EXHIBIT 4.1
SUBSCRIPTION AGREEMENT
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THIS SUBSCRIPTION AGREEMENT (this "AGREEMENT"), dated as of March 18,
2005, by and among One Voice Technologies, Inc., a Nevada corporation (the
"COMPANY"), and the subscribers identified on the signature page hereto (each a
"SUBSCRIBER" and collectively "SUBSCRIBERS").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("REGULATION D") as promulgated by the United States Securities and Exchange
Commission (the "COMMISSION") under the Securities Act of 1933, as amended (the
"1933 ACT").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase $2,000,000 (the "PURCHASE PRICE") of principal amount of 6% promissory
notes of the Company ("NOTE" or "NOTES") convertible into shares of the
Company's common stock, $.001 par value (the "COMMON STOCK") at a per share
conversion price equal to the lesser of (i) the closing bid price of the Common
Stock as reported by Bloomberg, L.P. for the OTC Bulletin Board ("BULLETIN
BOARD") for the trading day immediately preceding the Initial Closing Date (as
defined in Section 1 below), or (ii) 80% of the average of the three lowest
closing bid prices for the thirty trading days preceding the Conversion Date (as
defined in Section 7(b) below) ("CONVERSION PRICE"); and share purchase warrants
(the "Warrants"), in the forms attached hereto as EXHIBIT A1 AND EXHIBIT A2, to
purchase shares of Common Stock (the "WARRANT SHARES"). One Million Dollars
($1,000,000) of the Purchase Price shall be payable on the Initial Closing Date
as defined in Section 1 hereof ("INITIAL CLOSING PURCHASE PRICE"). One Million
Dollars ($1,000,000) of the Purchase Price will be payable within five (5)
business days after the actual effectiveness ("ACTUAL EFFECTIVE DATE") of the
Registration Statement as defined in Section 11.1(iv) of this Agreement ("SECOND
CLOSING PURCHASE PRICE"). The Notes, shares of Common Stock issuable upon
conversion of the Notes (the "SHARES"), the Warrants and the Warrant Shares are
collectively referred to herein as the "SECURITIES"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the
Warrants contemplated hereby shall be held in escrow pursuant to the terms of a
Funds Escrow Agreement to be executed by the parties substantially in the form
attached hereto as EXHIBIT B (the "ESCROW AGREEMENT").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. INITIAL CLOSING. Subject to the satisfaction or waiver of
the terms and conditions of this Agreement, on the INITIAL CLOSING DATE, each
Subscriber shall purchase and the Company shall sell to each Subscriber a Note
in the principal amount designated on the signature page hereto ("INITIAL
CLOSING NOTES"). The aggregate amount of the Notes to be purchased by the
Subscribers on the Initial Closing Date shall, in the aggregate, be equal to the
Initial Closing Purchase Price. The Initial Closing Date shall be the date that
subscriber funds representing the net amount due the Company from the Initial
Closing Purchase Price of the Offering is transmitted by wire transfer or
otherwise to or for the benefit of the Company.
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2. SECOND CLOSING.
(a) SECOND CLOSING. The closing date in relation to
the Second Closing Purchase Price shall be the fifth (5th) day after the Actual
Effective Date (the "SECOND CLOSING DATE"). Subject to the satisfaction or
waiver of the terms and conditions of this Agreement on the Second Closing Date,
each Subscriber shall purchase and the Company shall sell to each Subscriber a
Note in the principal amount designated on the signature page hereto ("SECOND
CLOSING NOTES"). The aggregate Purchase Price of the Second Closing Notes for
all Subscribers shall be equal to the Second Closing Purchase Price. The Second
Closing Note shall be identical to the Note issuable on the Initial Closing
Date. The Conversion Price (defined in Section 2.1 (b) of the Note) shall be
equitably adjusted to offset the effect of stock splits, stock dividends, pro
rata distributions of property or equity interests to the Company's shareholders
after the Initial Closing Date.
(b) CONDITIONS TO SECOND CLOSING. The occurrence of
the Second Closing is expressly contingent on (i) the truth and accuracy, on the
Effective Date, Actual Effective Date and the Second Closing Date of the
representations and warranties of the Company and Subscriber contained in this
Agreement, (ii) continued compliance with the covenants of the Company set forth
in this Agreement, (iii) the non-occurrence of any Event of Default (as defined
in the Note) or other default by the Company of its obligations and undertakings
contained in this Agreement, (iv) the delivery on the Second Closing Date of
Second Closing Notes for which the Company Shares issuable upon conversion have
been included in the Registration Statement, which must be effective as of the
Second Closing Date, and (v) the delivery of the Second Closing Warrants for
which the Warrant Shares issuable upon exercise have been included in the
Registration Statement which must be effective as of the Second Closing Date.
The exercise prices of the Warrants issuable on the Second Closing Date shall be
adjusted to offset the effect of stock splits, stock dividends, pro rata
distributions of property or equity interests to the Company's shareholders
after the Initial Closing Date.
(c) SECOND CLOSING DELIVERIES. On the Second Closing
Date, the Company will deliver the Second Closing Notes and Second Closing
Warrants to the Escrow Agent and each Subscriber will deliver his portion of the
respective Purchase Price to the Escrow Agent. On the Second Closing Date, the
Company will deliver a certificate ("SECOND CLOSING CERTIFICATE") signed by its
chief executive officer or chief financial officer (i) representing the truth
and accuracy of all the representations and warranties made by the Company
contained in this Agreement, as of the Initial Closing Date, the Actual
Effective Date, and the Second Closing Date, as if such representations and
warranties were made and given on all such dates, (ii) adopting the covenants
and conditions set forth in Sections 9, 10, 11, and 12 of this Agreement in
relation to the Second Closing Notes and Second Closing Warrants, (iii)
representing the timely compliance by the Company with the Company's
registration requirements set forth in Section 11 of this Agreement, and (iv)
certifying that an Event of Default has not occurred. A legal opinion nearly
identical to the legal opinion referred to in Section 6 of this Agreement shall
be delivered to each Subscriber at the Second Closing in relation to the
Company, Second Closing Notes, and Second Closing Warrants ("SECOND CLOSING
LEGAL OPINION"). The Second Closing Legal Opinion must also state that all of
the Registrable Securities have been included for registration in an effective
registration statement effective as of the Actual Effective Date and Second
Closing Date.
3. WARRANTS.
(a) CLASS A WARRANTS. On each Closing Date, the
Company will issue and deliver Class A Warrants to the Subscribers. One hundred
(100) Class A Warrants will be issued for each one hundred (100) Shares which
would be issued on each Closing Date assuming the complete conversion of the
Notes issued on each such Closing Date at the Conversion Price then in effect.
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The per Warrant Share exercise price to acquire a Warrant Share upon exercise of
a Class A Warrant shall be $0.045. The Class A Warrants shall be exercisable
until four (4) years after the Initial Closing Date.
(b) CLASS B WARRANTS. On each Closing Date, the
Company will issue and deliver Class B Warrants to the Subscribers. One hundred
(100) Class B Warrants will be issued for each one hundred (100) Shares which
would be issued on each Closing Date assuming the complete conversion of the
Notes issued on each such Closing Date at the Conversion Price then in effect.
The holder of the Class B Warrants will be entitled to purchase one Warrant
Share upon exercise of the Class B Warrants for each Warrant Share previously
purchased upon exercise of the Class A Warrants. The per Warrant Share exercise
price to acquire a Warrant Share upon exercise of a Class B Warrant shall be
$0.06. The Class B Warrants shall be exercisable until four (4) years after the
Initial Closing Date and shall have a cashless feature as described in the Class
B Warrant. Anything to the contrary herein notwithstanding, the holder of Class
B Warrants is granted only the registration rights as described in Section
11.1(ii) of the Subscription Agreement and not the registration rights described
in Sections 11.1(i) and 11.1(iv) of the Subscription Agreement.
4. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. Each
Subscriber hereby represents and warrants to and agrees with the Company only as
to such Subscriber that:
(a) INFORMATION ON COMPANY. The Subscriber has been
furnished with or has had access at the XXXXX Website of the Commission to the
Company's Form 10-KSB for the year ended December 31, 2003 as filed with the
Commission, together with all subsequently filed Forms 10-QSB, 8-K, and filings
made with the Commission available at the XXXXX website (hereinafter referred to
collectively as the "REPORTS"). In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "OTHER WRITTEN INFORMATION"), and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(b) INFORMATION ON SUBSCRIBER. The Subscriber is, and
will be at the time of the conversion of the Notes and exercise of any of the
Warrants, an "ACCREDITED INVESTOR", as such term is defined in Regulation D
promulgated by the Commission under the 1933 Act, is experienced in investments
and business matters, has made investments of a speculative nature and has
purchased securities of United States publicly-owned companies in private
placements in the past and, with its representatives, has such knowledge and
experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate.
(c) PURCHASE OF NOTES AND WARRANTS. On each Closing
Date, the Subscriber will purchase the Notes and Warrants as principal for its
own account for investment only and not with a view toward, or for resale in
connection with, the public sale or any distribution thereof.
(d) COMPLIANCE WITH SECURITIES ACT. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act or any applicable state securities laws, by reason of their issuance in
a transaction that does not require registration under the 1933 Act (based in
part on the accuracy of the representations and warranties of Subscriber
contained herein), and that such Securities must be held indefinitely unless a
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subsequent disposition is registered under the 1933 Act or any applicable state
securities laws or is exempt from such registration. In any event, and subject
to compliance with applicable securities laws, the Subscriber may enter into
hedging transactions with third parties, which may in turn engage in short sales
of the Securities in the course of hedging the position they assume and the
Subscriber may also enter into short positions or other derivative transactions
relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other
positions or otherwise settle short sales or other transactions, or loan or
pledge the Securities, or interests in the Securities, to third parties that in
turn may dispose of these Securities.
(e) SHARES LEGEND. The Shares and the Warrant Shares
shall bear the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ONE VOICE TECHNOLOGIES, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) WARRANTS LEGEND. The Warrants shall bear the
following
or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO ONE VOICE TECHNOLOGIES,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) NOTE LEGEND. The Note shall bear the following
legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ONE VOICE
TECHNOLOGIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
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(h) COMMUNICATION OF OFFER. The offer to sell the
Securities was directly communicated to the Subscriber by the Company. At no
time was the Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.
(i) AUTHORITY; ENFORCEABILITY. This Agreement and
other agreements delivered together with this Agreement or in connection
herewith have been duly authorized, executed and delivered by the Subscriber and
are valid and binding agreements enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and Subscriber
has full corporate power and authority necessary to enter into this Agreement
and such other agreements and to perform its obligations hereunder and under all
other agreements entered into by the Subscriber relating hereto.
(j) RESTRICTED SECURITIES. Subscriber understands
that the Securities have not been registered under the 1933 Act and such
Subscriber will not sell, offer to sell, assign, pledge, hypothecate or
otherwise transfer any of the Securities unless (i) pursuant to an effective
registration statement under the 1933 Act, (ii) such Subscriber provides the
Company with an opinion of counsel, in a form reasonably acceptable to the
Company, to the effect that a sale, assignment or transfer of the Securities may
be made without registration under the 1933 Act, or (iii) Subscriber provides
the Company with reasonable assurances (in the form of seller and broker
representation letters) that the Shares or the Warrant Shares, as the case may
be, can be sold pursuant to (A) Rule 144 promulgated under the 1933 Act, or (B)
Rule 144(k) promulgated under the 1933 Act, in each case following the
applicable holding period set forth therein. Notwithstanding anything to the
contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an
"ACCREDITED INVESTOR" under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement. For the purposes of this
Agreement, an "AFFILIATE" of any person or entity means any other person or
entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. For purposes of this
definition, "control" means the power to direct the management and policies of
such person or firm, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(k) NO GOVERNMENTAL REVIEW. Each Subscriber
understands that no United States federal or state agency or any other
governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Securities.
(l) CORRECTNESS OF REPRESENTATIONS. Each Subscriber
represents as to such Subscriber that the foregoing representations and
warranties are true and correct as of the date hereof and, unless a Subscriber
otherwise notifies the Company prior to each Closing Date shall be true and
correct as of each Closing Date.
(m) SURVIVAL. The foregoing representations and
warranties shall survive the Second Closing Date for a period of two years.
5. COMPANY REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to and agrees with each Subscriber that:
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(a) DUE INCORPORATION. Except as set forth in the
attached Schedule 5(a), the Company and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the respective jurisdictions of their incorporation and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Except as set forth in the attached Schedule 5(a), the Company
and each of its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in each jurisdiction where the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those jurisdictions in which the failure to so qualify would not have
a Material Adverse Effect. For purpose of this Agreement, a "MATERIAL ADVERSE
EFFECT" shall mean a material adverse effect on the financial condition, results
of operations, properties or business of the Company taken as a whole. For
purposes of this Agreement, "SUBSIDIARY" means, with respect to any entity at
any date, any corporation, limited or general partnership, limited liability
company, trust, estate, association, joint venture or other business entity) of
which more than 50% of (i) the outstanding capital stock having (in the absence
of contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. All the Company's Subsidiaries as of the
Closing Date are set forth on SCHEDULE 5(A) hereto. All representations made by
or relating to the Company of a historical or prospective nature and all
undertakings described in Sections 9.1(g) through 9.1(l) shall relate and refer
to the Company and the Subsidiaries.
(b) OUTSTANDING STOCK. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries have been
duly authorized and validly issued and are fully paid and nonassessable.
(c) AUTHORITY; ENFORCEABILITY. This Agreement, the
Note, the Warrants, the Escrow Agreement and any other agreements delivered
together with this Agreement or in connection herewith (collectively
"TRANSACTION DOCUMENTS") have been duly authorized, executed and delivered by
the Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform its obligations thereunder.
(d) ADDITIONAL ISSUANCES. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company except as described on SCHEDULE 5(D) or in the
Reports.
(e) CONSENTS. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its Affiliates, the OTC Bulletin Board
("BULLETIN BOARD") nor the Company's shareholders is required for the execution
by the Company of the Transaction Documents and compliance and performance by
the Company of its obligations under the Transaction Documents, including,
without limitation, the issuance and sale of the Securities.
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(f) NO VIOLATION OR CONFLICT. Assuming the
representations and warranties of the Subscribers in Section 4 are true and
correct, neither the issuance and sale of the Securities nor the performance of
the Company's obligations under this Agreement and all other agreements entered
into by the Company relating thereto by the Company will:
(i) violate, conflict with, result in a
breach of, or constitute a default (or an event which with the giving of notice
or the lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles or certificate of incorporation, charter or bylaws of the
Company, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company of any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company or any of its subsidiaries or over the properties or assets of the
Company or any of its Affiliates, (C) the terms of any bond, debenture, note or
any other evidence of indebtedness, or any agreement, stock option or other
similar plan, indenture, lease, mortgage, deed of trust or other instrument to
which the Company or any of its Affiliates or subsidiaries is a party, by which
the Company or any of its Affiliates or subsidiaries is bound, or to which any
of the properties of the Company or any of its Affiliates or subsidiaries is
subject, or (D) the terms of any "LOCK-UP" or similar provision of any
underwriting or similar agreement to which the Company, or any of its Affiliates
or subsidiaries is a party except the violation, conflict, breach, or default of
which would not have a Material Adverse Effect on the Company; or
(ii) result in the creation or imposition of
any lien, charge or encumbrance upon the Securities or any of the assets of the
Company, its subsidiaries or any of its Affiliates; or
(iii) result in the activation of any
anti-dilution rights or a reset or repricing of any debt or security instrument
of any other creditor or equity holder of the Company, nor result in the
acceleration of the due date of any obligation of the Company; or
(iv) except as disclosed on SCHEDULE 11.1,
result in the activation of any piggy-back or other registration rights of any
person or entity holding securities of the Company or having the right to
receive securities of the Company.
(g) THE SECURITIES. The Securities upon issuance:
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly
authorized and on the date of conversion of the Notes and upon exercise of the
Warrants, the Shares and Warrant Shares will be duly and validly issued, fully
paid and nonassessable (and if registered pursuant to the 1933 Act, and resold
pursuant to an effective registration statement will be free trading and
unrestricted, provided that each Subscriber complies with the prospectus
delivery requirements of the 1933 Act);
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company;
(iv) will not subject the holders thereof to
personal liability by reason of being such holders; and
(v) will not result in a Section 5 violation
under the 1933 Act.
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(h) LITIGATION. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its Affiliates that would affect the execution by
the Company or the performance by the Company of its obligations under the
Transaction Documents. Except as disclosed in the Reports, there is no pending
or, to the best knowledge of the Company, basis for or threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates which
litigation if adversely determined would have a Material Adverse Effect on the
Company.
(i) REPORTING COMPANY. The Company is a publicly-held
company subject to reporting obligations pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended (the "1934 ACT") and has a class of
common shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to
the provisions of the 1934 Act, the Company has timely filed all reports and
other materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) NO MARKET MANIPULATION. The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued or resold.
(k) INFORMATION CONCERNING COMPANY. The Reports
contain all material information relating to the Company and its operations and
financial condition as of their respective dates which information is required
to be disclosed therein. Since the date of the financial statements included in
the Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
(l) STOP TRANSFER. The Securities, when issued prior
to the effectiveness of the "REGISTRATION STATEMENT" (as defined in Section 11
of this Agreement), will be restricted securities. The Company will not issue
any stop transfer order or other order impeding the sale, resale or delivery of
any of the Securities, except as may be required by any applicable federal or
state securities laws and unless contemporaneous notice of such instruction is
given to the Subscriber.
(m) DEFAULTS. The Company is not in violation of its
articles of incorporation or bylaws. The Company is (i) not in default under or
in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a Material Adverse Effect on the Company, (ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to its knowledge not in violation of
any statute, rule or regulation of any governmental authority which violation
would have a Material Adverse Effect on the Company.
(n) NO INTEGRATED OFFERING. Neither the Company, nor
any of its Affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
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the Bulletin Board. Nor will the Company or any of its Affiliates or
subsidiaries take any action or steps that would cause the offer or issuance of
the Securities to be integrated with other offerings. The Company will not
conduct any offering other than the transactions contemplated hereby that will
be integrated with the offer or issuance of the Securities.
(o) NO GENERAL SOLICITATION. Neither the Company, nor
any of its Affiliates, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 0000 Xxx) in connection with the
offer or sale of the Securities.
(p) LISTING. The Company's common stock is quoted on
the Bulletin Board. The Company has not received any oral or written notice that
its common stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its common stock does not meet all requirements for the
continuation of such quotation and the Company satisfies all the requirements
for the continued quotation of its common stock on the Bulletin Board.
(q) NO UNDISCLOSED LIABILITIES. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written Information, other than
those incurred in the ordinary course of the Company's businesses since December
31, 2003 and which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect other than as set forth in SCHEDULE
5(q).
(r) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since
December 31, 2003, no event or circumstance has occurred or exists with respect
to the Company or its businesses, properties, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(s) CAPITALIZATION. The authorized and outstanding
capital stock of the Company as of the date of this Agreement and the Closing
Date are set forth on SCHEDULE 5(s). Except as set forth in the Reports and
Other Written Information and SCHEDULE 5(d), there are no options, warrants, or
rights to subscribe to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of capital
stock of the Company. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) DILUTION. The Company's executive officers and
directors understand the nature of the Securities being sold hereby and
recognize that the issuance of the Securities may have a dilutive effect on the
equity holdings of other holders of the Company's equity or rights to receive
equity of the Company. The board of directors of the Company has concluded, in
its good faith business judgment, that the issuance of the Securities is in the
best interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Notes, and the Warrant
Shares upon exercise of the Warrants is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company or parties entitled to receive equity of the
Company.
(u) 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 Company and the accountants and
lawyers formerly or presently employed by the Company, including but not limited
to disputes or conflicts over payment owed to such accountants and lawyers.
9
(v) INVESTMENT COMPANY. The Company is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(w) CORRECTNESS OF REPRESENTATIONS. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof in all material respects, and, unless the Company
otherwise notifies the Subscribers prior to each Closing Date, shall be true and
correct in all material respects as of each Closing Date.
(x) SURVIVAL. The foregoing representations and
warranties shall survive the Second Closing Date for a period of two years.
6. REGULATION D OFFERING. The offer and issuance of the
Securities to the Subscribers is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On each
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested by
Subscribers. A form of the legal opinion is annexed hereto as EXHIBIT C. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants.
7.1. CONVERSION OF NOTE.
(a) Upon the conversion of a Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action,
including obtaining and delivering, an opinion of counsel to assure that the
Company's transfer agent shall issue stock certificates in the name of
Subscriber (or its nominee) or such other persons as designated by Subscriber
and in such denominations to be specified at conversion representing the number
of shares of common stock issuable upon such conversion. The Company warrants
that no instructions other than these instructions have been or will be given to
the transfer agent of the Company's Common Stock and that, unless waived by the
Subscriber, the Shares will be free-trading, and freely transferable, and will
not contain a legend restricting the resale or transferability of the Shares
provided the Shares are being sold pursuant to an effective registration
statement covering the Shares or are otherwise exempt from registration.
(b) Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying an
executed and completed Notice of Conversion (a form of which is annexed as
EXHIBIT A to the Note) to the Company via confirmed telecopier transmission or
otherwise pursuant to Section 13(a) of this Agreement. The Subscriber will not
be required to surrender the Note until the Note has been fully converted or
satisfied. Each date on which a Notice of Conversion is telecopied to the
Company in accordance with the provisions hereof shall be deemed a CONVERSION
DATE. The Company will itself or cause the Company's transfer agent to transmit
the Company's Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt by such
Subscriber within three (3) business days after receipt by the Company of the
Notice of Conversion (such fifth day being the "DELIVERY DATE"). In the event
the Shares are electronically transferable, then delivery of the Shares MUST be
made by electronic transfer provided request for such electronic transfer has
been made by the Subscriber. A Note representing the balance of the Note not so
converted will be provided by the Company to the Subscriber if requested by
Subscriber, provided the Subscriber delivers an original Note to the Company. To
the extent that a Subscriber elects not to surrender a Note for reissuance upon
partial payment or conversion, the Subscriber hereby indemnifies the Company
against any and all loss or damage attributable to a third-party claim in an
amount in excess of the actual amount then due under the Note.
10
(c) The Company understands that a delay in the
delivery of the Shares in the form required pursuant to Section 7 hereof, or the
Mandatory Redemption Amount described in Section 7.2 hereof, later than two
business days after the Delivery Date or later than the Mandatory Redemption
Payment Date (as hereinafter defined) could result in economic loss to the
Subscriber. As compensation to the Subscriber for such loss, the Company agrees
to pay (as liquidated damages and not as a penalty) to the Subscriber for late
issuance of Shares in the form required pursuant to Section 7 hereof upon
Conversion of the Note in the amount of $100 per business day after the Delivery
Date for each $10,000 of Note principal amount being converted, of the
corresponding Shares which are not timely delivered. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the
Subscriber, in the event that the Company fails for any reason to effect
delivery of the Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Subscriber will be entitled to revoke all or part
of the relevant Notice of Conversion or rescind all or part of the notice of
Mandatory Redemption by delivery of a notice to such effect to the Company
whereupon the Company and the Subscriber shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that the liquidated damages described above shall be payable through the date
notice of revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall not
be payable by the Company and if already paid shall be credited against amounts
owed by the Company to the Subscriber and thus refunded to the Company.
7.2. MANDATORY REDEMPTION AT SUBSCRIBER'S ELECTION. In the
event the Company is prohibited from issuing Shares, or fails to timely deliver
Shares on a Delivery Date, or upon the occurrence of any other Event of Default
(as defined in the Note or in this Agreement) or for any reason other than
pursuant to the limitations set forth in Section 7.3 hereof, then at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber, at the Subscriber's election, a sum of
money determined by (i) multiplying up to the outstanding principal amount of
the Note designated by the Subscriber by 120%, or (ii) multiplying the number of
Shares otherwise deliverable upon conversion of an amount of Note principal
and/or interest designated by the Subscriber (with the date of giving of such
designation being a DEEMED CONVERSION DATE) at the then Conversion Price that
would be in effect on the Deemed Conversion Date by the highest closing price of
the Common Stock on the principal market for the period commencing on the Deemed
Conversion Date until the day prior to the receipt of the Mandatory Redemption
Payment, whichever is greater, together with accrued but unpaid interest thereon
("MANDATORY REDEMPTION PAYMENT"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("MANDATORY REDEMPTION PAYMENT DATE"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding. Liquidated damages calculated pursuant to Section 7.1(c)
hereof, that have been paid or accrued for the twenty day period prior to the
actual receipt of the Mandatory Redemption Payment by the Subscriber shall be
credited against the Mandatory Redemption Payment.
11
7.3. MAXIMUM CONVERSION. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of common stock beneficially owned by the Subscriber and its
Affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its Affiliates of more than 9.99% of
the outstanding shares of common stock of the Company on such Conversion Date.
For the purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 9.99% and aggregate conversions by the Subscriber may exceed
9.99%. The Subscriber may void the conversion limitation described in this
Section 7.3 upon and effective after 61 days prior written notice to the
Company. The Subscriber may allocate which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 9.99% amount
described above and which shall be allocated to the excess above 9.99%.
7.4. INJUNCTION - POSTING OF BOND. In the event a Subscriber
shall elect to convert a Note or part thereof or exercise the Warrant in whole
or in part, the Company may not refuse conversion or exercise based on any claim
that such Subscriber or any one associated or affiliated with such Subscriber
has been engaged in any violation of law, or for any other reason, unless, an
injunction from a court, on notice, restraining and or enjoining conversion of
all or part of said Note or exercise of all or part of said Warrant shall have
been sought and obtained by the Company and the Company has posted a surety bond
for the benefit of such Subscriber in the amount of 130% of the amount of the
Note, or aggregate purchase price of the Warrant Shares which are subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment.
7.5. BUY-IN. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if seven (7)
business days after the Delivery Date the Subscriber purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "BUY-IN"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.
7.6 ADJUSTMENTS. The Conversion Price, Warrant exercise price
and amount of Shares issuable upon conversion of the Notes and exercise of the
Warrants shall be equitably adjusted to offset the effect of stock splits, stock
dividends, pro rata distributions of property or equity interests to the
Company's shareholders.
7.7. REDEMPTION. The Company may not redeem or call the Note
without the consent of the holder of the Note.
12
8. FINDER/LEGAL FEES.
(a) FINDER'S FEE. The Company on the one hand, and
each Subscriber (for himself only) on the other hand, agree to indemnify the
other against and hold the other harmless from any and all liabilities to any
persons claiming brokerage commissions or finder's fees other than the finders
identified on SCHEDULE 8 hereto (each a "FINDER") on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions. The Company agrees that it will pay the
Finders on each Closing Date and on the dates funds are disbursed to the
Company, an aggregate cash finder's fee and due diligence fee of five percent
(5%) of the Purchase Price (collectively "FINDER'S FEES") directly out of the
funds held pursuant to the Escrow Agreement. The Company represents that there
are no other parties entitled to receive fees, commissions, or similar payments
in connection with the Offering except the Finders.
(b) LEGAL FEES. The Company shall pay to Grushko &
Xxxxxxx, P.C., a fee of $20,000 ("LEGAL FEES") as reimbursement for services
rendered to the Subscribers in connection with this Agreement and the purchase
and sale of the Notes and Warrants (the "OFFERING") and acting as Escrow Agent
for the Offering. Ten Thousand Dollars ($10,000) will be payable on the Initial
Closing Date and $10,000 shall be payable on the Second Closing Date. The Legal
Fees will be payable out of funds held pursuant to the Escrow Agreement.
9. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Subscribers as follows:
(a) STOP ORDERS. The Company will advise the
Subscribers, promptly after it receives notice of issuance by the Commission,
any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending any offering of any securities of
the Company, or of the suspension of the qualification of the Common Stock of
the Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) LISTING. The Company shall promptly secure the
listing of the shares of Common Stock and the Warrant Shares upon each national
securities exchange, or automated quotation system upon which they are or become
eligible for listing (subject to official notice of issuance) and shall maintain
such listing so long as any Notes or Warrants are outstanding. The Company will
maintain the listing of its Common Stock on the American Stock Exchange, Nasdaq
SmallCap Market, Nasdaq National Market System, Bulletin Board, or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "PRINCIPAL MARKET")) or other
market with the reasonable consent of Subscribers holding a majority of the
Shares and Warrant Shares, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market, as applicable. The Company will provide the Subscribers copies
of all notices it receives notifying the Company of the threatened and actual
delisting of the Common Stock from any Principal Market. As of the date of this
Agreement and the Closing Date, the Bulletin Board is and will be the Principal
Market.
(c) MARKET REGULATIONS. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscriber.
13
(d) REPORTING REQUIREMENTS. From the date of this
Agreement and until the sooner of (i) two (2) years after the Second Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitation, the Company will (v)
cause its Common Stock to continue to be registered under Section 12(b) or 12(g)
of the 1934 Act, (x) comply in all respects with its reporting and filing
obligations under the 1934 Act, (y) comply with all reporting requirements that
are applicable to an issuer with a class of shares registered pursuant to
Section 12(b) or 12(g) of the 1934 Act, as applicable, and (z) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will use its best efforts not to take any action or file
any document (whether or not permitted by the 1933 Act or the 1934 Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said acts until the later of
two years after the Second Closing Date or the resale of the Common Stock and
the Warrant Shares by each Subscriber. The Company agrees to timely file a Form
D with respect to the Securities if required under Regulation D and to provide a
copy thereof to each Subscriber promptly after such filing.
(e) USE OF PROCEEDS. The Company undertakes to use
the proceeds of the Subscribers' funds for the purposes set forth on SCHEDULE
9(E) hereto. Except as set forth on SCHEDULE 9(e), the Purchase Price may not
and will not be used for accrued and unpaid officer and director salaries,
payment of financing related debt, redemption of outstanding notes or equity
instruments of the Company nor non-trade obligations outstanding on a Closing
Date.
(f) RESERVATION. Prior to the Closing Date, the
Company shall reserve, PRO RATA, on behalf of each holder of a Note or Warrant,
from its authorized but unissued common stock, a number of common shares equal
to 150% of the amount of Common Stock necessary to allow each holder of a Note
to be able to convert all such outstanding Notes and interest, and reserve 100%
of the amount of Warrant Shares issuable upon exercise of the Warrants. Failure
to have sufficient shares reserved pursuant to this Section 9(f) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company's obligations under this Agreement and an Event of
Default under the Note.
(g) TAXES. From the date of this Agreement and until
the sooner of (i) two (2) years after the Second Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.
(h) INSURANCE. From the date of this Agreement and
until the sooner of (i) two (2) years after the Second Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep its assets which are
of an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in the Company's line of business, in amounts sufficient to
prevent the Company from becoming a co-insurer and not in any event less than
one hundred percent (100%) of the insurable value of the property insured; and
the Company will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar businesses
similarly situated and to the extent available on commercially reasonable terms.
14
(i) BOOKS AND RECORDS. From the date of this
Agreement and until the sooner of (i) two (2) years after the Second Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep true records and books of account in which full, true and correct entries
will be made of all dealings or transactions in relation to its business and
affairs in accordance with generally accepted accounting principles applied on a
consistent basis.
(j) GOVERNMENTAL AUTHORITIES. From the date of this
Agreement and until the sooner of (i) two (2) years after the Second Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company shall
duly observe and conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to its
properties or assets.
(k) INTELLECTUAL PROPERTY. From the date of this
Agreement and until the sooner of (i) two (2) years after the Second Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business.
(l) PROPERTIES. From the date of this Agreement and
until the sooner of (i) two (2) years after the Second Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement (as defined in Section
11.1(iv) hereof) or pursuant to Rule 144, without regard to volume limitations,
the Company will keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a Material Adverse
Effect.
(m) CONFIDENTIALITY/PUBLIC ANNOUNCEMENT. From the
date of this Agreement and until the sooner of (i) two (2) years after the
Second Closing Date, or (ii) until all the Shares and Warrant Shares have been
resold or transferred by all the Subscribers pursuant to the Registration
Statement or pursuant to Rule 144, without regard to volume limitations, the
Company agrees that except in connection with a Form 8-K or the Registration
Statement, it will not disclose publicly or privately the identity of the
Subscribers unless expressly agreed to in writing by a Subscriber or only to the
extent required by law and then only upon five days prior notice to Subscriber.
In any event and subject to the foregoing, the Company undertakes to file a Form
8-K or make a public announcement describing the Offering not later than the
first business day after each Closing Date. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of common stock
outstanding immediately after each Closing. A form of the proposed Form 8-K or
public announcement to be employed in connection with each Closing Date is
annexed hereto as EXHIBIT D.
15
(n) FURTHER REGISTRATION STATEMENTS. Except for a
registration statement filed on behalf of the Subscribers pursuant to Section 11
of this Agreement or in connection with the securities identified on SCHEDULE
11.1 hereto, the Company will not file any registration statements, including
but not limited to Form S-8 for the registration of more than an aggregate of
4,000,000 shares of Common Stock, with the Commission or with state regulatory
authorities without the consent of the Subscribers holding 60% of the
outstanding principal amount of the Notes and aggregate Conversion Prices of
Shares still held by Subscribers, until one hundred and twenty (120) days after
the actual effective date of the Registration Statement described in Section
11.1(iv) of this Agreement ("ACTUAL EFFECTIVE DATE") during which such
Registration Statement shall have been current and available for use in
connection with the public resale of the Shares and Warrant Shares ("EXCLUSION
PERIOD").
(o) BLACKOUT. The Company undertakes and covenants
that until the first to occur of (i) the end of the Exclusion Period, or (ii)
until all the Shares and Warrant Shares have been resold pursuant to a
registration statement or Rule 144, the Company will not enter into any
acquisition, merger, exchange or sale or other transaction that could have the
effect of delaying the effectiveness of any pending registration statement or
causing an already effective registration statement to no longer be effective or
current for a period of fifteen (15) or more days.
(p) NON-PUBLIC INFORMATION. The Company covenants and
agrees that neither it nor any other person acting on its behalf will provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
10. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING
INDEMNIFICATION.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend the Subscribers, the Subscribers' officers, directors,
agents, Affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber
or any such person which results, arises out of or is based upon (i) any
material misrepresentation by Company or breach of any warranty by Company in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company hereunder, or any other
agreement entered into by the Company and Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, Affiliates, control persons against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
such Subscriber in this Agreement or in any Exhibits or Schedules attached
hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
such Subscriber of any covenant or undertaking to be performed by such
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers, relating hereto.
(c) In no event shall the liability of any Subscriber
or permitted successor hereunder or under any other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of Registrable
Securities (as defined herein).
16
(d) The procedures set forth in Section 11.6 shall
apply to the indemnification set forth in Sections 10(a) and 10(b) above.
11.1. REGISTRATION RIGHTS. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing
ninety-one (91) days after the Closing Date, but not later than two (2) years
after the Closing Date ("REQUEST DATE"), upon a written request therefor from
any record holder or holders of more than 50% of the Shares issued and issuable
upon conversion of the Notes and Warrant Shares actually issued upon exercise of
the Warrants, the Company shall prepare and file with the Commission a
registration statement under the 1933 Act registering the Shares and Warrant
Shares (collectively "REGISTRABLE SECURITIES") which are the subject of such
request for unrestricted public resale by the holder thereof. For purposes of
Sections 11.1(i) and 11.1(ii), Registrable Securities shall not include
Securities which are (A) registered for resale in an effective registration
statement, (B) included for registration in a pending registration statement, or
(C) which have been issued without further transfer restrictions after a sale or
transfer pursuant to Rule 144 under the 1933 Act. Upon the receipt of such
request, the Company shall promptly give written notice to all other record
holders of the Registrable Securities that such registration statement is to be
filed and shall include in such registration statement Registrable Securities
for which it has received written requests within ten (10) days after the
Company gives such written notice. Such other requesting record holders shall be
deemed to have exercised their demand registration right under this Section
11.1(i).
(ii) If the Company at any time proposes to register
any of its securities under the 1933 Act for sale to the public, whether for its
own account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "SELLER" or "SELLERS"). In the event
that any registration pursuant to this Section 11.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the number
of shares of Registrable Securities to be included in such an underwriting may
be reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 11.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account and the
Company actually does file such other registration statement, such written
request shall be deemed to have been given pursuant to Section 11.1(ii) rather
than Section 11.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 11.1(ii).
17
(iv) The Company shall file with the Commission not
later than thirty (30) days after the Initial Closing Date (the "FILING DATE"),
and cause to be declared effective within ninety (90) days after the Initial
Closing Date (the "EFFECTIVE DATE"), a Form SB-2 registration statement (the
"REGISTRATION STATEMENT") (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the 1933 Act. The Company will register not less than a number of shares of
common stock in the aforedescribed registration statement that is equal to 150%
of the Shares issuable upon conversion of the Notes and all of the Warrant
Shares issuable upon exercise of the Warrants. The Registrable Securities shall
be reserved and set aside exclusively for the benefit of each Subscriber and
Warrant holder, PRO RATA, and not issued, employed or reserved for anyone other
than each such Subscriber and Warrant holder. The Registration Statement will
immediately be amended or additional registration statements will be immediately
filed by the Company as necessary to register additional shares of Common Stock
to allow the public resale of all Common Stock included in and issuable by
virtue of the Registrable Securities. Without the written consent of the
Subscriber, no securities of the Company other than the Registrable Securities
will be included in the Registration Statement except as disclosed on SCHEDULE
11.1.
11.2. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Section 11.1 to effect the registration of any
Registrable Securities under the 1933 Act, the Company will, as expeditiously as
possible:
(a) subject to the timelines provided in this
Agreement, prepare and file with the Commission a registration statement
required by Section 11, with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of the Registrable Securities copies of all
filings and Commission letters of comment and notify Subscribers and Grushko &
Xxxxxxx, P.C. (by telecopier and by email to XXXXXXXXX@XXX.XXX) within two (2)
hours of (i) notice that the Commission has no comments or no further comments
on the Registration Statement, and (ii) the declaration of effectiveness of the
registration statement, (failure to timely provide notice as required by this
Section 11.2(a) shall be a material breach of the Company's obligation and an
Event of Default as defined in the Notes);
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective until such registration statement has been effective for a
period of two (2) years, and comply with the provisions of the 1933 Act with
respect to the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the Sellers' intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's expense,
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Sellers' Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Sellers shall request
in writing, provided, however, that the Company shall not for any such purpose
be required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
18
(e) if applicable, list the Registrable Securities
covered by such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
(f) immediately notify the Sellers when a prospectus
relating thereto is required to be delivered under the 1933 Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing; and
(g) provided same would not be in violation of the
provision of Regulation FD under the 1934 Act, make available for inspection by
the Sellers, and any attorney, accountant or other agent retained by the Seller
or underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. PROVISION OF DOCUMENTS. In connection with each
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.
11.4. NON-REGISTRATION EVENTS. The Company and the Subscribers
agree that the Sellers will suffer damages if the Registration Statement is not
filed by the Filing Date and not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or before the
Filing Date, (B) is not declared effective on or before the sooner of the
Effective Date, (C) if the Registration Statement is not declared effective
within three (3) business days of receipt by the Company of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (D) if the registration
statement described in Sections 11.1(i) or 11.1(ii) is not filed within 60 days
after such written request, or is not declared effective within 120 days after
such written request, or (E) any registration statement described in Sections
11.1(i), 11.1(ii) or 11.1(iv) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded within fifteen (15)
business days by an effective replacement or amended registration statement) for
a period of time which shall exceed 30 days in the aggregate per year (defined
as a period of 365 days commencing on the date the Registration Statement is
declared effective) or more than 20 consecutive days (each such event referred
to in clauses (A) through (E) of this Section 11.4 is referred to herein as a
"NON-REGISTRATION EVENT"), then the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to one percent
(1%) for the first thirty days or part thereof of the pendency of such
Non-Registration Event and two percent (2%) for each thirty (30) days or part
thereof, thereafter of the Purchase Price of the Notes remaining unconverted and
purchase price of Shares issued upon conversion of the Notes owned of record by
such holder which are subject to such Non-Registration Event. The Company must
19
pay the Liquidated Damages in cash within ten (10) days after the end of each
thirty (30) day period or shorter part thereof for which Liquidated Damages are
payable. In the event a Registration Statement is filed by the Filing Date but
is withdrawn prior to being declared effective by the Commission, then such
Registration Statement will be deemed to have not been filed. It shall be deemed
a Non-Registration Event if at any time after the Actual Effective Date the
Company has registered for unrestricted resale on behalf of the Subscriber fewer
than 125% of the amount of Common Shares issuable upon full conversion of all
sums due under the Notes and 100% of the Warrant Shares issuable upon exercise
of the Warrants. All oral or written comments received from the Commission
relating to the Registration Statement must be satisfactorily responded to
within ten (10) business days after receipt of the comments from the Commission.
Failure to timely respond is a Non-Registration Event.
11.5. EXPENSES. All expenses incurred by the Company in
complying with Section 11, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of
insurance and fee of one counsel for all Sellers are called "REGISTRATION
EXPENSES." All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities, including any fees and disbursements of any
additional counsel to the Seller, are called "SELLING EXPENSES." The Company
will pay all Registration Expenses in connection with the registration statement
under Section 11. Selling Expenses in connection with each registration
statement under Section 11 shall be borne by the Seller and may be apportioned
among the Sellers in proportion to the number of shares sold by the Seller
relative to the number of shares sold under such registration statement or as
all Sellers thereunder may agree.
11.6. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
20
(b) In the event of a registration of any of the
Registrable Securities under the 1933 Act pursuant to Section 11, each Seller
severally but not jointly will, to the extent permitted by law, indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the 1933 Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 11.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 11.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 11.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties, as a group, shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the 1933 Act in any case in
which either (i) a Seller, or any controlling person of a Seller, makes a claim
for indemnification pursuant to this Section 11.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
21
notwithstanding the fact that this Section 11.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of the Seller or controlling person of the Seller in circumstances for which
indemnification is not provided under this Section 11.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities sold by it pursuant to such registration statement; and (z) no person
or entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 0000 Xxx) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
11.7. DELIVERY OF UNLEGENDED SHARES.
(a) Within three (3) business days (such third (3rd)
business day being the "UNLEGENDED SHARES DELIVERY DATE") after the business day
on which the Company has received (i) a notice that Registrable Securities have
been sold either pursuant to the Registration Statement or Rule 144 under the
1933 Act, (ii) a representation that the prospectus delivery requirements, or
the requirements of Rule 144, as applicable, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber's broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4(e) above,
issuable pursuant to any effective and current Registration Statement described
in Section 11 of this Agreement or pursuant to Rule 144 under the 1933 Act (the
"UNLEGENDED SHARES"); and (z) cause the transmission of the certificates
representing the Unlegended Shares together with a legended certificate
representing the balance of the unsold shares of Common Stock, if any, to the
Subscriber at the address specified in the notice of sale, via express courier,
by electronic transfer or otherwise on or before the Unlegended Shares Delivery
Date. Transfer fees shall be the responsibility of the Seller.
(b) In lieu of delivering physical certificates
representing the Unlegended Shares, if the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of a Subscriber, so long as the certificates
therefor do not bear a legend and the Subscriber is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber's prime Broker with DTC through its Deposit Withdrawal
Agent Commission system. Such delivery must be made on or before the Unlegended
Shares Delivery Date.
(c) The Company understands that a delay in the
delivery of the Unlegended Shares pursuant to Section 11 hereof later than two
business days after the Unlegended Shares Delivery Date could result in economic
loss to a Subscriber. As compensation to a Subscriber for such loss, the Company
agrees to pay late payment fees (as liquidated damages and not as a penalty) to
the Subscriber for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to 120% of the Purchase Price of such Common
22
Stock and Warrant Shares ("UNLEGENDED REDEMPTION AMOUNT"). The amount of the
aforedescribed liquidated damages that have accrued or paid for the twenty day
period prior to the receipt by the Subscriber of the Unlegended Redemption
Amount shall be credited against the Unlegended Redemption Amount. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand.
(d) In addition to any other rights available to a
Subscriber, if the Company fails to deliver to a Subscriber Unlegended Shares as
required pursuant to this Agreement, within seven (7) business days after the
Unlegended Shares Delivery Date and the Subscriber purchases (in an open market
transaction or otherwise) shares of common stock to deliver in satisfaction of a
sale by such Subscriber of the shares of Common Stock which the Subscriber was
entitled to receive from the Company (a "BUY-IN"), then the Company shall pay in
cash to the Subscriber (in addition to any remedies available to or elected by
the Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery
of Unlegended Shares as described in Section 11.7(e) and the Company is required
to deliver such Unlegended Shares pursuant to Section 11.7(e), the Company may
not refuse to deliver Unlegended Shares based on any claim that such Subscriber
or any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or enjoining delivery
of such Unlegended Shares or exercise of all or part of said Warrant shall have
been sought and obtained and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 120% of the amount of the aggregate
purchase price of the Common Stock and Warrant Shares which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber's favor.
12. (a) RIGHT OF FIRST REFUSAL. Until the end of the Exclusion
Period, the Subscribers shall be given not less than five (5) business days
prior written notice of any proposed sale by the Company of its common stock or
other securities or debt obligations, except in connection with (i) employee
stock options or compensation plans, (ii) as full or partial consideration in
connection with any merger, consolidation or purchase of substantially all of
the securities or assets of any corporation or other entity, or (iii) as has
been described in the Reports, Other Written Information, delivered to the
Subscribers prior to the Closing Date or on SCHEDULE 11.1 (collectively
"EXCEPTED ISSUANCES"). The Subscribers who exercise their rights pursuant to
this Section 12(a) shall have the right during the five (5) business days
following receipt of the notice to purchase such offered common stock, debt or
other securities in accordance with the terms and conditions set forth in the
notice of sale in the same proportion to each other as their purchase of Notes
in the Offering. In the event such terms and conditions are modified during the
notice period, the Subscribers shall be given prompt notice of such modification
and shall have the right during the five (5) business days following the notice
of modification, whichever is longer, to exercise such right.
23
(b) OFFERING RESTRICTIONS. Except as disclosed in the
Reports or Other Written Information filed with the Commission or made available
to the Subscriber prior to the Closing Date, or in connection with Excepted
Issuances, the Company will not issue any equity, convertible debt or other
securities convertible into common stock on any terms more favorable to such
other investor than any of the terms of the Offering, until after the Exclusion
Period without the prior written consent of the Subscriber, which consent may be
withheld for any reason.
(c) FAVORED NATIONS PROVISION. Other than the
Excepted Issuances, if at any time Notes are outstanding, if the Company shall
offer, issue or agree to issue any common stock or securities convertible into
or exercisable for shares of common stock (or modify any of the foregoing which
may be outstanding at any time prior to a Closing Date) to any person or entity
at a price per share or conversion or exercise price per share which shall be
less than the Conversion Price, without the consent of each Subscriber holding
Notes and/or Shares, then the Company shall issue, for each such occasion,
additional shares of Common Stock to each Subscriber so that the average per
share purchase price of the shares of Common Stock issued to the Subscriber (of
only the Common Stock or Warrant Shares still owned by the Subscriber) is equal
to such other lower price per share and the Conversion Price shall automatically
be reduced to such other lower price per share. The delivery to the Subscriber
of the additional shares of Common Stock shall be not later than the closing
date of the transaction giving rise to the requirement to issue additional
shares of Common Stock. The Subscriber is granted the registration rights
described in Section 11 hereof in relation to such additional shares of Common
Stock except that the Filing Date and Effective Date vis-a-vis such additional
common shares shall be, respectively, the sixtieth (60th) and one hundred and
twentieth (120th) date after the closing date giving rise to the requirement to
issue the additional shares of Common Stock. For purposes of the issuance and
adjustment described in this paragraph, the issuance of any security of the
Company carrying the right to convert such security into shares of Common Stock
or of any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the issuance of such
convertible security, warrant, right or option and again upon any subsequent
issuances of shares of Common Stock upon exercise of such conversion or purchase
rights if such issuance is at a price lower than the then Conversion Price. The
rights of the Subscriber set forth in this Section 12 are in addition to any
other rights the Subscriber has pursuant to this Agreement and any other
agreement referred to or entered into in connection herewith.
(d) MAXIMUM EXERCISE OF RIGHTS. In the event the
exercise of the rights described in Sections 12(a) and 12(c) would result in the
issuance of an amount of common stock of the Company that would exceed the
maximum amount that may be issued to a Subscriber calculated in the manner
described in Section 7.3 of this Agreement, then the issuance of such additional
shares of common stock of the Company to such Subscriber will be deferred in
whole or in part until such time as such Subscriber is able to beneficially own
such common stock without exceeding the maximum amount set forth calculated in
the manner described in Section 7.3 of this Agreement. The determination of when
such common stock may be issued shall be made by each Subscriber as to only such
Subscriber.
13. MISCELLANEOUS.
(a) NOTICES. All notices, demands, requests,
consents, approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be (i)
personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
24
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be: (i) if to the
Company, to: One Voice Technologies Inc., 0000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxx
Xxxxx, XX 00000, telecopier number: (000) 000-0000, with a copy by telecopier
only to: Sichenzia, Ross, Xxxxxxxx & Xxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx,
Xxx Xxxx, XX 00000, Attn: Xxxxxxx Xxxxxxxxx, Esq., telecopier number: (212)
930-9725, (ii) if to the Subscribers, to: the one or more addresses and
telecopier numbers indicated on the signature pages hereto, with an additional
copy by telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (000) 000-0000, and (iii) if
to the Finder, to: the one or more addresses and telecopier numbers indicated on
SCHEDULE 8 hereto.
(b) CLOSING. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Xxxxxxx, P.C.,
000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of
all conditions to Closing set forth in this Agreement. Each of the Initial
Closing Date and Second Closing Date is referred to as a "CLOSING DATE".
(c) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement and
other documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
either party shall be assigned by that party without prior notice to and the
written consent of the other party.
(d) COUNTERPARTS/EXECUTION. This Agreement may be
executed in any number of counterparts and by the different signatories hereto
on separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. This Agreement may be executed by facsimile signature and delivered
by facsimile transmission.
(e) LAW GOVERNING THIS AGREEMENT. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. THE PARTIES AND THE INDIVIDUALS
EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS REFERRED TO HEREIN OR DELIVERED IN
CONNECTION HEREWITH ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION
OF SUCH COURTS AND WAIVE TRIAL BY JURY. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
25
(f) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
The Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 13(e) hereof, each of the Company, Subscriber and any
signator hereto in his personal capacity hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction in New York of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.
(g) INDEPENDENT NATURE OF SUBSCRIBERS. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that the decision of each Subscriber to
purchase Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the SB-2 Registration Statement and (ii) review by,
and consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
26
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
ONE VOICE TECHNOLOGIES, INC.
a Nevada corporation
By: /S/ Xxxx Xxxxx
---------------------------------
Name: Xxxx Xxxxx
Title: President and CEO
Dated: March 18, 2005
--------------------------------------------------- ------------------------- --------------------- -------------------
SECOND CLOSING
INITIAL CLOSING NOTE WARRANTS ISSUABLE NOTE (PURCHASE
SUBSCRIBER (PURCHASE PRICE) ON CLOSING DATE PRICE)
--------------------------------------------------- ------------------------- --------------------- -------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT $400,000.00 $400,000.00
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Lichtenstein
Fax: 000-00-00000000
__________________________________
(Signature)
__________________________________
Print Name and Title
--------------------------------------------------- ------------------------- --------------------- -------------------
27
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
ONE VOICE TECHNOLOGIES, INC.
a Nevada corporation
By: /S/ Xxxx Xxxxx
------------------------------
Name: Xxxx Xxxxx
Title: President and CEO
Dated: March 18, 2005
--------------------------------------------------- ------------------------- --------------------- -------------------
SECOND CLOSING
INITIAL CLOSING NOTE WARRANTS ISSUABLE NOTE (PURCHASE
SUBSCRIBER (PURCHASE PRICE) ON CLOSING DATE PRICE)
--------------------------------------------------- ------------------------- --------------------- -------------------
WHALEHAVEN CAPITAL FUND LIMITED $400,000.00 $400,000.00
0xx Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
Fax: (000) 000-0000
__________________________________
(Signature)
__________________________________
Print Name and Title
--------------------------------------------------- ------------------------- --------------------- -------------------
28
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
ONE VOICE TECHNOLOGIES, INC.
a Nevada corporation
By: /S/ Xxxx Xxxxx
------------------------------
Name: Xxxx Xxxxx
Title: President and CEO
Dated: March 18, 2005
--------------------------------------------------- ------------------------- --------------------- -------------------
SECOND CLOSING
INITIAL CLOSING NOTE WARRANTS ISSUABLE NOTE (PURCHASE
SUBSCRIBER (PURCHASE PRICE) ON CLOSING DATE PRICE)
--------------------------------------------------- ------------------------- --------------------- -------------------
XXXXX INTERNATIONAL LTD. $125,000.00 $125,000.00
00xx Xxxxxx Xxxxxxxxxxxx Xxxxxxx
Xxxxx Xxxxx, 00xx Xxxxx, Xxxxxx
Xxxxxxxx of Panama
Fax: (000) 000-0000
__________________________________
(Signature)
__________________________________
Print Name and Title
--------------------------------------------------- ------------------------- --------------------- -------------------
29
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (D)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
ONE VOICE TECHNOLOGIES, INC.
a Nevada corporation
By: /S/ Xxxx Xxxxx
------------------------------
Name: Xxxx Xxxxx
Title: President and CEO
Dated: March 18, 2005
--------------------------------------------------- ------------------------- --------------------- -------------------
SECOND CLOSING
INITIAL CLOSING NOTE WARRANTS ISSUABLE NOTE (PURCHASE
SUBSCRIBER (PURCHASE PRICE) ON CLOSING DATE PRICE)
--------------------------------------------------- ------------------------- --------------------- -------------------
OMEGA CAPITAL SMALL CAP FUND $45,000.00 $45,000.00
0000 00xx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Fax: (000) 000-0000
__________________________________
(Signature)
__________________________________
Print Name and Title
--------------------------------------------------- ------------------------- --------------------- -------------------
30
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (E)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
ONE VOICE TECHNOLOGIES, INC.
a Nevada corporation
By: /S/ Xxxx Xxxxx
------------------------------
Name: Xxxx Xxxxx
Title: President and CEO
Dated: March 18, 2005
--------------------------------------------------- ------------------------- --------------------- -------------------
SECOND CLOSING
INITIAL CLOSING NOTE WARRANTS ISSUABLE NOTE (PURCHASE
SUBSCRIBER (PURCHASE PRICE) ON CLOSING DATE PRICE)
--------------------------------------------------- ------------------------- --------------------- -------------------
OSHER CAPITAL INC. $30,000.00 $30,000.00
0 Xxxxxxxxx Xxxx
Xxxxxx Xxxxxx, XX 00000
Fax:
__________________________________
(Signature)
__________________________________
Print Name and Title
--------------------------------------------------- ------------------------- --------------------- -------------------
31
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit A1 Form of Class A Warrant
Exhibit A2 Form of Class B Warrant
Exhibit B Escrow Agreement
Exhibit C Form of Legal Opinion
Exhibit D Form of Public Announcement or Form 8-K
Schedule 5(d) Additional Issuances
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 9(e) Use of Proceeds
Schedule 11.1 Other Securities to be Registered
32
SCHEDULES TO
------------
SUBSCRIPTION AGREEMENT
----------------------
dated as of March 18, 2005 by and, among One Voice Technologies, Inc., a Nevada
corporation (the "Company"), and each purchaser identified on the signature
pages hereto (each, including its successors and assigns, a "PURCHASER" and
collectively the "PURCHASERS")
33
SCHEDULE 5(a)
SUBSIDIARIES OF THE COMPANY.
None.
34
SCHEDULE 5(d)
ADDITIONAL ISSUANCES.
See Schedule 5(s).
35
SCHEDULE 5(q)
UNDISCLOSED LIABILITIES.
None.
36
SCHEDULE 5(s)
CAPITALIZATION.
---------------
(a) the authorized capital stock of the Company on the date hereof;
990,000,000 common shares
10,000,000 preferred shares
(b) the number of shares of capital stock issued and outstanding;
257,896,698 shares of common stock
0 shares of preferred stock
(c) the number of warrants to purchase shares of common stock issued and
outstanding;
La Jolla Cove warrants 1,577,280
Unexercised warrants (Alpha, Stonestreet, Ellis, etc.) 78,494,252
(d) the number of options to purchase shares of common stock issued and
outstanding;
1,721,500 options issued to certain employees and consultants of the
Company
(e) the number of shares of common stock issuable upon conversion of debt issued
and outstanding;
Alpha 9,943,182
Xxxxxxxxxxx 9,659,091
Momona 426,136
La Jolla Cove 47,712,720
37
SCHEDULE 8
----------
FINDER'S FEES
-------------
----------------------------------- ----------------------- --------------------
PARTY INITIAL CLOSING SECOND CLOSING
----------------------------------- ----------------------- --------------------
LIBRA FINANCE, S.A. (1) $11,400.00 $11,400.00
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
----------------------------------- ----------------------- --------------------
OSHER CAPITAL INC. (2) $600.00 $600.00
0 Xxxxxxxxx Xxxx
Xxxxxx Xxxxxx, XX 00000
Fax:
----------------------------------- ----------------------- --------------------
GEM, INC. (3) $38,000.00 $38,000.00
000 Xxxxxxxxx Xxxx
Xxxxxxxx, Xxx Xxxx 00000
Fax: 000-000-0000
----------------------------------- ----------------------- --------------------
TOTAL $50,000.00 $50,000.00
----------------------------------- ----------------------- --------------------
(1) Libra Finance, S.A. will receive 2% of Purchase Price in relation to
investment by Alpha Capital Aktiengesellschaft, Xxxxx International Ltd. and
Omega Capital Small Cap Fund.
(2) Osher Capital Inc. will receive 2% of Purchase Price in relation to
investment by Osher Capital Inc.
(3) Gem, Inc. will receive 5% of Purchase Price in relation to investment by
Whalehaven Capital Fund Limited and 3% of Purchase Price in relation to
investment by each of Alpha Capital Aktiengesellschaft, Xxxxx International
Ltd., and Omega Capital Small Cap Fund.
38
SCHEDULE 9(e)
-------------
USE OF PROCEEDS.
----------------
Working capital and general corporate purposes.
39
SCHEDULE 11.1
OTHER SECURITIES TO BE REGISTERED.
----------------------------------
20,843,672 shares of common stock issuable to Xxxxxxxxxxx upon exercise of Class
A and Class B warrants
5,955,334 shares of common stock issuable to Xxxxx International upon exercise
of Class A and Class B warrants
2,679,900 shares of common stock issuable to Momona upon exercise of Class A and
Class B warrants
14,888,338 shares of common stock issuable to Alpha Capital upon exercise of
Class A and Class B warrants
40
