
27
| VIII. |
CONFIDENTIAL
INVESTOR QUESTIONNAIRE
|
8.1 The
Subscriber represents and warrants that he, she or it comes within one category
marked below, and that for any category marked, he, she or it has truthfully
set
forth, where applicable, the factual basis or reason the Subscriber comes within
that category. ALL INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY
CONFIDENTIAL. The undersigned agrees to furnish any additional information
which
the Company deems necessary in order to verify the answers set forth
below.
Category
A___ The
undersigned is an individual (not a partnership, corporation, etc.) whose
individual net worth, or joint net worth with his or her spouse, presently
exceeds $1,000,000.
Explanation.
In calculating net worth you may include equity in personal property and real
estate, including your principal residence, cash, short-term investments, stock
and securities. Equity in personal property and real estate should be based
on
the fair market value of such property less debt secured by such
property.
Category
B___ The
undersigned is an individual (not a partnership, corporation, etc.) who had
an
income in excess of $200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of $300,000 in each of those years
(in
each case including foreign income, tax exempt income and full amount of capital
gains and losses but excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable expectation of reaching
the same income level in the current year.
Category
C___ The
undersigned is a director or executive officer of the Company which is issuing
and selling the Securities.
Category
D___ The
undersigned is a bank; a savings and loan association; insurance company;
registered investment company; registered business development company; licensed
small business investment company (“SBIC”); or employee benefit plan within the
meaning of Title 1 of ERISA and (a) the investment decision is made by a plan
fiduciary which is either a bank, savings and loan association, insurance
company or registered investment advisor, or (b) the plan has total assets
in
excess of $5,000,000 or (c) is a self directed plan with investment decisions
made solely by persons that are accredited investors. (describe
entity)
Category
E___ The
undersigned is a private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940. (describe entity)
28
Category
F___ The
undersigned is either a corporation, partnership, Massachusetts business trust,
or non-profit organization within the meaning of Section 501(c)(3) of the
Internal Revenue Code, in each case not formed for the specific purpose of
acquiring the Securities and with total assets in excess of $5,000,000.
(describe entity)
Category
G___ The
undersigned is a trust with total assets in excess of $5,000,000, not formed
for
the specific purpose of acquiring the Securities, where the purchase is directed
by a “sophisticated investor” as defined in Regulation 506(b)(2)(ii) under the
Act.
Category
H___ The
undersigned is an entity (other than a trust) in which all of the equity owners
are “accredited investors” within one or more of the above categories. If
relying upon this Category alone, each equity owner must complete a separate
copy of this Agreement. (describe entity)
Category
I___ The
undersigned is not within any of the categories above and is therefore not
an
accredited investor.
The
undersigned agrees that the undersigned will notify the Company at any time
on
or prior to the Closing in the event that the representations and warranties
in
this Agreement shall cease to be true, accurate and complete.
8.2 SUITABILITY
(please
answer each question)
(a) For
an
individual Subscriber, please describe your current employment, including the
company by which you are employed and its principal business:
(b) For
an
individual Subscriber, please describe any college or graduate degrees held
by
you:
(c) For
all
Subscribers, please list types of prior investments:
(d) For
all
Subscribers, please state whether you have participated in other private
placements
before:
YES_______ NO_______
29
(e) If
your
answer to question (d) above was “YES”, please indicate frequency of such prior
participation in private
placements
of:
|
Public
Companies
|
Private
Companies
|
|
Public
or Private Companies
with
no, or insignificant,
assets
and operations
|
|||||||
|
Frequently
|
||||||||||
|
Occasionally
|
||||||||||
|
Never
|
||||||||||
(f) For
individual Subscribers, do you expect your current level of income to
significantly decrease in the foreseeable future:
YES_______ NO_______
(g) For
trust, corporate, partnership and other institutional Subscribers, do you expect
your total assets to significantly decrease in the foreseeable future:
YES_______ NO_______
(h) For
all
Subscribers, do you have any other investments or contingent liabilities which
you reasonably anticipate could cause you to need sudden cash requirements
in
excess of cash readily available to you:
YES_______ NO_______
(i) For
all
Subscribers, are you familiar with the risk aspects and the non-liquidity of
investments such as the securities for which you seek to subscribe?
YES_______ NO_______
(j)
For all
Subscribers, do you understand that there is no guarantee of financial return
on
this investment and that you run the risk of losing your entire
investment?
YES_______ NO_______
30
8.3 MANNER
IN WHICH TITLE IS TO BE HELD.
(circle
one)
(a) Individual
Ownership
(b) CommSharey
Property
(c) Joint
Tenant with Right of Survivorship
(both parties must
sign)
(d) Partnership*
(e) Tenants
in Common
(f) Company*
(g) Trust*
(h) Other*
*If
Securities are being subscribed for by an entity, the attached Certificate
of
Signatory must also be completed.
8.4 NASD
AFFILIATION.
Are
you
affiliated or associated with an NASD member firm (please check
one):
Yes
_________ No
__________
If
Yes,
please describe:
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
*If
Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The
undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
_________________________________
Name
of
NASD Member Firm
By:
______________________________
Authorized
Officer
Date:
____________________________
8.5 The
undersigned is informed of the significance to the Company of the foregoing
representations and answers contained in the Confidential Investor Questionnaire
contained in this Article VII and such answers have been provided under the
assumption that the Company will rely on them.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
31
AGGREGATE
FACE AMOUNT OF THE DEBENTURE = $_________ (the “Purchase
Price”)
|
Signature
|
Signature (if purchasing jointly) |
|
Name Typed or Printed |
Name Typed or Printed |
|
Title (if Subscriber is an Entity) |
Title (if Subscriber is an Entity) |
|
Entity Name (if applicable) |
Entity Name (if applicable |
|
Xxxxxxx |
Xxxxxxx |
|
Xxxx, Xxxxx xxx Xxx Xxxx |
Xxxx, Xxxxx and Zip Code |
|
Telephone-Business |
Telephone-Business |
|
Telephone-Residence |
Telephone-Residence |
|
Facsimile-Business |
Facsimile-Business |
|
Facsimile-Residence |
Facsimile-Residence |
|
Tax ID # or Social Security # |
Tax ID # or Social Security # |
Name
in
which securities should be
issued:___________________________________________
Blocker
Provision Election: Please choose from one of the two options
below:
(check
one)
□
My
Warrant and Debenture shall contain a 4.99% blocker provision.
□
My
Warrant and Debenture shall contain a 9.99% blocker provision.
Dated:
________________________________,
2007
This
Subscription Agreement is agreed to and accepted as of
________________ ,
2007.
By:____________________________________
Name:
Xxxxxx Xxxxxx
Title: Chief
Executive Officer
32
CERTIFICATE
OF SIGNATORY
(To
be
completed if Securities are
being
subscribed for by an entity)
I,
____________________________, am the ____________________________ of
__________________________________________ (the “Entity”).
I
certify
that I am empowered and duly authorized by the Entity to execute and carry
out
the terms of the Subscription Agreement and to purchase and hold the Debentures,
and certify further that the Subscription Agreement has been duly and validly
executed on behalf of the Entity and constitutes a legal and binding obligation
of the Entity.
IN
WITNESS WHEREOF, I have set my hand this ________ day of _________________,
200_
_______________________________________
(Signature)
33
Schedule
2.2
Authorized
Shares - 350,000,000 shares of common stock
Issued
and Outstanding - 44,864,038 shares of common stock
Options
outstanding as of June 30, 2007 - 2,597,209
Warrants
- 4,783,641
34
Annex
A
Plan
of Distribution
Each
Selling Stockholder (the “Selling
Stockholders”)
of the
common stock and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of common stock on
the
[principal Trading Market] or any other stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. A Selling Stockholder may use any one
or
more of the following methods when selling shares:
| · |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
| · |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
| · |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
| · |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| · |
privately
negotiated transactions;
|
| · |
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;
|
| · |
broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
| · |
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
| · |
a
combination of any such methods of sale;
or
|
| · |
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “Securities
Act”),
if
available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.
35
In
connection with the sale of the common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In
no
event shall any broker-dealer receive fees, commissions and markups which,
in
the aggregate, would exceed eight percent (8%).
The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act including Rule 172 thereunder. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 under
the
Securities Act may be sold under Rule 144 rather than under this prospectus.
There is no underwriter or coordinating broker acting in connection with the
proposed sale of the resale shares by the Selling Stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the Selling Stockholders without registration and
without regard to any volume limitations by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not
be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including
by
compliance with Rule 172 under the Securities Act).
