EXHIBIT 10.26
SUBSCRIPTION AGREEMENT
Astrata Group Incorporated
0000 Xxxxxxx Xxxx Xxxx
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Ladies and Gentlemen:
The undersigned (the "Investor") is writing to advise you of the following
terms and conditions under which the Investor hereby offers to subscribe (the
"Offer") for the securities of this private placement (the "Offering") offered
by Astrata Group Incorporated, a Nevada corporation (the "Company"). The
exclusive co-placement agents for the Offering are Westminster Securities
Corporation (100 Xxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 1005) and Xxxxxx and
Xxxxxxx, LLC (330 Madison Avenue, 27th Floor, New York, New York 10017)
(collectively, the "Placement Agent"). The Company is issuing investment units
at the rate of $35,000 per unit, consisting of (a) 10,000 shares (the "Shares")
of the Company's common stock, par value $.0001 ("Common Stock"), and (b) 10,000
detachable warrants (the "Warrants"), each to purchase one share each of common
stock at an exercise price of $3.50 per share (the "Warrant Shares"), expiring
five years from their date of issuance. The Shares and the Warrants shall be
collectively referred to as the "Units".
The Company may issue up to $3,500,000 of Units (the "Maximum Offering") in
this Offering. The Company and the Placement Agent, upon mutual agreement, may
also sell up to an additional $1,750,000 of Units, representing an
over-allotment allowance in the event the Offering is oversubscribed. The
Investor understands that the Units are being issued pursuant to the exemption
from registration requirements of the Securities Act of 1933, as amended (the
"Securities Act" or the "Act"), in a private placement pursuant to an exemption
from registration under Regulation D promulgated under Section 4(2) and Rule 506
of the Act. As such, the Units and the underlying Warrant Shares are "restricted
securities".
The Units are being offered on a "best efforts, all or none" basis by the
Company through the Placement Agent with respect to an amount of not less than
$3,000,000 of Units (the "Offering"), during an offering period commencing on
March 1, 2005 (the "Commencement Date"), and continuing until April 15, 2005
(the "Offering Period"). If the Offering is not fully subscribed or sufficient
subscriptions for the Offering are not accepted by the Company, the Offering
will terminate on April 15, 2005 (unless earlier terminated by the Company and
the Placement Agent) and all funds will be returned without interest or
deduction. In the event the Offering is fully subscribed and sufficient
subscriptions for the Offering are accepted by the Company during the Offering
Period, the Offering will continue (the "Over-Allotment Period") for the purpose
of permitting the Company and the Placement Agent to offer and sell the Units
allocated to the over-allotment allowance (the "Over-Allotment Units") until the
earliest of (i) the close of business (5:00 p.m. EDT) 30 days following the
closing of the Offering (which shall occur, if at all not later than April 15,
2005), (ii) termination by mutual agreement of the Company and the Placement
Agent, (iii) unilateral termination by the Company, or (iv) completion of the
sale of the Units allocated to the over-allotment allowance (the "Final
Closing," which, in the event that no Over-Allotment Units are sold and issued
by the Company, shall be deemed to have been the Closing of the Offering). Any
subscription documents or funds received after the Final Closing will be
returned. During the Over-Allotment Period, subscriptions for Over-Allotment
Units may be submitted to the Placement Agent and the Company by persons who
purchased Units in the Offering. Subscriptions for Over-Allotment Units will be
accepted, if at all, on a "first-come, first-served" basis.
All proceeds received from subscribers for the Units offered hereby will be
deposited by the Placement Agent in a special non-interest bearing escrow
account (the "Escrow Account") with Xxxxx Xxxx LLP and will be released to the
Company against delivery by the Company to the Placement Agent of certificates
representing the Shares and the Warrants comprising the Units (each such date,
"Closing Date").
-1-
1. SUBSCRIPTION.
Subject to the terms and conditions hereinafter set forth in this
Subscription Agreement, the Investor hereby offers to purchase Units as set
forth in the Investor Signature Page attached hereto.
If the Offer is accepted, the Units shall be paid for by the delivery of
such amount by wire transfer or check payable to the order of "Xxxxx Xxxx LLP as
Escrow Agent for Astrata", which is being delivered contemporaneously herewith.
Once not less than $3,000,000 in Units have been sold and proceeds of
not less than $3,000,000 in cleared funds are on deposit in the Escrow Account
(the "Escrow Date") and such subscriptions are accepted by the Company, a
closing will be held as soon as practicable thereafter.
One or more over-allotment closings will be held, at the discretion of
the Company and the Placement Agent, at reasonable intervals during the
over-allotment period, but in no event later than the Final Closing.
2. CONDITIONS TO OFFER.
The Offering is made subject to the following conditions: (i) that the
Company shall have the right to accept or reject this Offer, in whole or in
part, for any reason whatsoever; and (ii) that the Investor agrees to comply
with the terms of this Subscription Agreement.
Acceptance of this Offer shall be deemed given by the countersigning of
this Subscription Agreement on behalf of the Company and inclusion of this
Subscription Agreement in a closing on a Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor, in order to induce the Company to accept this Offer,
hereby warrants and represents as follows:
(a) ORGANIZATION; AUTHORITY. The Investor, if not an individual,
is an entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization with the requisite
power and authority to enter into and to consummate the transactions
contemplated by this Subscription Agreement and otherwise to carry out
its obligations hereunder. The purchase by Investor of the Units
hereunder has been duly authorized by all necessary action on the part
of Investor. This Subscription Agreement has been duly executed by
Investor, and when delivered by Investor in accordance with the terms
hereof, will constitute the valid and legally binding obligation of
Investor, enforceable against it 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. Subject to meeting the terms of the Offering,
Investor agrees that the Investor's subscription shall be irrevocable by
Investor, and that, except as required by applicable law, Investor shall
not be otherwise entitled to cancel, terminate, or revoke this
Subscription Agreement or any of Investor's obligations hereunder.
(b) INVESTOR REPRESENTATION. Investor understands that the
Shares, Warrants and Warrant Shares each are "restricted securities" and
have not been registered under the Securities Act or any applicable
state securities law. The Investor hereby agrees that the Company may
insert the following or similar legend on the face of the certificates
evidencing the Shares, Warrants and Warrants Shares, if required in
compliance with federal and state securities laws:
"These securities have not been registered under the Securities
Act of 1933, as amended (the "Securities Act") or under the securities
laws of any state. They may not be sold, offered for sale, or
hypothecated in the absence of a registration statement in effect with
respect to the securities under such act or an opinion of counsel
reasonably satisfactory to the company that such registration is not
required pursuant to a valid exemption therefrom under the Securities
Act."
-2-
(c) NO DISTRIBUTION. Investor is acquiring the Units as
principal for its own account, in the ordinary course of its business,
and not with a view to or for distributing or reselling such Units or
any part thereof. Investor has no present intention of distributing any
of such Shares, Warrants or Warrant Shares and has no agreement or
understanding, directly or indirectly, with any other individual,
corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock
company, government (or an agency or subdivision thereof) or other
entity of any kind (each, a "PERSON") regarding the distribution of such
Shares, Warrants or Warrant Shares (this representation and warranty not
limiting such Investor's right to sell the Shares, Warrants or Warrant
Shares pursuant to a Registration Statement or otherwise in compliance
with applicable federal and state securities laws).
(d) INVESTOR STATUS. Investor is, and on each date on which it
exercises any Warrants it will be an "Accredited Investor" as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act. In general, an "Accredited Investor" is deemed to be an institution
with assets in excess of $5,000,000 or individuals with net worth in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000
jointly with their spouse. In connection with a subscription hereunder,
Investor will complete, execute and return the Statement of Accredited
Investor attached hereto as Exhibit A certifying such status.
(e) EXPERIENCE OF INVESTOR. Investor, either alone or together
with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Units, and has so evaluated the merits and risks of such investment. The
Investor has not authorized any Person to act as his Purchaser
Representative (as that term is defined in Regulation D of the General
Rules and Regulations under the Act) in connection with this
transaction. Investor is able to bear the economic risk of an investment
in the Units and, at the present time, is able to afford a complete loss
of such investment.
(f) GENERAL SOLICITATION. Investor is not purchasing the Units
as a result of any advertisement, article, notice or other communication
regarding the 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.
(g) ACCESS TO INFORMATION. The Company has not made any
representations or warranties to the Investor with respect to the
Company except as contained herein. The Investor has also been afforded
the opportunity to ask questions of, and receive answers from, the
officers and/or directors of the Company concerning the terms and
conditions of the Offering and to obtain any additional information, to
the extent that the Company possesses such information or can acquire it
without unreasonable effort or expense, necessary to verify the accuracy
of the information furnished; and has availed himself of such
opportunity to the extent he considers appropriate in order to permit
him to evaluate the merits and risks of an investment in the Units. It
is understood that all documents, records and books pertaining to this
investment have been made available for inspection by the Investor
during reasonable business hours at its principal place of business.
Notwithstanding the foregoing, it is understood that the Investor is
purchasing the Units without being furnished any prospectus setting
forth all of the information that would be required to be furnished
under the Act and this Offering has not been passed upon or the merits
thereof endorsed or approved by any state or federal authorities.
(h) SUBSCRIPTIONS BY PLACEMENT AGENT. The Investor hereby
acknowledges that the Placement Agent, its affiliates and/or its
beneficial owners may subscribe for Units.
The Investor certifies that each of the foregoing
representations and warranties set forth in subsection (a) through (h)
inclusive of this Section 3 are true as of the date hereof and shall
survive such date.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties to
the Investor:
(a) SUBSIDIARIES. The Company has direct or beneficial interest
in a number of companies ("Subsidiary(ies)") each as further described
in the attached Exhibit C. All capital stock owned by the Company
directly or through one or more Subsidiaries in each such Subsidiary is
validly issued and is fully paid, non-assessable and free of preemptive
and similar rights.
-3-
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and its
Subsidiaries is 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 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 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 this Subscription Agreement,
(ii) a material adverse effect on the results of operations, assets,
business, prospects or financial condition of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company's ability to perform in any material respect on a timely
basis its obligations under this Subscription Agreement (any of (i),
(ii) or (iii), a "MATERIAL ADVERSE EFFECT") and no action, claim, suit,
investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether
commenced or threatened ("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 has the requisite
corporate power and authority to enter into and to consummate the
Offering. The execution and delivery of this Subscription Agreement by
the Company and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of
the Company and no further consent or action is required by the Company,
other than the Required Approvals (as defined below). This Subscription
Agreement, when executed and delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement
of creditors' rights generally and (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other
equitable remedies.
(d) NO CONFLICTS. The execution, delivery and performance of
this Subscription Agreement by the Company and the consummation by the
Company of the Offering do not and will not: (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) subject to obtaining the Required Approvals (as
defined below), conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of any
agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiaries' debt or otherwise) or other understanding to
which the Company or either of the Subsidiaries is a party or by which
any property or asset of the Company or its Subsidiaries is bound or
affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority as currently in effect to which the Company or
either of the Subsidiaries is subject (including federal and state
securities laws and regulations), or by which any property or asset of
the Company or either of the Subsidiaries is bound or affected; except
in the case of each of clauses (ii) and (iii), such as could not,
individually or in the aggregate (a) adversely affect the legality,
validity or enforceability of the Offering, (b) have or result in or be
reasonably likely to have or result in a material adverse effect on the
results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a
whole, or (c) adversely impair the Company's ability to perform fully on
a timely basis its obligations under this Subscription Agreement (any of
(a), (b) or (c), a "MATERIAL ADVERSE EFFECT").
(e) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor the
Subsidiaries is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with,
any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and
performance by the Company of this Subscription Agreement, other than:
(i) the filing with the Securities and Exchange Commission
("COMMISSION") of the Registration Statement, (ii) the filing with the
Commission of a Form D pursuant to Commission Regulation D, and (iii)
applicable Blue Sky filings (collectively, the "REQUIRED APPROVALS").
-4-
(f) ISSUANCE OF THE SECURITIES. The Units, and each component or
underlying security, are duly authorized and, when issued and paid for
in accordance with this Subscription Agreement, will be duly and validly
issued, fully paid and nonassessable, free and clear of all liens, and
not subject to any preemptive rights. The Company has reserved from its
duly authorized capital stock a number of shares of Common Stock
required for issuance of the Shares and the Warrant Shares.
(g) CAPITALIZATION. Except as otherwise set forth in Schedule
4(g), the number of shares and type of all authorized, issued and
outstanding capital stock of the Company is as set forth in the
Company's Current Reports on Form 8-K and Quarterly Reports on form
10-QSB as filed with the Securities and Exchange Commission from and
after August 9, 2004 (collectively, the "Public Reports"). No Person has
any right of first refusal, preemptive right, right of participation, or
any similar right to participate in the Offering. Except as set forth in
the Public Reports or as set forth in Schedule 4(g), and for options and
shares of capital stock issued or issuable under the Company's stock
option plan, there are no outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person or entity any right to subscribe
for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or either of the
Subsidiaries is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. The issuance and sale of the Units will not obligate
the Company to issue shares of Common Stock or other securities to any
Person (other than pursuant to this Offering) and will not result in a
right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. 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 and
underlying Warrant Shares. Except as disclosed in the Public Reports or
as set forth in Schedule 4(g), 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. A complete list of stockholders of the Company that are
officers, directors and individuals holding more than 5% of the
outstanding Common Stock is included in the Public Reports.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934, as amended ("EXCHANGE ACT"), including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding
the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively
referred to herein as the "SEC REPORTS") in accordance with the time
requirements of the Securities Act and the Exchange Act. As of their
respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the
rules and regulations of the Commission promulgated thereunder, and none
of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
Company has advised Investor that a correct and complete copy of each of
the SEC Reports (together with all exhibits and schedules thereto and as
amended to date) is available at xxxx://xxx.xxx.xxx, a website
maintained by the Commission where Investor may view the SEC Reports.
The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as
in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or the
notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for
the dates thereof and the results of operations and cash flows for the
periods then ended.
(i) MATERIAL CHANGES. Since the date of the latest financial
statements included in the Public Reports, except as specifically
disclosed in Schedule 4(i): (i) there has been no event, occurrence or
development that has had 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
-5-
or required to be disclosed in filings made with the Commission, (iii)
the Company has not altered its method of accounting or the identity of
its auditors (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders except in the
ordinary course of business consistent with prior practice, or
purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock except consistent with prior practice or
pursuant to existing Company stock option or similar plans, and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option or similar
plans.
(j) LITIGATION. Except as set forth in the Public Reports, there
is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Subsidiaries or any of its
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 this
Subscription Agreement or the Units or (ii) could, if there were an
unfavorable decision, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect. Neither
the Company 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 a
breach of fiduciary duty. The Company does not have pending before the
Commission any request for confidential treatment of information. There
has not been, and to the knowledge of the Company, there is not pending
or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiaries under the Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the
employees of the Company or any Subsidiary which could reasonably be
expected to result in a Material Adverse Effect.
(l) COMPLIANCE. Neither the Company 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 or any Subsidiary under), nor has the Company
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 applicable to its business except in each case as could not
have a Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct its business as described in the Public Reports, except where
the failure to possess such permits would not, individually or in the
aggregate, have or reasonably be expected to result in a Material
Adverse Effect ("MATERIAL PERMITS"), and the Company has not received
any notice of proceedings relating to the revocation or modification of
any Material Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have good
and marketable title in all real and personal property owned by them
that is material to the business of the Company and the Subsidiaries, in
each case free and clear of any liens, encumbrances or other
restrictions. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting
and enforceable leases of which the Company and the Subsidiaries are in
compliance.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the
Public Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS").
Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
-6-
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights of others.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, including
directors and officers insurance. To the best of Company's knowledge,
such insurance contracts and policies are accurate and complete. Neither
the Company 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 Public Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (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, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee
or partner, in each case in excess of $60,000 other than (i) for payment
of salary or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company and (iii) for other
employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) INTERNAL ACCOUNTING CONTROLS. Each of the Company and the
Subsidiaries is in material compliance with all provisions of the
Sarbanes Oxley Act of 2002 which are presently applicable to it. Each of
the Company and the Subsidiaries maintains 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 GAAP 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-14 and
15d-14) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by
others within those entities. The Company's certifying officers have
evaluated the effectiveness of the Company's controls and procedures as
of November 30, 2004 (such date, the "EVALUATION DATE"). The Company
presented in the Form 10-QSB for the quarter ended November 30, 2004 the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company's internal controls (as such term is
defined in Item 307(b) of Regulation S-B under the Exchange Act).
(s) PRIVATE PLACEMENT. Assuming the accuracy of the Investor
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Units
by the Company to the Investors as contemplated hereby.
(t) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or
other similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Investors as a
result of the Investors and the Company fulfilling their obligations or
exercising their rights under this Subscription Agreement, including
without limitation as a result of the Company's issuance of the Units
and the Investor's ownership of the Units and underlying Warrant Shares.
(u) DISCLOSURE. The Company confirms that neither it nor any
other Person acting on its behalf has provided the Investor or its
agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Investor will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company.
-7-
All written statements provided to the Investor regarding the Company,
its business and the transactions contemplated hereby, including all of
the Public Reports and Schedules, furnished by or on behalf of the
Company with respect to the representations and warranties made herein
are true and correct with respect to such representations and warranties
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 acknowledges and agrees that the Investor makes
or has made no representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in this Subscription Agreement.
(v) NO INTEGRATED OFFERING. Assuming the accuracy of the
Investor's representations and warranties set forth in this Subscription
Agreement, 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 this Offering to be
integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions.
(w) SOLVENCY. Based on the financial condition of the Company as
of each Closing Date after giving effect to the receipt by the Company
of the proceeds from the sale of the Units hereunder, (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).
(x) TAX STATUS. Except for matters that would not, individually
or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all
necessary federal, state and foreign income and franchise tax returns
and has paid or accrued all taxes shown as due thereon, and the Company
has no knowledge of a tax deficiency which has been asserted or
threatened against the Company or any Subsidiary.
(y) 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 each Investor in the Offering and
certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(z) FOREIGN CORRUPT PRACTICES. Neither the Company, nor to the
knowledge of the Company, any agent or other Person acting on behalf of
the Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any Person acting on its behalf of which
the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act
of 1977, as amended.
(aa) ACCOUNTANTS. The Company's accountants are set forth in the
Public Reports. To the Company's knowledge, such accountants, who the
Company expects will express their opinion with respect to the financial
statements to be included in the Company's upcoming annual report, are a
registered public accounting firm as required by the Securities Act.
(bb) INDEBTEDNESS. As of each Closing Date, the Company has not
materially increased its indebtedness.
-8-
(cc) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no
disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers.
(dd) LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common
Stock currently trades on the Nasdaq Over-the-Counter Bulletin Board
(OTCBB). The Company is, and has no reason to believe that it will not
in the foreseeable future continue to be, in compliance with the
periodic SEC reporting requirements necessary to maintain trading on the
OTCBB.
5. REGISTRATION RIGHTS.
The Company grants registration rights to the Investor under the
following terms and conditions:
(a) The Company will prepare and file, at its own expense, within sixty
(60) days of the Final Closing, a registration statement under the Securities
Act (the "REGISTRATION STATEMENT") with the Commission sufficient to permit the
non-underwritten public offering and resale of the Shares and Warrant Shares
(subject to adjustment as set forth in the form of Warrant) (the "REGISTRABLE
SECURITIES") through the facilities of all appropriate securities exchanges, if
any, on which the Company's Common Stock is being sold or on the
over-the-counter market if the Company's Common Stock is traded thereon.
(b) The Company will use its reasonable best efforts to cause such
Registration Statement to become effective within ninety (90) days from the
first filing date of the Registration Statement or, if earlier, within three (3)
business days of Commission clearance to request acceleration of effectiveness.
The number of shares designated in the Registration Statement to be registered
shall include all of the Registrable Securities and shall include appropriate
language regarding reliance upon Rule 416 to the extent permitted by the
Commission. The Company will notify the Investor of the date of effectiveness of
the Registration Statement within two (2) business days of such event. In the
event that the number of shares so registered shall prove to be insufficient to
register the resale of all of the Registrable Securities, then the Company shall
be obligated to file, within thirty (30) days of notice from any Investor, a
further Registration Statement registering such remaining shares and shall use
its reasonable best efforts to prosecute such additional Registration Statement
to effectiveness within ninety (90) days of the date of such notice.
(c) The Company will maintain the Registration Statement or
post-effective amendment filed under the terms of this Subscription Agreement
effective under the Securities Act until the earlier of (i) the date that all of
the Registrable Securities have been sold pursuant to such Registration
Statement, (ii) all Registrable Securities have been otherwise transferred to
Persons who may trade such shares without restriction under the Securities Act,
and the Company has delivered a new certificate or other evidence of ownership
for such securities not bearing a restrictive legend, or (iii) all Registrable
Securities may be sold at any time, without volume or manner of sale limitations
pursuant to Rule 144(k) or any similar provision then in effect under the
Securities Act in the opinion of counsel to the Company, which counsel shall be
reasonably acceptable to the Investor (the "EFFECTIVENESS PERIOD"), as further
set out in section 5(k)(ii) below.
(d) If, at any time during which the Registration Statement required by
Section 5(a) and 5(b) above is not effective, the Company shall determine to
proceed with the preparation and filing of a separate registration statement
pursuant to the Securities Act in connection with the proposed offer and sale of
any of its securities by it or any of its security holders (other than a
registration statement on Form X-0, X-0, or other limited purpose form), the
Company will give written notice of its determination to each Investor. Upon
receipt of a written request from any Investor, within thirty (30) days after
receipt of any such notice from the Company, the Company will cause all such
Registrable Securities requested by the Investor to be included in such
registration statement, all to the extent required to permit the sale or other
disposition by such Investor, of such shares. The obligation of the Company
under this Section 5(d) shall be unlimited as to the number of registration
statements to which it applies, unless the Effectiveness Period has ended.
(e) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement, in making filings with NASD or NASDR (including, without
limitation, pursuant to NASD Rule 2710), and in complying with applicable
federal securities and Blue Sky laws (including, without limitation, all
attorneys' fees of the Company) shall be borne by the Company. The Investor
shall bear the cost of underwriting and/or brokerage discounts, fees and
-9-
commissions, if any, applicable to the Registrable Securities being registered
and the fees and expenses of their counsel. The Company shall use its reasonable
best efforts to qualify any of the Securities for sale in such states as any
Investor reasonably designates and shall furnish indemnification. However, the
Company shall not be required to qualify in any state which will require an
escrow or other restriction relating to the Company and/or the sellers, or which
will require the Company to qualify to do business in such state or require the
Company to file therein any general consent to service of process. The Company
at its expense will supply the Investor with copies of the applicable
Registration Statement and any prospectus included therein and other related
documents in such quantities as may be reasonably requested by the Investor.
(f) Certificates evidencing the Registrable Securities shall not contain
any legend: (i) while a registration statement covering the resale of such
security is effective under the Securities Act, or (ii) following any sale of
such Registrable Securities pursuant to Rule 144, or (iii) if such Registrable
Securities are eligible for legend removal 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); PROVIDED, HOWEVER, in connection with the issuance of the
Shares and Warrant Shares, Investor hereby agrees to adhere to and abide by all
prospectus delivery requirements under the Securities Act and rules and
regulations of the Commission. The Company shall cause its counsel to issue a
legal opinion to the Company's transfer agent promptly after the effectiveness
of the Registration Statement (in the case of item (i) herein) or upon request
of the Investor (in the case of items (ii), (iii) or (iv) herein) if required by
the Company's transfer agent to effect the removal of the legend hereunder. If
all or any portion of a Warrant is exercised at a time when there is an
effective registration statement to cover the resale of the underlying Warrant
Shares, or if such underlying Warrant Shares may be sold under Rule 144(k) or if
such legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations thereof) then such underlying
Warrant Shares shall be issued free of all legends. The Company agrees that
following the effectiveness of the Registration Statement or at such time as
such legend is no longer required under this Section 5(f), it will, no later
than three business days following the delivery by Investor to the Company's
transfer agent of a certificate representing Registrable Securities accompanied
by appropriate stock power or other required documentation, as applicable,
issued with a restrictive legend (such third Business 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, in
each case without charge to the Investor other than customary transfer fees
which may be charged by the transfer agent or broker-dealer. 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
5(f). Without limiting the Investor's other legal remedies, the Company shall
immediately upon demand reimburse the Investor for the cost and losses
occasioned by any buy-in resulting from the Company's failure to timely deliver
unlegended share certificates.
(g) In the event that (i) the Registration Statement is not filed with
the Commission within sixty (60) days of the Final Closing, (ii) such
Registration Statement is not declared effective by the Commission within the
earlier of ninety (90) days from the first filing date of the Registration
Statement or three (3) business days of clearance by the Commission to request
effectiveness, (iii) such Registration Statement is not maintained as effective
by the Company for the Effectiveness Period or as allowed by 5(k)(ii) below or
(iii) the additional Registration Statement referred to in Section 5(b) is not
filed within thirty (30) days or declared effective within ninety (90) days as
set forth therein (each a "Registration Default") then the Company will pay
Investor (pro rated on a daily basis), as partial compensation for such failure
and not as a penalty one and one-half percent (1.5%) of the purchase price of
the Registrable Securities purchased from the Company and held by the Investor
for each month (or portion thereof) until such Registration Statement has been
filed (in the case of clause (i) and clause (iv)), and in the event of late
effectiveness (in case of clause (ii) above) or lapsed effectiveness (in the
case of clause (iii) above), one and one-half percent (1.5%) of the purchase
price of the Registrable Securities purchased from the Company and held by the
Investor each month (or portion thereof) (regardless of whether one or more such
Registration Defaults are then in existence, but without duplication of such
partial compensatory payments) until such Registration Statement has been
declared effective. Such compensatory payments shall be made to the Investors in
cash, no later than the fifth business day following the month in which such
Registration Default(s) occurred, PROVIDED, HOWEVER, that the payment of such
amounts shall not relieve the Company from its obligations to register the
Securities pursuant to this Section.
(h) If the Company does not remit the payment to the Investor as set
forth in Section 5(g) above, the Company will pay the Investor interest at the
rate of 12% per annum, or the highest rate permitted by law, if less, until such
sums have been paid in full, and reasonable costs of collection, including
attorneys' fees, in addition to the liquidated damages. The registration of the
Registrable Securities pursuant to this provision or payment of such
-10-
compensatory amounts shall not affect or limit the Investor's other rights or
remedies as set forth in this Subscription Agreement or at law.
(i) In the event a Registration Statement is not effective at any time
after one year following the Final Closing date (other than an Allowed Delay, as
defined in Section 5(k)(ii) below), compensatory payments as described in
Section 5(g) above shall cease, the Warrants shall become exercisable pursuant
to a cashless exercise feature, and the Company shall cause its counsel to issue
such legal opinions as may be reasonably requested by the Investor in connection
with any sales of the Warrant Shares in accordance with Rule 144 under the
Securities Act in accordance with the procedures of Section 5(f) above.
(j) At all times after one (1) year following the Final Closing Date,
the Company will prepare and furnish to Investor and make publicly available in
accordance with Rule 144(c) such information as is required for Investor to sell
the Registrable Securities under Rule 144. The Company further covenants that it
will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144. In
addition, the Investor shall be entitled to unlimited piggyback registration
rights under Section 5(d) above.
(k) In the case of each registration effected by the Company pursuant to
any section herein, the Company will keep each Investor advised in writing as to
the initiation of each registration and as to the completion thereof. At its
expense, the Company will:
(i) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to a
disposition of all securities covered by such registration statement;
(ii) Notify the Investor at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading or incomplete in light of the circumstances then existing,
and at the request of the shareholders, prepare and furnish to them a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
Investor, such prospectus shall not include an 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 or
incomplete in light of the circumstances then existing; PROVIDED THAT,
for not more than ten (10) consecutive business days (or a total of not
more than forty-five (45) calendar days in any twelve (12) month
period), the Company may delay the disclosure of material non-public
information concerning the Company the public disclosure of which at the
time is not, in the good faith opinion of the Company in the best
interests of the Company and which may, based on the written advice of
outside counsel, be delayed under applicable law or regulation (an
"Allowed Delay"); PROVIDED, FURTHER, that the Company shall promptly (a)
notify each Investor in writing of the existence of (but in no event,
without the prior written consent of such Investor, shall the Company
disclose to such Investor any of the facts or circumstances regarding)
material non-public information giving rise to an Allowed Delay and (b)
advise each Investor in writing to cease all sales under such
registration statement until the termination of the Allowed Delay;
(iii) Use its commercially reasonable best efforts to prevent
the issuance of any stop order or other suspension of effectiveness of a
registration statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify
Investor (and, in the event of an underwritten offering, the managing
underwriter) of the issuance of such order and the resolution thereof;
(iv) If NASD Rule 2710 requires any broker-dealer to make a
filing prior to executing a sale of Registrable Securities by an
Investor, make an Issuer Filing with the NASD Corporate Financing
Department pursuant to NASD Rule 2710 and respond within five business
days to any comments received from NASD in connection therewith.
(v) Otherwise use its commercially reasonable best efforts to
comply with all applicable rules and regulations of the Commission.
-11-
(l) To the extent Investor includes any Shares or Warrant Shares in a
registration statement pursuant to the terms hereof, the Company will indemnify
and hold harmless Investor, its directors and officers, and each Person, if any,
who controls Investor within the meaning of the Securities Act, from and
against, and will reimburse Investor, its directors and officers and each
controlling Person with respect to, any and all loss, damage, liability, cost
and expense to which Investor or such controlling Person may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, 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, in light of the circumstances in which they were made, not
misleading; PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such loss, damage, liability, cost or expense 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
Investor or any such controlling Person in writing specifically for use in the
preparation thereof.
(m) To the extent Investor includes any Shares or Warrant Shares in a
registration statement pursuant to the terms hereof, Investor will indemnify and
hold harmless the Company, its directors and officers and any controlling Person
from and against, and will reimburse the Company, its directors and officers and
any controlling Person with respect to, any and all loss, damage, liability,
cost or expense to which the Company, its directors and officers or such
controlling Person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused by
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, 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, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
conformity with written information furnished by or on behalf of the Investor
specifically for use in the preparation thereof and provided further, that the
maximum amount that may be recovered from Investor shall be limited to the
amount of proceeds received by Investor from the sale of such shares of Common
Stock
(n) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
hereunder to the extent permitted by law, provided that (i) no contribution
shall be made under circumstances where the indemnifying party would not have
been liable for indemnification pursuant to the provisions hereof, (ii) no
seller of securities guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any seller of securities who was not guilty of such fraudulent
misrepresentation, and (iii) the amount of the contribution together with any
other payments made in respect of such loss, damage, liability or expense, by
any seller of securities shall be limited to the net amount of proceeds received
by such seller from the sale of such securities.
(o) The Investor will cooperate with the Company in connection with this
Subscription Agreement, including timely supplying all information and executing
and returning the Selling Securityholder Notice and Questionnaire attached
hereto as Exhibit B, and any other documents requested by the Company which are
required to enable the Company to perform its obligations to register the Shares
and the Warrant Shares.
6. OTHER AGREEMENTS OF THE COMPANY AND THE INVESTOR.
(a) RIGHT TO PLEDGE. The Company acknowledges and agrees that Investor
may from time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of the
Shares, Warrants or Warrant Shares to a financial institution that is an
"accredited investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and, if required under
the terms of such arrangement, such Investor may transfer pledged or secured
Shares, Warrants or Warrant Shares to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no legal
opinion of legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of such
pledge. At Investor's expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of such securities may
reasonably request in connection with a pledge or transfer of the Shares,
Warrants or Warrant Shares.
-12-
(b) ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Shares and Warrant Shares may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial. The
Company further acknowledges that its obligations under this Subscription
Agreement, including without limitation its obligation to issue the Shares and
Warrant Shares, are unconditional and absolute and not subject to any right of
set off, counterclaim, delay or reduction, regardless of the effect of any such
dilution or any claim the Company may have against any Investor and regardless
of the dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
(c) FURNISHING OF INFORMATION. Until the later of (i) five (5) years
from the Final Closing after such date or (ii) the date that all Warrants issued
in the Offering have been exercised, redeemed or expired, and all Registrable
Securities have been sold, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act.
(d) 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 Units in a manner that would require the registration under the
Securities Act of the Offering or, if then listed or quoted on a trading market,
that would be integrated with the Offering for purposes of the rules and
regulations of any trading market.
(e) EXERCISE PROCEDURES. The form of Notice of Exercise included in the
Warrant sets forth the totality of the procedures required of the Investor in
order to exercise its Warrant. No additional legal opinion or other information
or instructions shall be required of the Investor to exercise its Warrant. The
Company shall honor exercises of the Warrants and shall deliver the underlying
Warrant Shares in accordance with the terms, conditions and time periods set
forth in this Subscription Agreement and the form of Warrant.
(f) SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Investor
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Investor
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving the Shares, Warrants or Warrant Shares or under any other
agreement between the Company and the Investor. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(g) NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide the Investor
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto Investor shall
have executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that Investor shall be relying
on the foregoing representations in effecting transactions in securities of the
Company.
(h) USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Units hereunder for working capital purposes primarily. Except in
respect of the loans referenced in Schedule 4(i), the repayment of some or all
of which may be made from the proceeds, the Company may use not more than ten
(10) percent of gross proceeds for the satisfaction of the Company's debt (other
than payment of trade payables in the ordinary course of the Company's business
and prior practices). The Company will not use any proceeds from the sale of the
Units to redeem any Common Stock or securities convertible or exercisable into
Common Stock, or to settle any outstanding litigation.
(i) REIMBURSEMENT. If Investor becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by such
Investor to or with any current stockholder), solely as a result of such
Investor's acquisition of the Shares, Warrants or Warrant Shares, and the
Investor is successful in the Proceeding, the Company will reimburse such
Investor 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. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of the Investor who is actually named in such
action, proceeding or investigation, and partners, directors, agents, employees
and controlling persons (if any), as the case may be, of the Investor and any
such Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Investor and any such Affiliate and any such Person. The Company also agrees
that neither the Investor nor any such Affiliates, partners, directors, agents,
employees or controlling persons shall have any liability to the Company or any
-13-
Person asserting claims on behalf of or in right of the Company solely as a
result of acquiring the Units and Warrant Shares under this Agreement.
(j) INDEMNIFICATION OF INVESTOR. Subject to the provisions of this
Section 6(j), the Company will indemnify and hold the Investor and its
directors, officers, shareholders, 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 that any such Investor Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Subscription
Agreement or (b) any action instituted against Investor, or its respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Investor, with respect to any of the transactions contemplated by this
Subscription Agreement (unless such action is based upon a breach of such
Investor's representation, warranties or covenants under this Subscription
Agreement or any agreements or understandings such Investor may have with any
such stockholder or any violations by the Investor of state or federal
securities laws or any conduct by such Investor which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Investor Party in respect of which indemnity may be sought pursuant
to this Agreement, such Investor Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing. Any Investor Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Investor
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Investor Party. The Company will not be liable to any
Investor Party under this Agreement (i) for any settlement by a Investor Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Investor Party's
breach of any of the representations, warranties, covenants or agreements made
by Investor in this Subscription Agreement.
(k) TRANSFER AND TRADABILITY OF THE SHARES AND WARRANT SHARES. The
Company shall provide a transfer agent and registrar for all shares of its
Common Stock, including the Shares and Warrant Shares at least until such time
as all the Shares and Warrant Shares have been sold. Once listed on a nationally
recognized exchange or marketplace, the Company shall cause all shares of Common
Stock which are registered in accordance with the provisions of Section 5 above
to be listed or included for quotation on each exchange or marketplace on which
the Company's shares of Common Stock are then listed or included for quotation
(or a superior marketplace as may be applicable in the future) at least until
the later of (i) five (5) years from the Final Closing and (ii) such time as all
the Shares and Warrant Shares have been sold by all of the Investors in the
Offering and there are no Warrants outstanding and unexercised.
(l) FUTURE PRICED SECURITIES. From the date hereof until the date that
less than 20% of the Warrants remain outstanding and unexercised, the Company
shall be prohibited from effecting or entering into an agreement to effect any
financing involving a "VARIABLE RATE TRANSACTION" unless the Company obtains
express written consent and authorization from the holders of at least
seventy-five (75) percent of the then-outstanding and unexercised Warrants. The
term "VARIABLE RATE TRANSACTION" shall mean a transaction in which the Company
issues or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock.
(m) EQUAL TREATMENT OF INVESTORS. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of such Person's Subscription Agreement unless the same consideration
is also offered to all Investors in the Offering. For clarification purposes,
this provision constitutes a separate right granted to each Investor by the
Company and shall not in any way be construed as the investors in the Offering
acting in concert or as a group with respect to the purchase, disposition or
voting of the Shares, Warrants, Warrant Shares or otherwise.
-14-
7. SPECIFIC STATE LEGENDS.
FOR NEW HAMPSHIRE RESIDENTS ONLY: NEITHER THE FACT THAT A REGISTRATION
STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED WITH THE STATE OF NEW
HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS
LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF
STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR
THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A
TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
FOR FLORIDA RESIDENTS ONLY: EACH FLORIDA RESIDENT WHO SUBSCRIBES FOR
THE PURCHASE OF SECURITIES HEREIN HAS THE RIGHT, PURSUANT TO SECTION
517.061(11)(A)(5) OF THE FLORIDA SECURITIES ACT, TO WITHDRAW HIS SUBSCRIPTION
FOR THE PURCHASE AND RECEIVE A FULL REFUND OF ALL MONIES PAID WITHIN THREE
BUSINESS DAYS AFTER THE EXECUTION OF THIS SUBSCRIPTION AGREEMENT OR PAYMENT FOR
THE PURCHASE HAS BEEN MADE, WHICHEVER IS LATER. WITHDRAWAL WILL BE WITHOUT ANY
FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER
NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT THE ADDRESS SET FORTH IN
THIS SUBSCRIPTION AGREEMENT INDICATING HIS INTENTION TO WITHDRAW.
SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END
OF THE AFOREMENTIONED THIRD BUSINESS DAY. IT IS ADVISABLE TO SEND SUCH LETTER BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO
TO EVIDENCE THE TIME IT WAS MAILED. IF THE REQUEST IS MADE ORALLY, IN PERSON OR
BY TELEPHONE TO AN OFFICER OF THE COMPANY, A WRITTEN CONFIRMATION THAT THE
REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
FOR GEORGIA RESIDENTS ONLY THE SECURITIES OFFERED HEREBY ARE BEING
ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE
GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT
FOR RESIDENTS OF ALL STATES: THE SECURITIES OFFERED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-15-
8. MISCELLANEOUS.
(a) TERMINATION. The Investor agrees that he shall not cancel, terminate
or revoke this Subscription Agreement or any agreement of the Investor made
hereunder other than as set forth herein, and that this Subscription Agreement
shall survive the death or disability of the Investor. If the Company elects to
cancel this Subscription Agreement, in whole or in part, provided that it
returns to the Investor, without interest and without deduction, all sums paid
by the Investor (or such rejected portion thereof), this Offer shall be null and
void and of no further force and effect, and no party shall have any rights
against any other party hereunder
(b) ENTIRE AGREEMENT. This Subscription Agreement, together with the
exhibits hereto, contains the entire understanding of the Company and the
Investor with respect to the subject matter hereof.
(c) NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Business Day, (b) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Business Day or later than 5:30 p.m. (New York City time) on any
Business Day, (c) the second Business Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be to the Investor at his address set
forth on the Investor Signature Page, and to the Company and the Placement Agent
at the addresses set forth above.
(d) AMENDMENTS; WAIVERS. No provision of this Subscription Agreement may
be waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each Investor in the Offering or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Subscription Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right. Notwithstanding any of the representations, warranties, acknowledgments
or agreements made herein by the Investor, the Investor does not thereby or in
any manner waive any rights granted to the Investor under federal or state
securities laws.
(e) CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Subscription Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
(f) SUCCESSORS AND ASSIGNS. This Subscription Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Subscription Agreement or any rights or
obligations hereunder without the prior written consent of each Investor in the
Offering. Investor may assign any or all of its rights under this Subscription
Agreement to any Person to whom Investor assigns or transfers any the Shares,
Warrants or Warrant Shares, provided such transferee agrees in writing to be
bound, with respect to such transferred securities, by the provisions hereof
that apply to the Investor.
(g) NO THIRD-PARTY BENEFICIARIES. This Subscription Agreement is
intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person, except as otherwise set forth in
Section 6(i).
(h) GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Subscription Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the State
of New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Subscription
Agreement (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York.
Each party hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
-16-
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Subscription Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a trial
by jury. If either party shall commence an action or proceeding to enforce any
provisions of this Subscription Agreement, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys'
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
(i) SURVIVAL. The representations and warranties contained herein shall
survive each Closing Date and the delivery and/or exercise of the Units and
Warrant Shares, as applicable for the applicable statue of limitations for a
period of three (3) years from the date hereof.
(j) EXECUTION. 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.
(k) SEVERABILITY. If any provision of this Subscription Agreement is
held to be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Subscription
Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Subscription Agreement.
(l) RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) this
Subscription Agreement, whenever Investor exercises a right, election, demand or
option under this Subscription Agreement or the Warrant, and the Company does
not timely perform its related obligations within the periods therein provided,
then Investor may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; PROVIDED,
HOWEVER, in the case of a rescission of an exercise of a Warrant, Investor shall
be required to return any shares of Common Stock subject to any such rescinded
exercise notice.
(m) REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Shares, Warrants or Warrant Shares is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement securities.
(n) REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of
Investor and the Company will be entitled to specific performance under this
Subscription Agreement. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
(o) PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to Investor pursuant to this Subscription Agreement or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
-17-
(p) LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under this Subscription Agreement is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
-18-
INVESTOR SIGNATURE PAGE FOR ASTRATA GROUP INCORPORATED SUBSCRIPTION AGREEMENT
Please print or type, Use ink only. (All Parties Must Sign)
The undersigned Investor hereby certifies that he (i) has received and relied
solely upon the Public Reports, this Subscription Agreement and their respective
exhibits and schedules, (ii) agrees to all the terms and conditions of this
Subscription Agreement, (iii) meets the suitability standards set forth herein
and (iv) is a resident of the state or foreign jurisdiction indicated below.
Dollar Amount of Units Subscribed for: $_________________________ ($35,000 Units
for 10,000 Shares and 10,000 Warrants)
-------------------------------------- If other than individual check one
Name of Investor (Print) and indicate capacity of signatory
under the signature:
Trust
-------------------------------------- Estate
Name of Joint Investor (if any) (Print) Uniform Gifts to Minors Act, State
of __________________
Attorney-in-fact
Corporation
-------------------------------------- Other
Signature of Investor
If Joint Ownership, Check one:
Joint Tenants with Right of
Survivorship
-------------------------------------- Tenants in Common
Signature of Joint Investor (if any) Tenants by the Entirety
Community by Property
-------------------------------------- Back up Withholding Statement:
Capacity of Signatory (if applicable) Please check this box only if the
investor is subject to backup
withholding
--------------------------------------
Social Security or Taxpayer Foreign Person:
Identification Number Please check this box only if the
investor is a nonresident alien,
Investor Address: foreign partnership, foreign trust
or foreign estate
-------------------------------------- Country__________ Passport #_________
Street Address
ID # ___________ ID Type___________
--------------------------------------
City State Zip Code
Telephone: ( ) Fax: ( )
Email:
--------------------------------
Adddress for Deleivery of Securities
(if different from above):
--------------------------------------
--------------------------------------
City State Zip Code
Broker:
Westminster Registered Rep.__________ Other Investor Representative:_________
The investor agrees to the terms of this Subscription Agreement and, as required
by the Regulations pursuant to the Internal Revenue Code, certifies under
penalty of perjury that (1) the Social Security Number or Taxpayer
Identification Number and address provided above is correct, (2) the investor is
not subject to backup withholding (unless the Backup Withholding Statement box
is checked) either because he has not been notified that he is subject to backup
withholding as a result of a failure to report all interest or dividends or
because the Internal Revenue Service has notified him that he is no longer
subject to backup withholding and (3) the investor (unless, the Foreign Person
box above is checked) is not a nonresident alien, foreign partnership, foreign
trust or foreign estate.
THE SUBSCRIPTION FOR UNITS OF ASTRATA GROUP INCORPORATED BY THE ABOVE NAMED
INVESTOR(S) IS ACCEPTED THIS ______________DAY OF ___________________, 2005.
ASTRATA GROUP INCORPORATED
By:_______________________________
Name: XXXXXX XXXXX
Title: CHIEF FINANCIAL OFFICER
-19-
EXHIBIT A
Statement of Accredited Investor
To: Astrata Group Incorporated
0000 Xxxxxxx Xxxx Xxxx
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Ladies and Gentlemen:
The undersigned hereby refers to the Subscription Agreement executed and
delivered to Astrata Group Incorporated (the "Company") by the undersigned as of
the date herewith. In connection with the subscription thereunder by the
undersigned to purchase securities of the Company, the undersigned hereby
represents and warrants to you that such individual or entity meets at least one
of the tests listed on the attached Exhibit I for an "accredited investor" (as
such term is defined under Regulation D promulgated pursuant to the Securities
Act of 1933, as amended).
Dated: _________________, 2005
Very truly yours,
------------------------------------
Name of Individual #1 or Entity
------------------------------------
Authorized Signature
------------------------------------
Name of Individual #2, if applicable
------------------------------------
Authorized Signature
-20-
EXHIBIT I TO STATEMENT OF ACCREDITED INVESTOR
ACCREDITED INVESTOR STATUS
NOTE: "Accredited Investors" are accorded special status under the federal
securities laws. Individuals who hold certain positions with an issuer or its
affiliates, or who have certain minimum individual income or certain minimum net
worth (each as described below) may qualify as Accredited Investors.
Partnerships, corporations or other entities may qualify as Accredited Investors
if they fulfill certain financial and other standards or if all of their equity
owners have incomes and/or net worth which qualify them individually as
Accredited Investors, and trusts may qualify as Accredited Investors if they
meet certain financial and other tests (as described below).
You may qualify as an Accredited Investor under Regulation D promulgated
under the Securities Act of 1933 (the "1933 Act") if you meet any of the
following tests:
FOR INDIVIDUALS ONLY
1. You are a director or an executive officer of Astrata Group
Incorporated An "executive officer" is the president, any vice president in
charge of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a policy making
function or any other person who performs similar policy making functions for
Astrata Group Incorporated
OR
2. You had individual income (exclusive of any income attributable to your
spouse) of more than $200,000 in each of the two most recent fiscal years, and
reasonably expect to have an individual income in excess of $200,000 in the
current year, or your spouse and you had a joint income in excess of $300,000 in
each of the two most recent fiscal years, and you reasonably expect to have a
joint income in excess of $300,000 in the current year. For purposes hereof,
income means adjusted gross income, as reported for federal income tax purposes,
increased by the following amounts: (i) the amount of any tax exempt interest
income under Section 103 of the Internal Revenue Code (the "Code") received,
(ii) the amount of losses claimed as a limited partner in a limited partnership
as reported on Schedule E of Form 1040, (iii) any deduction claimed for
depletion under Section 611 of the Code or (iv) any amount by which income has
been reduced in arriving at adjusted gross income pursuant to the provisions of
Section 1202 of the Code. In determining personal income, however, unrealized
capital gains should not be included.
OR
3. You have an individual net worth, or your spouse and you have a combined
net worth in excess of $1,000,000. For purposes of this statement, "net worth"
means the excess of total assets at fair market value, including home, home
furnishings and automobiles, over total liabilities.
FOR TRUSTS ONLY
4. The Trust has total assets in excess of $5,000,000, was not formed for
the specific purpose of acquiring securities of Astrata Group Incorporated, and
the purchase of such securities is directed by a person with such knowledge and
experience in financial and business matters that he is capable of evaluating
the risks and merits of the prospective investment in such securities.
FOR CORPORATIONS, PARTNERSHIPS OR OTHER PURCHASING ENTITIES
5. Any corporation, partnership, limited liability company or limited
liability partnership not formed for the specific purpose of acquiring
securities of Astrata Group Incorporated, with total assets in excess of
$5,000,000.
OR
6. All equity owners of the purchasing entity are Accredited Investors.
-21-
EXHIBIT B
ASTRATA GROUP INCORPORATED
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial owner of common stock, par value $0.0001 per
share (the "COMMON STOCK"), of Astrata Group Incorporated, a Nevada corporation
(the "COMPANY"), understands that the Company has filed or intends to file with
the Securities and Exchange Commission (the "COMMISSION") a registration
statement (the "REGISTRATION STATEMENT") for the registration and resale under
Rule 415 of the Securities Act of 1933, as amended (the "SECURITIES ACT"), of
the securities subscribed for in accordance with the terms of the Subscription
Agreement among the Company and each Investor named therein (the "SUBSCRIPTION
AGREEMENT") (the "REGISTRABLE SECURITIES"). A copy of the Subscription Agreement
is available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Subscription Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "SELLING SECURITYHOLDER") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.
The undersigned hereby provides the following information to the Company
and represents and warrants that such information is accurate:
QUESTIONNAIRE
1. Name.
(a) Full Legal Name of Selling Securityholder
----------------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a) above)
through which Registrable Securities Listed in Item 3 below are held:
----------------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a natural
person who directly you indirectly alone or with others has power to
vote or dispose of the securities covered by the questionnaire):
----------------------------------------------------------------------
-22-
2. Address for Notices to Selling Securityholder:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Telephone: ----------------------------------------------------------------
Fax: ----------------------------------------------------------------------
Contact Person: -----------------------------------------------------------
3. Beneficial Ownership of Registrable Securities:
(a) Type and Principal Amount of Registrable Securities beneficially owned:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
4. Broker-Dealer Status:
(a) Are you a broker-dealer?
Yes __ No __
Note: If yes, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
(b) Are you an affiliate of a broker-dealer?
Yes __ No __
(c) If you are an affiliate of a broker-dealer, do you certify that you
bought the Registrable Securities in the ordinary course of business, and
at the time of the purchase of the Registrable Securities to be resold, you
had no agreements or understandings, directly or indirectly, with any
person to distribute the Registrable Securities?
Yes __ No __
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. Beneficial Ownership of Other Securities of the Company Owned by the
Selling Securityholder.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other than
the Registrable Securities listed above in Item 3.
(a) Type and Amount of Other Securities beneficially owned by the Selling
Securityholder:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
-23-
6. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of 5%
of more of the equity securities of the undersigned) has held any position
or office or has had any other material relationship with the Company (or
its predecessors or affiliates) during the past three years.
State any exceptions here:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
7. Short Selling Covenant:
Each Holder understands and acknowledges that the Commission currently
takes the position that coverage of short sales of shares of the Common
Stock "against the box" prior to the effective date of the Registration
Statement with the Shares purchased hereunder is a violation of Section 5
of the Securities Act, as set forth in Item 65, Section 5 under Section A,
of the Manual of Publicly Available Telephone Interpretations, dated July
1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Accordingly, each Holder hereby agrees not to use any of the
Shares to cover any short sales made prior to the Effective Date.
The undersigned agrees to promptly notify the Company of any inaccuracies
or changes in the information provided herein that may occur subsequent to the
date hereof at any time while the Registration Statement remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus. The undersigned understands that such information will be relied
upon by the Company in connection with the preparation or amendment of the
Registration Statement and the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: -------------------- Beneficial Owner: ------------------------
By: --------------------------------------
Name:
Title:
PLEASE FAX OR MAIL A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE
TOGETHER WITH YOUR EXECUTED SUBSCRIPTION AGREEMENT.
-24-
EXHIBIT C
ASTRATA GROUP INCORPORATED
Schedule of Subsidiaries Pursuant To Section 4(a)
Astrata Group Incorporated
Level 1
Company Name Astrata Group Incorporated
Incorporated Nevada, USA
Status Public Company
Level 2 - (Owned by Astrata Group Incorporated)
Company Name Cadogan Investments Ltd
Incorporated Turks & Caicos Islands
Status Private Company
Ownership 100% owned by Astrata Group Incorporated
Company Name Astrata Europe Ltd
Incorporated England
Status Private Company
Ownership 100% owned by Astrata Group Incorporated
Company Name Astrata (Asia Pacific) Pte Ltd
Incorporated Singapore
Status Private Company
Ownership 100% owned by Astrata Group Incorporated
Level 3 - (Owned by Cadogan Investments Ltd)
Company Name Astrata South Africa (Pty) Ltd
Incorporated South Africa
Status Private Company
Ownership 100% owned by Cadogan Investments Ltd
-25-
Level 3 - (Owned by Astrata (Asia Pacific) Pte Ltd)
Company Name Astrata (Singapore) Pte Ltd
Incorporated Singapore
Status Private Company
Ownership 51% owned by Astrata (Asia Pacific) Pte Ltd
Company Name Astrata Malaysia Sdn Bhd
Incorporated Malaysia
Status Private Company
Ownership 100% owned by Astrata (Asia Pacific) Pte Ltd
Company Name Astrata (B) Sdn Bhd
Incorporated Brunei
Status Private Company
Ownership 70% owned by Astrata (Asia Pacific) Pte Ltd
Level 4 - (Owned by Astrata South Africa (Pty) Ltd)
Company Name Astrata Systems (Pty) Ltd
Incorporated South Africa
Status Private Company
Ownership 100% owned by Astrata South Africa (Pty) Ltd
Company Name CyberPro Sofware Solutions (Pty) Ltd
Incorporated South Africa
Status Private Company
Ownership 100% owned by Astrata South Africa (Pty) Ltd
Company Name Barloworld Optron Technologies (Pty) Ltd
Incorporated South Africa
Status Private Company
Ownership 50% owned by Astrata South Africa (Pty) Ltd
Level 4 - (Owned by Astrata Malaysia Sdn Bhd)
Company Name Astrata GeoTrax Sdn Bhd
Incorporated Malaysia
Status Private Company
Ownership 60% owned by Astrata Malaysia Sdn Bhd
-26-
SCHEDULE 4(g)
o Shares issued subsequent to Quarterly Report on Form 10-QSB for quarter
ended November 30, 2004: approximately 687,000
o Contingent share issuances under acquisition agreements not otherwise
disclosed in Public Reports: 100,000
o Warrants granted subsequent to Quarterly Report on Form 10-QSB for quarter
ended November 30, 2004: approximately 380,000
o Shares of and warrants underlying outstanding convertible debt:
Shares - approximately 660,000
Warrants - approximately 510,000
-27-
SCHEDULE 4(i)
The Company entered into a series of convertible bridge notes with an
aggregate of $1.5 million initial principal, all due on June 15, 2005.
-28-
