SUBSCRIPTION AGREEMENT
EXHIBIT
10.2
THIS
SUBSCRIPTION AGREEMENT (the “Agreement”)
is made
as of this 12th day of January, 2007, by and among Kreido Biofuels, Inc. (f/k/a
Gemwood Productions, Inc.), a Nevada corporation (the “Company”),
Kreido
Laboratories, a California corporation (“Kreido”)
and
the investor identified on the signature page to this Agreement (the
“Investor”).
RECITALS:
WHEREAS,
the Company and Kreido contemplate that they will enter into an Agreement and
Plan of Merger and Reorganization, pursuant to which a wholly-owned subsidiary
of the Company, will merge with and into Kreido, with Kreido being the surviving
entity and a wholly-owned subsidiary of the Company (the “Merger”),
upon
the effective date of the Merger (the “Merger Effective
Date”);
WHEREAS,
as a condition to the consummation of the Merger, and to provide the capital
required by Kreido for working capital purposes, the Company is offering, in
compliance with Rule 506 of Regulation D of the Securities Act of 1933, as
amended (the “Securities
Act”),
and
available prospectus exemptions in Canada to accredited investors in a private
placement transaction (the “Offering”),
18,518,519 units of its securities (the “Units”)
at a
purchase price of $1.35 per Unit, each Unit consisting of one share of the
Company’s common stock, par value $0.001 per share (“Common
Stock”)
and a
warrant (the “Investor
Warrants”)
to
purchase one share of Common Stock for five (5) years at the exercise price
of
$1.85 per share of Common Stock a form of Investor Warrant is attached hereto
as
Exhibit
A;
WHEREAS,
the Investor desires to subscribe for, purchase and acquire from the Company
and
the Company desires to sell and issue to the Investor the number of Units,
set
forth on the signature page of this Agreement (the “Investor’s
Units”)
upon
the terms and conditions and subject to the provisions hereinafter set
forth;
WHEREAS,
in connection with the purchase of the Investor’s Units, the Company and the
Investor will execute a Registration Rights Agreement dated as of the same
date
as this Agreement pursuant to which the Company will provide certain
registration rights to the Investor (the “Registration
Rights Agreement”);
and
WHEREAS,
the Company, Kreido and McGuireWoods LLP (the “Escrow
Agent”)
have
entered into an Escrow Agreement (the “Escrow
Agreement”)
to
provide for the safekeeping of funds received and documents executed in
connection with the Offering.
NOW,
THEREFORE, for and in consideration of the mutual premises contained herein
and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Purchase
and Sale of the Units.
Subject
to the terms and conditions of this Agreement and the satisfaction of the
Closing Conditions, the Investor subscribes for and agrees to purchase and
acquire from the Company and the Company agrees to sell and issue to the
Investor the Investor’s Units at the purchase price of $1.35 per Unit (the
“Purchase
Price”);
provided,
that
the Company reserves the right, in its sole discretion and for any reason,
to
reject any Investor’s subscription in whole or in part, or to allot less than
the number of Units subscribed for.
2. The
Closing.
The
Offering will terminate upon the receipt of acceptable subscriptions totaling
$25,000,000; provided,
that
the initial closing of the Offering shall be concurrent with the close of the
Merger (the “Closing
Date”)
at the
offices of the Escrow Agent. On the Closing Date, the Escrow Agent shall deliver
the funds and Transaction Documents (as defined herein) held in escrow as of
the
Closing Date pursuant to the terms of the Escrow Agreement. As soon as
practicable after the Closing Date, the Company shall issue and deliver, or
shall cause the issuance and delivery of, a stock certificate, registered in
the
name of the Investor and representing the shares of Common Stock underlying
the
Investor’s Units and a warrant certificate registered in the name of the
Investor representing the Investor’s right to purchase the number of shares of
Common Stock underlying the Investor’s Warrants purchased in the
Offering.
3. Closing
Conditions.
a.
Conditions
to Obligations of Investors.
The
respective obligations of the Investors hereunder in connection with the Closing
are subject to the satisfaction or waiver of the following conditions: (i)
the
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Company contained herein; and (ii)
all
obligations, covenants and agreements of the Company required to be performed
at
or prior to the Closing Date shall have been performed.
b.
Conditions to Obligations of the Company. The obligations of the
Company hereunder in connection with the Closing are subject to the satisfaction
or waiver of the following conditions: (i) the accuracy in all material
respects when made and on the Closing Date of the representations and warranties
of the Investors contained herein; (ii) all obligations, covenants and
agreements of the Investors required to be performed at or prior to the Closing
Date shall have been performed; and (iii) the delivery by the Investors of
the
items set forth in Section 4 of this Agreement.
4. Subscription
Procedure.
To
complete a subscription for the Units, the Investor must fully comply with
the
subscription procedure provided in this Section on or before 5:00 p.m. Eastern
time on the Closing Date.
a. Transaction
Documents.
Before
5:00 p.m. Eastern time on the Closing Date, the Investor shall review, complete
and execute this Agreement, the Investor Questionnaire attached hereto as
Appendix
A
and the
Registration Rights Agreement (collectively, the “Transaction
Documents”)
and
deliver the Transaction Documents to the Escrow Agent at the address provided
below. Executed agreements and questionnaires may be delivered to the Escrow
Agent by facsimile using the facsimile number provided below if the Investor
immediately thereafter confirms receipt of such transmission with the Escrow
Agent and delivers the original copies of the agreements and questionnaire
to
the Escrow Agent as soon as practicable thereafter.
2
Escrow
Agent - Mailing Address and Facsimile Number:
McGuireWoods
LLP
00
Xxxxx
Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxxx,
XX 00000-0000
Facsimile
Number: (000) 000-0000
Attention:
Xxxxxxxx Xxxxx
Telephone
Number: (000) 000-0000
b. Purchase
Price.
Simultaneously with the delivery of the Transaction Documents to the Escrow
Agent as provided herein, and in any event on or prior to 5:00 p.m. Eastern
time
on the Closing Date, the Investor shall deliver to the Escrow Agent the full
Purchase Price for the Investor’s Units by wire transfer of immediately
available funds pursuant to wire transfer instructions provided
below:
Escrow
Agent - Wire Transfer Instructions:
BANK
OF
AMERICA - Jacksonville, FL
ABA:
000000000 (Domestic Wires)
Swift
Code: XXXXXX0X (International Wires)
Credit:
McGuireWoods LLP IOLTA Account
Account
Number: 2101206537
Reference:
Xxxxx Xxxxx - Kreido Laboratories Escrow - 2049303-0001
McGuireWoods
Accounting Contact: Xxxxx Xxxxx (000) 000-0000
Bank
Contact: Xxxxxxx Xxxxx (000) 000-0000, Opt. 2, Ext. 2160
c. Purchaser
Representative.
If the
Investor has retained the services of a purchaser representative to assist
in
evaluating the merits and risks associated with investing in the Units, the
Investor must deliver along with the Transaction Documents, a purchaser
representative certificate in a form acceptable to the Company.
d. Company
Discretion.
The
Company may accept any subscription in whole or in part or reject any
subscription in its sole discretion for any reason and may terminate this
Offering at any time before accepting subscriptions. If the Investor’s
subscription is rejected or if the conditions to closing this Offering,
including the receipt and acceptance of subscriptions representing $25,000,000,
are not satisfied or if this Offering is otherwise terminated or withdrawn,
funds delivered by the Investor to the Escrow Agent will be returned to the
Investor without interest or deduction.
5. Representations
and Warranties of the Company and Kreido.
In
order to induce the Investor to enter into this Agreement, the Company and,
as
applicable, Kreido represent and warrant to the Investor the
following:
a. Subsidiaries.
The
Company has no direct or indirect subsidiaries (each a “Subsidiary”
and
collectively the “Subsidiaries”)
other
than Kreido Acquisition Corp., and Gemwood Leasco, Inc. and those set forth
in
the Exchange Act Documents (as defined in Section 5(g)), or as are necessary
or
desirable to consummate the Merger and the transactions contemplated in the
Merger Agreement. Except as disclosed in the Exchange Act Documents, the Company
owns, directly or indirectly, all of the capital stock of each Subsidiary free
and clear of any and all liens, and all the issued and outstanding shares of
capital stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights. Kreido has no direct
or indirect subsidiaries and all references to the term Subsidiary and
Subsidiaries used herein specifically refers to Kreido Acquisition Corp., and
Gemwood Leasco, Inc. and those set forth in the Exchange Act Documents, or
as
are necessary or desirable to consummate the Merger and the transactions
contemplated in the Merger Agreement.
3
b. Organization
and Qualification.
The
Company and Kreido, and as applicable any Subsidiary, are each an entity duly
incorporated or otherwise organized, validly existing and in good standing
under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company and Kreido, nor any Subsidiary, is in violation or default
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of
the
Company and Kreido and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity 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, could not have or reasonably
be expected to result in (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document or Investor Warrant, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company, Kreido and
the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s or Kreido’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document or Investor Warrant (any
of
(i), (ii) or (iii), a “Material
Adverse Effect”)
and no
proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
c. Authorization;
Enforcement.
The
Company and Kreido each has the requisite corporate power and authority to
enter
into and to consummate the transactions contemplated by each of the Transaction
Documents and the Investor Warrants and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the Transaction
Documents and Investor Warrants by the Company and Kreido and the consummation
of the transactions contemplated hereby and thereby have been duly authorized
by
all necessary action on the part of the Company and Kreido and no further action
is required by the Company and Kreido, and their respective boards of directors
or its stockholders in connection therewith. Each Transaction Document and
Investor Warrant has been (or upon delivery will have been) duly executed by
the
Company or Kreido, as applicable, and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation
of
the Company or Kreido enforceable against the Company or Kreido in accordance
with its terms except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of
general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
4
d. No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company,
the issuance and sale of the Units and the consummation by the Company or
Kreido, as applicable, of the other transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of the Company’s
and Kreido’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with,
or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any lien upon any
of
the properties or assets of the Company or Kreido or any Subsidiary, or give
to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Kreido or Subsidiary debt
or
otherwise) or other understanding to which the Company or Kreido or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or
Kreido or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or Kreido
or
a Subsidiary is bound or affected; except in the case of each of clauses (ii)
and (iii), such as could not have or reasonably be expected to result in a
Material Adverse Effect.
e. Approvals.
The
execution, delivery, and performance by the Company of this Agreement and the
offer and sale of the Units require no consent of, action by or in respect
of,
or filing with, any person, governmental body, agency, or official other than
those consents that have been obtained prior to the Closing and those filings
required to be made pursuant to the Securities Act and any State Acts which
the
Company undertakes to file within the applicable time period or provincial
filings required in connection with sales in Canada.
f. Capitalization.
Upon
issuance in accordance with the terms of this Agreement against payment of
the
Purchase Price therefor, the shares of Common Stock underlying the Investor’s
Units will be duly and validly issued, fully paid, and nonassessable and free
and clear of all liens imposed by or through the Company, and, assuming the
accuracy of the representations and warranties of the Investor and all other
purchasers of Units in the Offering, will be issued in accordance with a valid
exemption from the registration or qualification provisions of the Securities
Act, and any applicable state securities laws (the “State
Acts”),
or
will be issued in accordance with a valid prospectus exemption in Canada. The
Company has not issued any capital stock since its most
recently filed periodic report under the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”),
and
the
rules and regulations thereunder, no
person
has any right of first refusal, preemptive right, right of participation, or
any
similar right to participate in the transactions contemplated by the Transaction
Documents. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for
the
issuance and sale of the Units. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders.
5
g. Exchange
Act Filing.
During
the 12 calendar months immediately preceding the date of this Agreement, all
reports and statements, including all amendments, required to be filed by the
Company with the Securities and Exchange Commission (the “Commission”)
under
the Exchange Act, have been timely filed. Such filings, together with all
amendments and all documents incorporated by reference therein, are referred
to
as “Exchange
Act Documents.”
Each
Exchange Act Document conformed in all material respects to the requirements
of
the Exchange Act and the rules and regulations thereunder, and no Exchange
Act
Document, at the time each such document was filed, included any untrue
statement of a material fact or omitted to state any material fact required
to
be stated therein or necessary to make the statements therein, in light of
the
circumstances under which they were made, not misleading.
h. Company
Financial Statements. The
audited financial statements, together with the related notes of the Company
at
September 30, 2005, included in the Company’s SB-2 for the fiscal year ended
September 30, 2005 as filed with the Commission (the “Company
Financial Statements”),
fairly present in all material respects, on the basis stated therein and on
the
date thereof, the financial position of the Company at the respective dates
therein specified and its results of operations and cash flows for the periods
then ended. Such statements and related notes have been prepared in accordance
with generally accepted accounting principles in the United States applied
on a
consistent basis except as expressly noted therein.
i. Material
Changes; Undisclosed Events, Liabilities or Developments.
Since
the date of the latest audited financial statements included within the Exchange
Act Documents, except as specifically disclosed in a subsequent Exchange Act
Document filed prior to the date hereof, (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 and accrued expenses
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 GAAP or disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (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. The Company does not
have pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated by this
Agreement, no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made.
j. No
Disputes or Litigation Against the Company or Kreido.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company and Kreido, threatened against
or
affecting the Company and Kreido, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign)
(collectively, an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Units or (ii) could, if there were
an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company and Kreido, nor any Subsidiary, nor any
director or officer thereof, is or 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 knowledge
of
the Company and Kreido, there is not pending or contemplated, any investigation
by the Commission involving the Company and Kreido or any current or former
director or officer of the Company and Kreido. The Commission 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 Exchange Act or
the
Securities Act.
6
k. Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company and Kreido,
is
imminent with respect to any of the employees of the Company which could
reasonably be expected to result in a Material Adverse Effect. None of the
Company’s and Kreido’s or any Subsidiary’s employees is a member of a union that
relates to such employee’s relationship with the Company, and neither the
Company and Kreido or any Subsidiary is a party to a collective bargaining
agreement, and the Company (and its Subsidiaries) and Kreido believe that their
relationships with their employees are good. No executive officer, to the
knowledge of the Company or Kreido, is, or is now expected to be, in violation
of any material term of any employment contract, confidentiality, disclosure
or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company (or any of its
Subsidiaries) and Kreido to any liability with respect to any of the foregoing
matters. The Company (and its Subsidiaries) and Kreido are in compliance with
all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
l. Compliance.
Neither
the Company nor Kreido, nor any Subsidiary, (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company nor
Kreido, or any Subsidiary under), nor has the Company nor Kreido, or any
Subsidiary received notice of a claim that it is in default under or that it
is
in violation of, any indenture, loan or credit agreement, or any other agreement
or instrument to which it is a party or by which it or any of its properties
is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any Court, arbitrator, or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect. The Company is in compliance
with the applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002, as amended,
and the rules and regulations thereunder, except where such noncompliance could
not have or reasonably be expected to result in a Material Adverse
Effect.
m. Regulatory
Permits.
The
Company (and its Subsidiaries) and Kreido possess all certificates,
authorizations and permits issued by the appropriate federal, state, local
or
foreign regulatory authorities necessary to conduct their respective businesses,
except where the failure to possess such permits could not have or reasonably
be
expected to result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company and Kreido, nor any Subsidiary, has received any notice
of
proceedings relating to the revocation or modification of any Material
Permit.
7
n. Title
to Assets.
The
Company and Kreido, and, as applicable, the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and Kreido and good and marketable
title
in all personal property owned by them that is material to the business of
the
Company and Kreido, in each case free and clear of all liens, except for liens
as do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and Kreido and liens for the payment of federal, state or other taxes,
the payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and Kreido are held
by
them under valid, subsisting and enforceable leases with which the Company
and
Kreido are in compliance.
o. Patents
and Trademarks.
The
Company and Kreido, or any of their respective Subsidiaries have, or have rights
to use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, and other similar rights
that
are necessary or material for use in connection with their respective businesses
and which the failure to so have could, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect (collectively,
the “Intellectual
Property Rights”).
Neither the Company nor Kreido, or any of their respective Subsidiaries, has
received a written notice that the Intellectual Property Rights used by the
Company or Kreido, or any of their respective Subsidiaries, violates or
infringes upon the rights of any person. Except as set forth in the Exchange
Act
Documents, to the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another person
of any of the Intellectual Property Rights, except where such infringement
could
not have or reasonably be expected to result in a Material Adverse
Effect.
p. Insurance.
The
Company and Kreido and, as applicable, 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
Kreido and the Subsidiaries are engaged, including, but not limited to,
directors’ and officers’ liability coverage. Neither the Company and Kreido, nor
any Subsidiary, has any reason to believe that it will not be able to renew
its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
q. Transactions
With Affiliates and Employees.
Except
as set forth in the Exchange Act Documents, the Confidential Private Placement
Memorandum dated November 16, 2006, as revised on December 15, 2006 (the
“Memorandum”)
and
those transactions contemplated by the Transaction Documents, none of the
officers or directors of the Company or Kreido and, to the knowledge of the
Company or Kreido, none of the employees of the Company or Kreido is presently
a
party to any transaction with the Company or any Subsidiary of Kreido (other
than 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 knowledge of the Company or Kreido, any entity in which
any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, or partner.
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r. 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 and its Subsidiaries is made known to the
Company’s 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, are being prepared. The Company’s certifying officers have evaluated the
effectiveness of the Company’s controls and procedures as of the end of the
reporting period covered by the Company’s Form 10-KSB and each of the Company’s
Forms 10-QSB filed with the Commission (each such date, the “Evaluation
Date”)
and
presented in each such report their conclusions about the effectiveness of
the
Company’s disclosure controls and procedures based on their evaluations as of
the applicable Evaluation Date. Since the Evaluation Date of the Company’s most
recently filed Form 10-KSB or Form 10-QSB, there have been no significant
changes in the Company’s disclosure controls and procedures, the Company’s
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) or 15d-15(f) or, to the Company’s knowledge, in other factors that
could significantly affect the Company’s internal controls over financial
reporting.
s. Solvency.
Based
on the financial condition of the Company as of the Closing Date (and assuming
that the 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).
t. Certain
Fees.
Other
than the cash commission payable on the closing, no brokerage or finder’s fees
or commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank, or
other person with respect to the transactions contemplated by this Agreement.
The Investor shall have no obligation with respect to any claims (other than
such fees or commissions owed by an Investor pursuant to written agreements
executed by the Investor which fees or commissions shall be the sole
responsibility of such Investor) made by or on behalf of other persons for
fees
of a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
9
u. Certain
Registration Matters.
Assuming the accuracy of the Investor’s representations and warranties set forth
in this Agreement and the Transaction Documents and the representations and
warranties made by all other purchasers of Units in the Offering, no
registration under the Securities Act is required for the offer and sale of
the
Investor’s Units by the Company to the Investor hereunder.
v. Listing
and Maintenance Requirements.
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 of the Common Stock on the NASD Over the
Counter Bulletin Board.
w. Investment
Company.
Neither
the Company nor Kreido are an “investment company” or an “affiliate” of an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.
x. No
Additional Agreements.
The
Company and Kreido do not have any agreement or understanding with any other
purchasers of the Units in the Offering with respect to the transactions
contemplated by this Agreement on terms that differ substantially from those
set
forth in this Agreement.
y. Disclosure.
The
Investor confirms that in making its decision to enter into this Agreement,
the
Investor has relied on the information contained in the Confidential Private
Placement Memorandum dated November 16, 2006, as revised on December 15, 2006
and on the representations and warranties set forth in Section 5 of this
Agreement, and not on any other materials that have been furnished by or on
behalf of the Company and Kreido. The information contained in the Memorandum
and the representations and warranties of the Company and Kreido in this
Agreement are true and correct in all material respects and do not contain
any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Company and Kreido confirm
that
neither they nor any person acting on their behalf has provided the Investor,
or
its agents or counsel, with any information that the Company or Kreido believes
would constitute material, non-public information following the announcement
of
the Closing and the transactions contemplated thereby. The Company understands
and confirms that the Investor will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company.
z. Registration
Rights.
Other
than each of the Investors, no person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.
aa. No
Integrated Offering.
Assuming
the accuracy of the Investors’ representations and warranties set forth in
Section 6, 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 Units to be integrated with prior offerings
by the Company for purposes of the Securities Act or any applicable shareholder
approval provisions of any trading market on which any of the securities of
the
Company are listed or designated.
10
bb. No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered or sold
any of the Units by any form of general solicitation or general advertising.
The
Company has offered the Units for sale only to the Purchasers and certain other
“accredited investors” within the meaning of Rule 501 under the Securities
Act.
cc. Acknowledgment
Regarding Investors’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Investors is acting solely
in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Investor is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by
any
Investor or any of their respective representatives or agents in connection
with
the Transaction Documents and the transactions contemplated thereby is merely
incidental to the Investors’ purchase of the Units. The Company further
represents to each Investor that the Company’s decision to enter into this
Agreement and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and Kreido and their representatives.
dd. Acknowledgement
Regarding Investors’ Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding,
it is understood and acknowledged by the Company (i) that none of the Investors
have been asked to agree, nor has any Investor agreed, to desist from purchasing
or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Units for
any specified term; (ii) that past or future open market or other transactions
by any Investor, including short sales, and specifically including, without
limitation, short sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that any
Investor, and counter-parties in “derivative” transactions to which any such
Investor is a party, directly or indirectly, presently may have a “short”
position in the Common Stock, and (iv) that each Investor shall not be deemed
to
have any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The
Company further understands and acknowledges that (a) one or more Investors
may
engage in hedging activities at various times during the period that the Units
are outstanding, including, without limitation, during the periods that the
value of the shares underlying the Warrants deliverable with respect to Units
are being determined and (b) such hedging activities (if any) could reduce
the
value of the existing stockholders' equity interests in the Company at and
after
the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute
a
breach of any of the Transaction Documents and Investor Warrants.
6. Representations
and Warranties of the Investor.
In
order to induce the Company to enter into this Agreement, the Investor
represents and warrants to the Company and Kreido the following:
11
a. Authority.
If a
corporation, partnership, limited partnership, limited liability company, or
other form of entity, the Investor is duly organized or formed, as the case
may
be, validly existing, and in good standing under the laws of its jurisdiction
of
organization or formation, as the case may be. The Investor has all requisite
individual or entity right, power, and authority to execute, deliver, and
perform this Agreement.
b. Enforceability.
The
execution, delivery, and performance of this Agreement by the Investor have
been
duly authorized by all requisite partnership, corporate or other entity action,
as the case may be. This Agreement has been duly executed and delivered by
the
Investor, and, upon its execution by the Company, shall constitute the legal,
valid, and binding obligation of the Investor, enforceable in accordance with
its terms, except to the extent that its enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium, or other laws relating
to or
affecting the enforcement of creditors’ rights generally and by general
principles of equity.
c. No
Violations.
The
execution, delivery, and performance of this Agreement by the Investor do not
and will not, with or without the passage of time or the giving of notice,
result in the breach of, or constitute a default, cause the acceleration of
performance, or require any consent under, or result in the creation of any
lien, charge or encumbrance upon any property or assets of the Investor pursuant
to, any material instrument or agreement to which the Investor is a party or
by
which the Investor or its properties may be bound or affected, and, do not
or
will not violate or conflict with any provision of the articles of incorporation
or bylaws, partnership agreement, operating agreement, trust agreement, or
similar organizational or governing document of the Investor, as applicable.
d. Knowledge
of Investment and its Risks.
The
Investor has knowledge and experience in financial and business matters as
to be
capable of evaluating the merits and risks of Investor’s investment in the
Units. The Investor understands that an investment in the Company represents
a
high degree of risk and there is no assurance that the Company’s business or
operations will be successful. The Investor has considered carefully the risks
attendant to an investment in the Company, and that, as a consequence of such
risks, the Investor could lose Investor’s entire investment in the
Company.
e. Investment
Intent.
The
Investor hereby represents and warrants that (i) the Investor’s Units are being
acquired for investment for the Investor’s own account, and not as a nominee or
agent and not with a view to the resale or distribution of all or any part
of
the Investor’s Units, and the Investor has no present intention of selling,
granting any participation in, or otherwise distributing any of the Investor’s
Units within the meaning of the Securities Act, (ii) the Investor’s Units are
being acquired in the ordinary course of the Investor’s business, and (iii) the
Investor does not have any contracts, understandings, agreements, or
arrangements, directly or indirectly, with any person and/or entity to
distribute, sell, transfer, or grant participations to such person and/or entity
with respect to, any of the Investor’s Units. The Investor is not purchasing the
Investor’s Units as a result of any advertisement, article, notice or other
communication regarding the Investor’s Units published in any newspaper,
magazine or similar media or broadcast over television or radio or presented
at
any seminar or any other general solicitation or general
advertisement.
12
f. Investor
Status.
The
Investor is an “accredited investor” as that term is defined by Rule 501 of
Regulation D promulgated under the Securities Act and the information provided
by the Investor in the Investor Questionnaire, attached hereto as Appendix
A,
is
truthful, accurate, and complete. The Investor is not registered as a
broker-dealer under Section 15 of the Exchange Act or an affiliate of such
broker-dealer, except as otherwise provided in the Investor
Questionnaire.
g. Disclosure.
The
Investor has reviewed the information provided to the Investor by the Company
in
connection with the Investor’s decision to purchase the Investor’s Units,
including but not limited to, the Company’s publicly available filings with the
Commission and the information contained therein. The Company has provided
the
Investor with all the information that the Investor has requested in connection
with the decision to purchase the Investor’s Units. The Investor further
represents that the Investor has had an opportunity to ask questions and receive
answers from the Company regarding the business, properties, prospects, and
financial condition of the Company. All such questions have been answered to
the
full satisfaction of the Investor. Neither such inquiries nor any other
investigation conducted by or on behalf of the Investor or its representatives
or counsel shall modify, amend, or affect the Investor’s right to rely on the
truth, accuracy, and completeness of the disclosure materials and the Company’s
representations and warranties contained herein.
h. No
Registration.
The
Investor understands that Investor may be required to bear the economic risk
of
Investor’s investment in the Company for an indefinite period of time. The
Investor further understands that (i) neither the offering nor the sale of
the Investor’s Units has been registered under the Securities Act or any
applicable State Acts in reliance upon exemptions from the registration
requirements of such laws, (ii) the Investor’s Units must be held by the
Investor indefinitely unless the sale or transfer thereof is subsequently
registered under the Securities Act and any applicable State Acts, or an
exemption from such registration requirements is available, (iii) except as
set
forth in the Registration Rights Agreement, dated as of the date hereof, between
the Company and the Investor, the Company is under no obligation to register
any
of the shares of Common Stock underlying the Investor’s Units on the Investor’s
behalf or to assist the Investor in complying with any exemption from
registration, and (iv) the Company will rely upon the representations and
warranties made by the Investor in this Agreement and the Transaction Documents
in order to establish such exemptions from the registration requirements of
the
Securities Act and any applicable State Acts.
i. Transfer
Restrictions.
The
Investor will not transfer any of the Investor’s Units or the shares of Common
Stock underlying the Investor’s Units or the Investor Warrants unless such
transfer is registered or exempt from registration under the Securities Act
and
such State Acts, and, if requested by the Company in the case of an exempt
transaction, the Investor has furnished an opinion of counsel reasonably
satisfactory to the Company that such transfer is so exempt. The Investor
understands and agrees that (i) the certificates evidencing the shares of Common
Stock underlying the Investor’s Units and the Investor’s Warrants will bear
appropriate legends indicating such transfer restrictions placed upon the Units
and shares of Common Stock and Investor Warrants, (ii) the Company shall have
no
obligation to honor transfers of any of the Investor’s Units, Investor Warrants
or shares of Common Stock underlying the Investor’s Units or Investor Warrants
in violation of such transfer restrictions, and (iii) the Company shall be
entitled to instruct any transfer agent or agents for the securities of the
Company to refuse to honor such transfers.
13
j. No
Solicitation.
The
Investor (i) did not 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, with respect to the Units or (ii) was not solicited by any person,
other than by representatives of the Company, with respect to a purchase of
the
Units.
k. Principal
Address.
The
Investor’s principal residence, if an individual, or principal executive office,
if an entity, is set forth on the signature page of this Subscription
Agreement.
l. Reliance
by the Company.
The
Investor acknowledges and consents to the Company’s reliance on the Investor’s
representations and warranties made above for purposes of complying with all
applicable securities laws and any applicable exemptions from registration
requirements thereunder and otherwise.
7. Transfer
Restrictions.
a. The
Common Stock and Common Stock issuable upon exercise of the Investor Warrants
(the “Warrant
Shares”)
(the
Common Stock, Investor Warrants and Warrant Shares are collectively referred
to
as the “Securities”)
may
only be disposed of in compliance with state and federal securities laws. In
connection with any transfer of Securities other than pursuant to an effective
registration statement or Rule 144, the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance
of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have
the
rights of an Investor under this Agreement and the Registration Rights
Agreement.
b. The
Investors agree to the imprinting, so long as is required by this Section 7,
of
a legend on any of the Securities in the following form:
THIS
SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.
14
c. Certificates
evidencing the Common Stock and Warrant Shares shall not contain any legend
(including the legend set forth in Section 7(b)), (i) while a registration
statement (including the Registration Statement) covering the resale of such
security is effective under the Securities Act, or (ii) following any sale
of
such Common Stock or Warrant Shares pursuant to Rule 144, or (iii) if such
Common Stock or Warrant Shares are eligible for sale under Rule 144(k), or
(iv)
if such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the Commission). The Company shall cause its counsel to issue a legal opinion
to the Company’s transfer agent promptly after the effective date of the
Registration Statement (the “Effective
Date”)
if
required by the Company’s transfer agent to effect the removal of the legend
hereunder. If all or any portion of an Investor Warrant is exercised at a time
when there is an effective registration statement to cover the resale of the
Warrant Shares, such shares shall be issued free of all legends. The Company
agrees that following the Effective Date or at such time as such legend is
no
longer required under this Section 7(c), it will, five Trading Days following
the delivery by an Investor to the Company or the Company’s transfer agent of a
certificate representing Common Stock or Warrant Shares, as the case may be,
issued with a restrictive legend (such fifth Trading Day, the “Legend
Removal Date”),
deliver or cause to be delivered to such Investor a certificate representing
such shares that is free from all restrictive and other legends. The Company
may
not make any notation on its records or give instructions to any transfer agent
of the Company that enlarge the restrictions on transfer set forth in this
Section 7. Certificates for Securities and subject to legend removal hereunder
shall be transmitted by the transfer agent of the Company to the Investors
by
crediting the account of the Investor’s prime broker with the Depository Trust
Company System.
d. In
addition to such Investor’s other available remedies, the Company shall pay to
an Investor, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Common Stock or Warrant Shares (based on the VWAP of the Common
Stock on the date such Securities are submitted to the Company’s transfer agent)
delivered for removal of the restrictive legend and subject to Section 7(c),
$10
per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after
such damages have begun to accrue) for each Trading Day after the Legend Removal
Date until such certificate is delivered without a legend. Nothing herein shall
limit such Investor’s right to pursue actual damages for the Company’s failure
to deliver certificates representing any Securities as required by the
Transaction Documents, and such Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without limitation,
a
decree of specific performance and/or injunctive relief. For purposes of this
Section 7(d) “VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (i) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted for trading as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time); (ii) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (iii) if the Common Stock is not
then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or
(iv) in all other cases, the fair market value of a share of Common Stock
as determined by an independent appraiser selected in good faith by the Investor
and reasonably acceptable to the Company, the fees and expenses of which shall
be paid by the Company.
15
e. Each
Investor, severally and not jointly with the other Investors, agrees that the
removal of the restrictive legend from certificates representing Securities
as
set forth in this Section 7 is predicated upon the Company’s reliance that the
Investor will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with
the
plan of distribution set forth therein.
8. Independent
Nature of Investor’s Obligations and Rights.
The
obligations of the Investor under this Agreement and the Transaction Documents
are several and not joint with the obligations of any other purchaser of Units
in the Offering, and the Investor shall not be responsible in any way for the
performance of the obligations of any other purchaser of Units in the Offering
under any Transaction Document. The decision of the Investor to purchase the
Investor’s Units pursuant to the Transaction Documents has been made by the
Investor independently of any other purchaser of Units in the Offering. Nothing
contained herein or in any Transaction Document or Investor Warrant, and no
action taken by any purchaser of Units pursuant thereto, shall be deemed to
constitute such purchasers as a partnership, an association, a joint venture,
or
any other kind of entity, or create a presumption that the purchasers of Units
are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents. The Investor
acknowledges that no other purchaser of Units has acted as agent for the
Investor in connection with making its investment hereunder and that no other
purchaser of Units will be acting as agent of the Investor in connection with
monitoring its investment in the Units or enforcing its rights under the
Transaction Documents and Investor Warrants. The Investor shall be entitled
to
independently protect and enforce its rights, including without limitation
the
rights arising out of this Agreement or out of the other Transaction Documents
or Investor Warrants, and it shall not be necessary for any other purchaser
of
Units to be joined as an additional party in any proceeding for such
purpose.
9. Prospectus
Delivery Requirement.
The
Investor hereby covenants with the Company not to make any sale of the
Investor’s Units without complying with the provisions hereof and of the
Registration Rights Agreement, and without effectively causing the prospectus
delivery requirement under the Securities Act to be satisfied (unless the
Investor is selling in a transaction not subject to the prospectus delivery
requirement).
10. Shareholder
Approval.
The
Company represents and warrants to the Investor that a vote of the stockholders
of the Company will not be required to approve the issuance of the Investor’s
Units.
11. Indemnification
of Investor.
In
addition to the indemnity provided in the Registration Rights Agreement, the
Company will indemnify and hold the Investor and its directors, officers,
shareholders, members, managers, partners, employees and agents (each, an
“Investor
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs, and reasonable attorneys’ fees and costs of
investigation (collectively, “Losses”)
that
any such Investor Party may suffer or incur as a result of or relating to any
misrepresentation, breach, or inaccuracy of any representation, warranty,
covenant, or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Investor Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation, and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred.
16
12. Contribution.
If the
indemnification under Section 11 is unavailable to an indemnified party or
insufficient to hold an indemnified party harmless for any Losses, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party, in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact,
has been taken or made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in this Agreement, any reasonable attorneys’ or other fees or expenses incurred
by such party in connection with any Action to the extent such party would
have
been indemnified for such fees or expenses if the indemnification provided
for
in this Section was available to such party in accordance with its
terms.
13. Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the
sale
of the Securities to the Purchasers or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.
14. Participation
in Future Financing.
a.
From
the
date hereof until the date that is the second anniversary of the Effective
Date,
upon any issuance by the Company or any of its Subsidiaries of Common Stock
or
Common Stock Equivalents for cash consideration (a “Subsequent
Financing”),
each
Investor shall have the right to participate in an amount up to the amount
of
the Subsequent Financing (the “Participation
Maximum”)
on the
same terms, conditions and price provided for in the Subsequent
Financing.
b.
At
least
15 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Investor a written notice of its intention to effect
a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Investor if it wants to review the details of such
financing (such additional notice, a “Subsequent
Financing Notice”).
Upon the request of an Investor, and only upon a request by such Investor,
for a
Subsequent Financing Notice, the Company shall as soon as practicable, but
no
later than 2 Trading Days after such request, deliver a Subsequent Financing
Notice to such Investor. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount
of
proceeds intended to be raised thereunder, the person or persons through or
with
whom such Subsequent Financing is proposed to be effected, and attached to
which
shall be a term sheet or similar document relating
thereto.
17
c.
Any
Investor desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. Eastern time on the
fifth Trading Day after all of the Investors have received the Pre-Notice that
the Investor is willing to participate in the Subsequent Financing, the amount
of the Investor’s participation, and that the Investor has such funds ready,
willing, and available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no notice from an Investor as of
such
fifth Trading Day, such Investor shall be deemed to have notified the Company
that it does not elect to participate.
d.
If
by
5:30 p.m. Eastern time on the fifth Trading Day after all of the Investors
have
received the Pre-Notice, notifications by the Investors of their willingness
to
participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent
Financing, then the Company may effect the remaining portion of such Subsequent
Financing on the terms and with the persons set forth in the Subsequent
Financing Notice.
e.
If
by
5:30 p.m. Eastern time on the fifth Trading Day after all of the Investors
have
received the Pre-Notice, the Company receives responses to a Subsequent
Financing Notice from Investors seeking to purchase more than the aggregate
amount of the Participation Maximum, each such Investor shall have the right
to
purchase the greater of (a) their Pro Rata Portion (as defined below) of the
Participation Maximum and (b) the difference between the Participation Maximum
and the aggregate amount of participation by all other Investors.
“Pro
Rata Portion”
is
the
ratio of (x) the amount of Units subscribed for in this Agreement and purchased
on the Closing Date by an Investor participating under this Section 14 and
(y)
the sum of the aggregate amount of Units subscribed for and purchase under
this
Agreement on the Closing Date by all Purchasers participating under this Section
14.
f.
The
Company must provide the Investors with a second Subsequent Financing Notice,
and the Investors will again have the right of participation set forth above
in
this Section 14, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice.
g.
Notwithstanding
the foregoing, this Section 14 shall not apply in respect of (i)
an
Exempt
Issuance
or (ii)
an underwritten public offering of Common Stock.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees, officers
or
directors of the Company pursuant to any stock or option plan duly adopted
by a
majority of the non-employee members of the Board of Directors of the Company
or
a majority of the members of a committee of non-employee directors established
for such purpose, (b) securities upon the exercise or exchange of or conversion
of any Securities issued hereunder and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities have
not been amended since the date of this Agreement to increase the number of
such
securities or to decrease the exercise, exchange or conversion price of such
securities, and (c) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors of the
Company, provided that any such issuance shall only be to a Person which is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities.
18
15. Non-Public
Information.
Subsequent to the Closing, the Company covenants and agrees that neither it
nor
any other person acting on its behalf will provide Investor or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto the Investor shall have executed
a
written agreement regarding the confidentiality and use of such information.
16. Further
Assurances.
The
parties hereto will, upon reasonable request, execute and deliver all such
further assignments, endorsements, and other documents as may be necessary
in
order to perfect the purchase by the Investor of the Investor’s Units. In
addition, the Company agrees that it will do all such acts necessary to ensure
that Canadian residents holding shares will be able to trade such securities
without resale restrictions under Canadian securities legislation within four
months from the Merger Effective Date, including, if necessary, all acts in
order for the Company to become a reporting issuer in a Canadian province or
territory, which may include the filing and receipting of a prospectus by
Canadian securities regulatory authorities.
17. Entire
Agreement; No Oral Modification.
This
Agreement and the other Transaction Documents and Investor Warrants contain
the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings with respect
thereto and this Agreement may not be amended or modified except in a writing
signed by both of the parties hereto.
18. Amendments
and Waivers.
The
provisions of this Agreement may be amended on or before the Closing Date,
and
particular provisions of this Agreement may be waived, with and only with an
agreement or consent in writing signed by the Company and the majority of
Investors, unless such provision is specific to an Investor. The Investors
acknowledge that by the operation of this Section 18, the majority of Investors
may have the right and power to diminish or eliminate all rights of the
Purchasers under this Agreement.
19. Binding
Effect; Benefits.
This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, successors and assigns; however, nothing in this
Agreement, expressed or implied, is intended to confer on any other person
other
than the parties hereto, or their respective heirs, successors, or assigns,
any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement.
20. Counterparts.
This
Agreement may be executed in any number of counterparts, for each of which
shall
be deemed to be an original and all of which together shall be deemed to be
one
and the same instrument. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
19
21. Governing
Law.
This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the United States of America and the State of New York, both
substantive and remedial, without regard to New York conflicts of law
principles. Any
judicial proceeding brought against either of the parties to this agreement
or
any dispute arising out of this Agreement or any matter related hereto shall
be
brought in the courts of the State of New York, New York County, or in the
United States District Court for the Southern District of New York and, by
its
execution and delivery of this agreement, each party to this Agreement accepts
the jurisdiction of such courts.
22. Prevailing
Parties.
In any
action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the prevailing
party shall be entitled to receive and the nonprevailing party shall pay upon
demand reasonable attorneys’ fees in addition to any other remedy.
23. Notices.
All
communication hereunder shall be in writing and shall be mailed, delivered,
telegraphed or sent by facsimile or electronic mail, and such delivery shall
be
confirmed to the addresses as provided below:
if
to the
Investor:
to
the
address set forth on the signature page of this Agreement
if
to the
Company before the Closing Date:
00
Xxxx
00xx Xxxxxx
Xxxxxxxxx,
Xxxxxxx Xxxxxxxx, X0X 0X0 Xxxxxx
Attn:
Xxxxxxx X. Xxxxxxx, President
with
copy
to:
Gottbetter
& Partners, LLP
000
Xxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxxxx X. Xxxxxxx, Esq.
Facsimile:
(000) 000-0000
if
to
Kreido or to the Company after the Closing Date, to:
Kreido
Laboratories
0000
Xxxxxxx Xxxxx
Xxxxxxxxx,
Xxxxxxxxxx 00000
Attention:
Xx. Xxxx Xxxxxxx, Chief Executive Officer
Facsimile:
(000) 000-0000
20
with
a
copy to:
McGuireWoods
LLP
1345
Avenue of the Xxxxxxxx, 0xx Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxx X. Xxxxx
Facsimile:
(000) 000-0000
24. Headings.
The
section headings herein are included for convenience only and are not to be
deemed a part of this Agreement.
[SIGNATURE
PAGES FOLLOW]
21
IN
WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement
as
of the date first written above.
| |
|
|
| By: | ||
|
Name: Xxxxxxx X. Xxxxxxx |
||
| Its: President | ||
[SIGNATURE
PAGES OF KREIDO AND INVESTOR FOLLOW]
22
IN
WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement
as
of the date first written above.
|
KREIDO
LABORATORIES
|
||
| |
|
|
| By: | ||
|
Name: Xx. Xxxx Xxxxxxx |
||
| Its: Chief Executive Officer | ||
[SIGNATURE
PAGE OF INVESTOR FOLLOWS]
23
IN
WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement
as
of the date first written above.
|
INVESTOR
(individual)
|
INVESTOR
(entity)
|
|
______________________________________
|
____________________________________
|
|
Signature
|
Name
of Entity
|
|
______________________________________
|
____________________________________
|
|
Print
Name
|
Signature
|
|
Address
of Principal Residence:
|
|
|
_____________________________________
|
Print
Name: __________________________
|
|
_____________________________________
|
|
|
_____________________________________
|
Title:
________________________________
|
|
Social
Security Number:
|
Address
of Executive Offices:
|
|
_____________________________________
|
|
|
_____________________________________
|
|
|
Telephone
Number:
|
_____________________________________
|
|
_____________________________________
|
_____________________________________
|
|
Facsimile
Number:
|
IRS
Tax Identification Number:
|
|
_____________________________________
|
__________________________________
|
|
Telephone
Number:
|
|
|
__________________________________
|
|
|
Facsimile
Number:
|
|
|
____________________________________
|
|
_________________
|
X
|
$1.35
|
=
|
$___________________
|
|
Number
of Units
|
Price
per Unit
|
Purchase
Price
|
24
EXHIBIT
A
Form
of Warrant
(See
Attached)
25
APPENDIX
A
Investor
Questionnaire
(See
Attached)
26
