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SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Commercial
Concepts, Inc., a Utah corporation (the "Company") hereby agrees to issue and to
sell to the Subscriber, 6% Convertible Notes (the "Notes") convertible in
accordance with the terms thereof into shares of the Company's $.001 par value
common stock (the "Company Shares") for the aggregate consideration as set forth
on the signature page hereof ["Purchase Price"]. The form of Convertible Note is
annexed hereto as Exhibit A. (The Company Shares are sometimes referred to
herein as the "Shares" or "Common Stock"). (The Notes, the Company Shares,
Common Stock Purchase Warrants ("Warrants") issuable to the recipients
identified on Schedule B hereto, the Common Stock issuable upon exercise of the
Warrants, and the Second Payment Securities (as herein defined) are collectively
referred to herein as, the "Securities"). Upon acceptance of this Agreement by
the Subscriber, the Company shall issue and deliver to the Subscriber the Note
against payment, by federal funds (U.S.) wire transfer of the Purchase Price.
The following terms and conditions shall apply to this
subscription.
1. Subscriber's Representations and Warranties. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been
furnished with the Company's Form 10-KSB for the year ended February 29, 2000 as
filed with the Securities and Exchange Commission (the "Commission") together
with all subsequently filed forms 10-Q (hereinafter referred to as the
"Reports"). In addition, the Subscriber has received from the Company such other
information concerning its operations, financial condition and other matters as
the Subscriber has requested, and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities (such
information in writing is collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (the "1933 Act"), is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a speculative
investment. The Subscriber has the authority and is duly and legally qualified
to purchase and own the Securities. The Subscriber is able to bear the risk of
such investment for an indefinite period and to afford a complete loss thereof.
The Subscriber has been given access to all information about the Company that
it has requested and has been given the opportunity to ask such questions of the
Company's management as it has deemed appropriate to assist it in its investment
decision.
(c) Purchase of Note. On the Closing Date, the
Subscriber will purchase the Note for its own account and not with a view to any
distribution thereof.
(d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act by reason of their issuance in a transaction that does not require
registration under the 1933 Act, and that such Securities must be held unless a
subsequent disposition is registered under the 1933 Act or is exempt from such
registration.
(e) Company Shares Legend. The Company Shares, and
the shares of Common Stock issuable upon the exercise of the Warrants, shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
COMMERCIAL CONCEPTS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(f) Warrants Legend. The Warrants shall bear the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO COMMERCIAL CONCEPTS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(g) Note Legend. The Note shall bear the following
legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO COMMERCIAL CONCEPTS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(h) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(i) Correctness of Representations. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing Date (as hereinafter defined), shall be true and
correct as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
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2. Company Representations and Warranties. The Company
represents and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or prospects or condition (financial
or otherwise) of the Company.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable. The
Company has received payment of $210,500 for shares of its common stock.
Certificates evidencing these shares have not yet been issued.
(c) Authority; Enforceability. This Agreement has
been duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and the Company has full
corporate power and authority necessary to enter into this Agreement and to
perform its obligations hereunder and all other agreements entered into by the
Company relating hereto.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other Written
Information.
(e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the NASD, NASDAQ or the
Company's Shareholders is required for execution of this Agreement, and all
other agreements entered into by the Company relating thereto, including,
without limitation issuance and sale of the Securities, and the performance of
the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this Agreement,
neither the issuance and sale of the Securities nor the performance of its
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a
breach of, or constitute a default (or an event which with the giving of notice
or the lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company, or
any of its affiliates, (B) to the Company's knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company,
or any of its affiliates of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its affiliates or
over the properties or assets of the Company, or any of its affiliates, (C) the
terms of any bond, debenture, note or any other evidence of indebtedness, or
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any agreement, stock option or other similar plan, indenture, lease, mortgage,
deed of trust or other instrument to which the Company, or any of its affiliates
is a party, by which the Company, or any of its affiliates is bound, or to which
any of the properties of the Company, or any of its affiliates is subject, or
(D) the terms of any "lock-up" or similar provision of any underwriting or
similar agreement to which the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of
any lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Note is converted, and the Warrants are exercised, the
Securities will be duly and validly issued, fully paid and nonassessable (and if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted, provided that the
Subscriber complies with the Prospectus delivery requirements);
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company;
(iv) will not subject the holders thereof to
personal liability by reason of being such holders; and
(h) Litigation. There is no pending or, to the best
knowledge of the current management and Board of Directors of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under this Agreement, and all
other agreements entered into by the Company relating hereto.
(i) Reporting Company. The Company is a publicly-held
company whose common stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company's
common stock is trading on the NASD OTC Bulletin Board. Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Securities and Exchange
Commission during the preceding months.
(j) No Market Manipulation. The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued. The Company has been informed that persons unknown to it may have
tried to manipulate the market by "spamming" information about the Company over
the Internet.
(k) Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective dates
which information is required to be disclosed therein. Since the date of the
financial statements included in the Reports, and except as modified in the
Other Written Information, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed
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in the Reports. The Reports and Other Written Information do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
(l) Dilution. The number of Shares issuable upon
conversion of the Note may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the trading
price of the Common Stock declines prior to conversion of the Note. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Note and exercise of the Warrants is
binding upon the Company and enforceable, except as otherwise described in this
Subscription Agreement or the Note, regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
(m) Stop Transfer. The Securities are restricted
securities as of the date of this Agreement. The Company will not issue any stop
transfer order or other order impeding the sale and delivery of the Securities
at such time as the Securities are registered for public sale or an exemption
from registration is available.
(n) Defaults. Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation or ByLaws. Neither
the Company nor any of its subsidiaries is (i) in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a material adverse effect on the Company, (ii) in default with
respect to any order of any court, arbitrator or governmental body or subject to
or party to any order of any court or governmental authority arising out of any
action, suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or (iii) to
its knowledge in violation of any statute, rule or regulation of any
governmental authority which violation would have a material adverse effect on
the Company.
(o) No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the 1933 Act which would prevent the Company from
selling the Securities under Section 4(2) of the 1933 Act, or any applicable
stockholder approval provisions. Nor will the Company or any of its affiliates
or subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
(p) No General Solicitation. Neither the Company, nor
any of its affiliates, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) in connection with the offer
or sale of the Securities.
(q) Listing. The Company's common stock is listed
for trading on the NASD OTC Bulletin Board and satisfies all requirements for
the continuation of such listing. Since the initiation of the Company's current
listing on the NASD OTC Bulletin Board, the Company has not received any notice
that its common stock will be delisted from the NASD OTC Bulletin Board or that
the common stock does not meet all requirements for the continuation of such
listing.
(r) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof in all material respects, will be true
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and correct as of the Closing Date, and, unless the Company otherwise notifies
the Subscriber prior to the Closing Date, shall be true and correct in all
material respects as of the Closing Date. The foregoing representations and
warranties shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant
to the exemption from the registration provisions of the Securities Act of 1933,
as amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit C. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrants.
4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to dispose of such Securities pursuant to Rule 144(k) under the Act, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the Act. The Company agrees to cooperate with the Subscriber in
connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested representations from the Subscriber and
selling broker, if any.
5. Redemption. The Company may not redeem the Securities
without the consent of the holder of the Securities except as otherwise
described herein.
6. Fees/Warrants.
(a) The Company shall pay to counsel to the
Subscriber its fee of $25,000 ($5,000 of which has already been paid) for
services rendered to Subscribers in reviewing this Agreement and other
Subscription Agreements for aggregate subscription amounts of up to $250,000
(the "Initial Offering"), and an additional subscription amount of up to
$250,000 (the "Second Payment"), and acting as escrow agent for the Initial
Offering. The Company will pay a cash fee in the amount of ten percent (10%) of
the Purchase Price and Second Payment Note Purchase Price designated on the
signature page hereto ("Finder's Fee") and of the actual cash proceeds received
by the Company in connection with the exercise of the Warrants issued in
connection with the Initial Offering ("Initial Warrants") and Warrants issuable
in connection with the Second Payment("Second Payment Warrants") ("Warrant
Exercise Compensation") to the Finders identified on Schedule B hereto.
Collectively, the Initial Warrants and Second Payment Warrants are referred to
herein as Warrants. The Finder's Fee must be paid each Closing Date and Second
Payment Closing Date. The Warrant Exercise Compensation must be paid within ten
(10) days of Warrant exercise to the Finders identified on Schedule B hereto.
The Finder's Fee and legal fees will be payable out of funds held pursuant to a
Funds Escrow Agreement to be entered into by the Company, Subscriber and an
Escrow Agent.
(b) The Company will also issue and deliver to the
Warrant Recipients, Warrants in the amounts designated on Schedule B hereto in
connection with the Initial Offering and the Second Payment. A form of Warrant
is annexed hereto as Exhibit D. The per share "Purchase Price" of Common Stock
as defined in the Warrant shall be equal to the lesser of (i) the lowest closing
bid price of the Common Stock as reported by Bloomberg Financial for the Pink
Sheets, the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National
Market, American Stock Exchange, or New York Stock Exchange (each of the
foregoing the Principal Market"), or such other principal market or exchange
where the Common Stock is listed or traded for the ten (10) trading days
preceding but not including the Closing Date or (ii) the average of the lowest
closing bid prices of the Common Stock as reported by Bloomberg Financial on the
Principal Market for the three trading days prior to but not including the date
the Warrant is
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exercised. The Warrants must be delivered no later than the Closing Date or
Second Payment Closing Date, as the case may be. Failure by the Company to
timely deliver the Warrant Exercise Compensation or the Warrants shall be deemed
an Event of Default as defined in Article III of the Note and Second Payment
Note.
(c) The Finder's Fee and legal fees will be paid to
the Finders and attorneys only when, as, and if a corresponding subscription
amount is released from escrow to the Company. All the representations,
covenants, warranties, undertakings, and indemnification, other rights including
but not limited to registration rights, and rights in Section 9 hereof, made or
granted to or for the benefit of the Subscriber are hereby also made and granted
to the Warrant Recipients in respect of the Warrants and Company Shares issuable
upon exercise of the Warrants.
7.1. Covenants of the Company. The Company covenants and
agrees with the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange Commission,
any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending any offering of any securities of
the Company, or of the suspension of the qualification of the common stock of
the Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of
the Company Shares, and Common Stock issuable upon the exercise of the Warrants
upon each national securities exchange, or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain such listing so long as any other shares of Common
Stock shall be so listed. The Company will maintain the listing of its Common
Stock on the NASD OTC Bulletin Board, and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Subscriber copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Subscriber and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the
effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 10.1(iv) hereof, the Company will
(i) cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of Shares registered
pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Act or the Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Acts until the later of (y) two (2) years
after the effective date of the Registration Statement on Form SB-2 or such
other Registration Statement described in Section 10.1(iv) hereof, or (z) the
sale by the Subscribers of all the Company Shares issuable by the Company
pursuant to this Agreement. Until at least two (2) years after the Warrants have
been exercised, the Company will use its best efforts to continue the listing of
the Common Stock on the NASD OTC Bulletin Board and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the NASD and NASDAQ.
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(e) The Company undertakes to use the proceeds of the
Subscriber's funds for general corporate expenses, including preparation and
filing of a Form SB-2, working capital and expenses of this offering.
8. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber, Subscriber's officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon Subscriber which results,
arises out of or is based upon (i) any misrepresentation by Company or breach of
any warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or Reports or other Written Information; or (ii) any breach or
default in performance by Company of any covenant or undertaking to be performed
by Company hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company at all times against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company which results, arises out of or
is based upon (a) any misrepresentation by Subscriber in this Agreement or in
any Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall
apply to the indemnification provisions set forth in Sections 8(a) and 8(b)
above.
9.1. Conversion of Note.
(a) Upon the conversion of the Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or its
nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of
common stock issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that the Shares will be
unlegended, free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Company Shares provided the
Subscriber has notified the Company of Subscriber's intention to sell the Shares
and the Shares are included in an effective registration statement or are
otherwise exempt from registration when sold.
(b) Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying an
executed and completed notice of Conversion to the Company. The Subscriber will
not be required to surrender the Note until the Note has been fully converted or
satisfied. Each date on which a Notice of Conversion is telecopied to the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Company will or cause the transfer agent to transmit the Company's
common stock certificates representing the Shares issuable upon conversion of
the Note (and a Note representing the balance of the Note not so converted, if
requested by Subscriber) to an express courier for delivery to such Subscriber
within five business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). To the extent that a Subscriber elects not to
surrender a Note for reissuance upon partial payment or conversion, the
Subscriber hereby indemnifies the Company against any and all loss
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or damage attributable to a third-party claim in an amount in excess of the
actual amount then due under the Note.
(c) The Company understands that a delay in the
delivery of the Shares in the form required pursuant to Section 9 hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the Delivery
Date or Mandatory Redemption Payment Date (as hereinafter defined) could result
in economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
Conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment charges described
above shall be payable through the date notice of revocation or rescission is
given to the Company.
(d) Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.
9.2. Mandatory Redemption. In the event the Company may not
issue Shares on a Delivery Date or at any time when the Note is convertible, for
any reason, then at the Subscriber's election, the Company must pay to the
Subscriber five (5) business days after request by the Subscriber or on the
Delivery Date (if requested by the Subscriber) a sum of money determined by
multiplying the principal of the Note not convertible by 125%, together with
accrued but unpaid interest thereon ("Mandatory Redemption Payment"). The
Mandatory Redemption Payment must be received by the Subscriber on the same date
as the Company Shares otherwise deliverable or within five (5) business days
after request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this proviso is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 4.99% of
the outstanding shares of Common Stock of the Company on such Conversion Date.
For the purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99%. The Subscriber may void the conversion limitation
described in this Section 9.3 upon 75 days prior notice to the Company. The
Subscriber may allocate which of the equity of the Company deemed beneficially
9
owned by the Subscriber shall be included in the 4.99% amount described above
and which shall be allocated to the excess above 4.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of said Note shall have been sought and obtained and
the Company posts a surety bond for the benefit of such Subscriber in the amount
of 130% of the amount of the Note, which is subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such Subscriber to the
extent it obtains judgment.
9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after the
Delivery Date the Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the Common Stock which the Subscriber anticipated receiving upon
such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
9.6. Optional Redemption. The Company will have the option of
redeeming the Note and Second Payment Note (as hereinafter defined) ("Optional
Redemption") by paying to the Subscriber a sum of money determined by
multiplying the principal amount of the Note or Second Payment Note by 130%
together with accrued but unpaid interest thereon ("Redemption Amount")
outstanding on the day the date notice of redemption ("Notice of Redemption) is
given to a Subscriber ("Redemption Date"). A Notice of Redemption may not be
given in connection with any portion of Note or Second Payment Note for which
notice of conversion has been given by the Subscriber at any time before receipt
of a Notice of Redemption. The Subscriber may elect within three (3) business
days after receipt of a Notice of Redemption to give the Company Notice of
Conversion in connection with some or all of the Note and Second Payment Note
principal and interest which was the subject of the Notice of Redemption. A
Notice of Redemption must be accompanied by a certificate signed by the chief
executive officer or chief financial officer of the Company stating that the
Company has on deposit and segregated ready funds equal to the Redemption
Amount. The Redemption Amount must be paid in good funds to the Subscriber no
later than the sixth business day after the Redemption Date. In the event the
Company fails to pay the Redemption Amount by such date, then the Redemption
Notice will be null and void and the Company will thereafter have no further
right to effect an Optional Redemption. Such failure will also be deemed an
Event of Default under the Note and Second Payment Note. Any Notice of
Redemption must be given to all holders of Notes and Second Payment Notes issued
in connection with the Initial Offering, in proportion to their holdings of Note
and Second Payment Note principal on a Redemption Date. A Notice of Redemption
may be given by the Company, provided (i) no Event of Default, as described in
the Note shall have occurred or be continuing; and (ii) the Company Shares
issuable upon conversion of the full outstanding Note and Second Payment Note
principal are included
10
in a registration statement effective as of the Redemption Date. Only one Notice
of Redemption may be given to the Subscriber.
10.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 61 days
after the Closing Date, but not later than three years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any record
holder or holders of more than 50% of the aggregate of the Company's Shares
issued and issuable upon Conversion of the Note and the Second Payment Notes
which are actually issued, (the Securities, Second Payment Securities and
securities issued or issuable by virtue of ownership of the Securities, and
Second Payment Securities, being, the "Registrable Securities"), shall prepare
and file with the SEC a registration statement under the 1933 Act covering the
Registrable Securities which are the subject of such request, unless such
Registrable Securities are the subject of an effective registration statement.
In addition, upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities that
such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received written
requests within 10 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 10.1(i). As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests. The obligation
of the Company under this Section 10.1(i) shall be limited to one registration
statement.
(ii) If the Company at any time proposes to register
any of its securities under the 1933 Act for sale to the public, whether for its
own account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscriber or Holder pursuant to an effective registration statement, each
such time it will give at least 30 days' prior written notice to the record
holder of the Registrable Securities of its intention so to do. Upon the written
request of the holder, received by the Company within 30 days after the giving
of any such notice by the Company, to register any of the Registrable
Securities, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "Seller"). In the event that any registration pursuant to this
Section 10.1(ii) shall be, in whole or in part, an underwritten public offering
of common stock of the Company, the number of shares of Registrable Securities
to be included in such an underwriting may be reduced by the managing
underwriter if and to the extent that the Company and the underwriter shall
reasonably be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the forgoing provisions, or Section 10.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration statement
referred to in this Section 10.1(ii) without thereby incurring any liability to
the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account, such
written request shall be deemed to have been given pursuant to Section 10.1(ii)
rather than Section 10.1(i), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section 10.1(ii)
except that the Company or underwriter,
11
if any, may not withdraw such registration or limit the amount of Registrable
Securities included in such registration.
(iv) The Company shall file with the Commission
within 60 days of the Closing Date (the "Filing Date"), and use its reasonable
commercial efforts to cause to be declared effective a Form SB-2 registration
statement (or such other form that it is eligible to use) within 120 days of the
Closing Date in order to register the Registrable Securities for resale and
distribution under the Act. The registration statement described in this
paragraph must be declared effective by the Commission within 120 days of the
Closing Date (as defined herein) ("Effective Date"). The Company will register
not less than a number of shares of Common Stock in the aforedescribed
registration statement that is equal to 175% of the Company Shares issuable at
the Conversion Price that would be in effect on the Closing Date or the date of
filing of such registration statement (employing the Conversion Price which
would result in the greater number of Shares), assuming the conversion of 100%
of the Notes and 50% of the maximum amount of Second Payment Notes issuable, and
one share of common stock for each common share issuable upon exercise of the
Warrants issuable in connection with the Initial Offering, and 50% of the
Warrants issuable in connection with the Second Payment (in each case, employing
the Conversion Price that would result in the greater number of Shares). The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of the Subscriber and Warrant Recipients, as the case may be, and not
issued, employed or reserved for anyone other than the Subscriber and Warrant
Recipients. Such registration statement will be promptly amended or additional
registration statements will be promptly filed by the Company as necessary to
register additional Company Shares to allow the public resale of all Common
Stock included in and issuable by virtue of the Registrable Securities.
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the 1933 Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of Registrable Securities copies of all
filings and Commission letters of comment;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective until the latest of: (i) six months after the latest
exercise period of the Warrants; (ii) twelve months after the Maturity Date of
the Note or Second Payment Note; or (iii) two years after the Closing Date, and
comply with the provisions of the Act with respect to the disposition of all of
the Registrable Securities covered by such registration statement in accordance
with the Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to
12
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each
underwriter under such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand
for registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration hereunder,
the Seller will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws. In connection with each registration
pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public
offering, the Company and the Seller agree to enter into a written agreement
with the managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber
agree that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 60 days after
written request by the Holder and not declared effective by the Commission
within 120 days after such request [or the Filing Date and Effective Date,
respectively, in reference to the Registration Statement on Form SB-2 or such
other form described in Section 10.1(iv)], and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement described in Sections 10.1(i) or 10.1(ii) is not
filed within 60 days of such written request, or is not declared effective by
the Commission on or prior to the date that is 120 days after such request, or
(ii) the registration statement on Form SB-2 or such other form described in
Section 10.1(iv) is not filed on or before the Filing Date or not declared
effective on or before the sooner of the Effective Date, or within five days of
receipt by the Company of a communication from the Commission that the
registration statement described in Section 10.1(iv) will not be reviewed, or
(iii) any registration statement described in Sections 10.1(i), 10.1(ii) or
10.1(iv) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
30 days in the aggregate per year but not more than 20 consecutive calendar days
(defined as a period of 365 days
13
commencing on the date the Registration Statement is declared effective) (each
such event referred to in clauses (i), (ii) and (iii) of this Section 10.4 is
referred to herein as a "Non-Registration Event"), then, for so long as such
Non-Registration Event shall continue, the Company shall pay in cash as
Liquidated Damages to each holder of any Registrable Securities an amount equal
to one (1%) percent per month or part thereof, proportionately, for the first
sixty (60) days of the pendency of a Non-Registration Event and thereafter, two
(2%) percent per month or part thereof, proportionately, during the pendency of
such Non-Registration Event, of (i) the principal of the Notes issued in
connection with the Initial Offering, whether or not converted; and (ii) the
principal amount of Second Payment Notes actually issued, whether or not
converted, then owned of record by such holder. Payments to be made pursuant to
this Section 10.4 shall be due and payable immediately upon demand in
immediately available funds. In the event a Mandatory Redemption Payment is
demanded from the Company by the Holder pursuant to Section 9.2 of this
Subscription Agreement, then the Liquidated Damages described in this Section
10.4 shall no longer accrue on the portion of the Purchase Price underlying the
Mandatory Redemption Payment, from and after the date the Holder receives the
Mandatory Redemption Payment. It shall be deemed a Non-Registration Event to the
extent that all the Common Stock underlying the Registrable Securities is not
included in an effective registration statement as of and after the Effective
Date at the Conversion Prices in effect from and after the Effective Date.
10.5. Expenses. All expenses incurred by the Company in
complying with Section 10, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional counsel,
if any.
The Company will pay all Registration Expenses in
connection with the registration statement under Section 10. All Selling
Expenses in connection with each registration statement under Section 10 shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares sold by the Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter or any
such controlling person in writing specifically for use in such
14
registration statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 10.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.6(c) if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 10.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes
15
a claim for indemnification pursuant to this Section 10.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10.6 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
11.1. Second Note Purchase.
(a) Upon the acceptance for filing of the Form SB-2
(described in Section 10.1[iv] hereof) with the Commission, the Subscriber shall
purchase up to $250,000 in convertible notes ("Second Payment Notes") from the
Company in an amount, up to $250,000 specified by the Company. The Warrant
Recipients identified on Schedule B hereto, shall also be issued Warrants by the
Company (the "Second Payment Warrant") for an amount of shares equal to the
actual amount of the Second Payment divided by $250,000, with the resulting
fraction multiplied by 850,000 shares. Collectively the Second Payment Notes,
the Second Payment Warrants issuable in connection with the Second Payment, and
Common Stock issuable upon conversion of the Second Payment Notes and exercise
of the Second Payment Warrants are referred to as the "Second Payment
Securities".) The Warrants issuable in connection with the Second Payment Notes
are referred to herein as Warrants or Second Payment Warrants. Except as
described in Section 11.1(c) hereof, each Second Payment Note will be identical
to the Note except that the Maturity Date will be three years from the Second
Payment Closing Date (as hereinafter defined). The Holders of the Second Payment
Securities are granted all the rights, undertakings, remedies, liquidated
damages and indemnification granted to the Subscriber in connection with the
Note, including but not limited to, the rights and procedures set forth in
Section 9 hereof and the registration rights described in Section 10 hereof.
(b) The agreement to purchase the Second Payment
Notes is contingent on the following any, some or all of which may be waived by
the Subscriber:
(i) As of the Second Closing Date, the
Common Shares issuable upon conversion of a Second Payment Note and exercise of
Second Payment Warrants must be included in a registration statement described
in Section 10 hereof which has been accepted for filing by the Commission and
which registration statement must include all financial statements required for
effectiveness of such registration statement.
(ii) As of the Second Closing Date, the
Company will be a full reporting company with the class of Shares registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934.
(iii) No material adverse change in the
Company's business or business prospects shall have occurred after the date of
the most recent financial statements included in the Reports.
16
Material adverse change is defined as any effect on the business, operations,
properties, prospects, or financial condition of the Company that is material
and adverse to the Company and its subsidiaries and affiliates, taken as a
whole, and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under this Agreement, or any other agreement entered into
or to be entered into in connection herewith, in any material respect. There
shall not have been a material negative restatement of the Company's financial
statements referred to in Paragraph 1(a) hereof.
(iv) The non-occurrence (whether or not
continuing) of an Event of Default as described in Article III of the Note.
(v) The execution and delivery to the
Subscriber of a certificate signed by its chief executive officer representing
the truth and accuracy of all the Company's representations and warranties
contained in this Subscription Agreement as of the Second Payment Closing Date
and confirming the undertakings contained herein, and representing the
satisfaction of all contingencies and conditions required for the exercise of
the Put.
(vi) The Company's listing on, and
compliance with the listing requirements of a Principal Market other than the
Pink Sheets.
(vii) The Company's not having received
notice
from the OTC Bulletin Board, or any Principal Market that the Company is not in
compliance with the requirements for continued listing which notice has not been
resolved in a manner affirming the Company's compliance with such requirements.
(viii) The execution by the Company and
delivery to the Subscriber of all required documents in relation to the Second
Payment set forth in Section 11.2 below and such other documents which may be
reasonably requested by the Subscriber.
(c) Subject to the adjustments set forth in the Note,
the Conversion Price of the Second Payment Note shall be the lesser of (i) 80%
of the average of the three lowest closing bid prices of the Common Stock as
reported by Bloomberg Financial for the Principal Market for the thirty (30)
trading days prior to the Closing Date of the Initial Offering, or (ii) 76% of
the average of the three lowest closing bid prices of the Common Stock as
reported by Bloomberg Financial for the sixty (60) trading days prior to the
Conversion Date.
11.2. Demand for Second Payment.
(a) The Company's right to demand payment for Second
Payment Notes commences on the date the registration statement described in
Section 10.1(iv) hereof is accepted for filing by the Commission and expires
thirty (30) days after such effective date ("Second Payment Period").
(b) The Company must make written demand for the
Second Payment during the Second Payment Exercise Period ("Second Payment
Notice") in relation to up to the maximum principal amount of Second Payment
Note that the Subscriber has agreed to purchase, subject to the limits described
in this Agreement. Each Second Payment Notice must be accompanied by (i) the
officer's certificate described in Section 11.1(b)(v) above; (ii) a legal
opinion relating to the Second Payment Securities in form reasonably acceptable
to Subscriber; and (iii) such other documents and certificates reasonably
requested by the Subscriber.
17
(c) Unless otherwise agreed to by the Subscribers,
Second Payment Notices must be given to all Subscribers in proportion to the
amounts agreed to be purchased by all Subscribers undertaking to purchase Second
Payment Notes.
(d) Payment by the Subscriber in relation to a Second
Payment Notice relating to the Second Payment must be made within fourteen (14)
business days after receipt of a Second Payment Notice and the items set forth
in Section 11.2(b) above. Payment will be made against delivery to the
Subscriber or an escrow agent to be agreed upon by the Company and Subscriber,
of the Second Payment Securities, and delivery to the Finders of the Finder's
Fee described in Section 6 and section 11.3 hereof.
(e) Maximum Put Exercise. The Company may not give
the Subscriber a Second Payment Notice in connection with that amount of Second
Payment Note which could be converted as of the Second Payment Date into a
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on such Second Payment Closing Date, and (ii) the number of shares of
Common Stock issuable upon the conversion of the Second Payment Note with
respect to which the determination of this proviso is being made on a Second
Payment Date, which would result in beneficial ownership by the Subscriber and
its affiliates of more than 9.99% of the outstanding shares of Common Stock of
the Company on such Second Payment Date. For the purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of Notes and Second
Payment Notes of only 9.99%. The Subscriber may revoke the restriction described
in this paragraph upon 75 days prior notice to the Company. The Subscriber shall
have the right to determine which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 9.99% described
above and which shall be allocated to the excess above 9.99%. The aggregate
amount of all Second Payment Notices to all Subscribers of the Initial Offering
may not exceed $250,000.
11.3. Second Payment Finders Fees. The Finders identified on
Schedule B hereto shall receive on the Second Payment Closing Date aggregate
Finder's Fees as described in Section 6 hereof in connection with the closing of
the Second Paymentt as set forth on Schedule B hereto. Second Payment Finder's
Fees shall be payable only in connection with the Second PaymentPurchase Price
actually paid by a Subscriber. The Second Payment Finder's Fees shall be paid at
the Second Payment Closing.
11.4. Warrants.
(a) The Company shall issue Second Payment Warrants
to the Warrant Recipients in the amounts designated on Schedule B hereto and as
described in Section 6 of this Subscription Agreement. The Second Payment
Warrants will contain the same terms as the Warrants issuable in connection with
the Initial Offering, and be exercisable immediately upon issuance and for five
years thereafter.
(b) Failure by the Company to timely pay Finder's
Fees, legal fees or deliver any Warrants issuable in connection with the Initial
Offering and Second Payment shall be deemed an Event of Default under the Note
and Second Payment Note and a material breach of the Company's obligations
hereunder, for which no notice to cure is required.
18
11.5 Assignment of Second Payment Obligation. Anything to the
contrary herein notwithstanding, the Subscriber may assign to another party
either before or after the time for payment of the Second Payment the
Subscriber's rights and obligations to pay all or some of the Second Payment and
receive the corresponding Second Payment Securities. Such assignment must be in
writing and must consented to by the Company in writing prior to the assignment,
which consent may not be unreasonably withheld. The assignment will be effective
only if the assignee consents in writing to be bound by all of the Subscriber's
obligations to the Company in connection with such assignment. Upon an effective
assignment, the assignee will succeed to all of the Subscriber's rights and
obligations under this Subscription Agreement, and all other agreements relating
to the assigned portion of the Second Payment.
12. (a) Right of First Refusal. Until 120 days after the
actual effective date of the Registration Statement described in Section
10.1(iv) hereof, the Subscriber shall be given not less than ten (10) business
days prior written notice of any proposed sale by the Company of its common
stock or other securities or debt obligations except as disclosed in the Reports
or Other Written Information. The Subscriber shall have the right during the ten
(10) business days following the notice to agree to purchase an amount of
Company Shares in the same proportion as being purchased in the Initial Offering
of those securities proposed to be issued and sold, in accordance with the terms
and conditions set forth in the notice of sale. In the event such terms and
conditions are modified during the notice period, the Subscriber shall be given
prompt notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice of
modification, whichever is longer, to exercise such right. In the event the
right of first refusal described in this Section is exercised by the Subscriber
and the Company thereby receives net proceeds from such exercise, then
commissions and fees will be paid by the Company to the Finders in the same
amounts as specified in the notice of sale.
(b) Offering Restrictions. Until 120 days after the
actual effective date of the registration statement described in Section
10.1(iv) hereof, the Company agrees not to issue any equity, convertible debt or
other securities at a per common share equivalent price less than the average of
the closing bid prices of the Common Stock as of the date of such issuance as
reported by the Principal Market or such other principal market or exchange
where the Company's common stock is listed for trading.
13. Miscellaneous.
(a) Notices. All notices or other communications
given or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied (provided that a
copy is delivered by first class mail) to the party to receive the same at its
address set forth below or to such other address as either party shall hereafter
give to the other by notice duly made under this Section: (i) if to the Company,
to Commercial Concepts, Inc., 000 Xxxxx 000 Xxxx, Xxxxx X, Xxxx Xxxx Xxxx, Xxxx
00000, telecopier number: (000) 000-0000, with a copy by telecopier only to Ray,
Xxxxxxx and Xxxxxxx, 00 Xxxxx Xxxx Xxxxxx, Xxxxx 000, Xxxx Xxxx Xxxx, Xxxx
00000, Attn: Xxxx Xxxxxxx, Esq., telecopier number: (000) 000-0000, and (ii) if
to the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto, with a copy by telecopier only to Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number:
(000) 000-0000.
(b) Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Xxxxxxx, P.C.,
000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of
all conditions to Closing set forth in this Agreement. The closing date shall be
the date that subscriber funds representing the net amount due the Company from
the Purchase Price are transmitted by wire transfer to the Company (the "Closing
Date"). The closing date for the Put shall be the
19
date on which Subscriber funds representing the net amount due the Company from
the Second Payment Purchase Price is transmitted to or on behalf of the Company
("Second Payment Closing Date").
(c) Entire Agreement; Assignment. This Agreement
represents the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by both
parties. No right or obligation of either party shall be assigned by that party
without prior notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.
(e) Law Governing this Agreement. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction.
The Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injuction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Confidentiality. The Company agrees that it will
not disclose publicly or privately the identity of the Subscriber unless
expressly agreed to in writing by the Subscriber or only to the extent required
by law.
(h) Automatic Termination. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the tenth (10th) business day following the
date this Agreement is accepted by the Subscriber.
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[THIS SPACE INTENTIONALLY LEFT BLANK]
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Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
COMMERCIAL CONCEPTS, INC.
By:/s/ Xxxxxx X. Xxxxxxxx, Xx.
---------------------------
Dated: July 20, 2000
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Purchase Price: $52,500.00
SECOND PAYMENT
Second Payment Note Purchase Price (aggregate): $52,500.00
ACCEPTED: Dated as of July 20, 2000
THE KESHET FUND L.P. - Subscriber
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
By:/s/ A. Grin
SCHEDULE B TO SUBSCRIPTION AGREEMENT
---------------------------------------- -------------------------------------- --------------------------------------
FINDERS INITIAL OFFERING SECOND PAYMENT FINDER'S FEES
---------------------------------------- -------------------------------------- --------------------------------------
XXXX X. XXXXXXXXX $5,000 (2%) $5,000 (2%)
000 XxXxxxxxx Xxxxx, #000
Xxx Xxxx, XX 00000
Fax: 000-000-0000
---------------------------------------- -------------------------------------- --------------------------------------
FOCUS PARTNERS LLC $5,000 (2%) $5,000 (2%)
000 Xxxxxxxxx Xxxxxx, #0000
Xxx Xxxx, XX 00000
Fax: 000-000-0000
---------------------------------------- -------------------------------------- --------------------------------------
ALON ENTERPRISES LTD. $15,000 (6%) $15,000 (6%)
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
---------------------------------------- -------------------------------------- --------------------------------------
TOTAL $25,000 (10%) $25,000 (10%)
---------------------------------------- -------------------------------------- --------------------------------------
PROPORTIONATE SHARE OF AGGREGATE WARRANTS ISSUABLE
--------------------------------------------- ---------------------------------------- ------------------------------------------
WARRANT RECIPIENTS INITIAL WARRANTS SECOND PAYMENT WARRANTS
--------------------------------------------- ---------------------------------------- ------------------------------------------
TALBIYA B. INVESTMENTS LTD. 850,000 850,000
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
--------------------------------------------- ---------------------------------------- ------------------------------------------
TOTAL 850,000 850,000 (ASSUMES PAYMENT OF $250,000)
--------------------------------------------- ---------------------------------------- ------------------------------------------
WARRANT EXERCISE COMPENSATION
----------------------------------------------------------- ----------------------------------------------------------
FINDERS PROPORTIONATE SHARE OF 10% CASH COMMISSIONS PAYABLE ON
WARRANT EXERCISE
----------------------------------------------------------- ----------------------------------------------------------
ALON ENTERPRISES LTD. 100%
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-000-00000000
----------------------------------------------------------- ----------------------------------------------------------
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