SUBSCRIPTION AGREEMENT
This
Subscription Agreement is made by and between TechnoConcepts, Inc., a Colorado
corporation headquartered at 0000 Xxxxxxxxx Xxxx, Xxxxx 000, Xxx Xxxx, XX
00000
(the “Company”)
and
the undersigned prospective investor (the “Investor”)
who is
subscribing hereby (the “Subscription”)
for
securities in the Company’s private placement (the “Offering”).
The
exclusive placement agent for the Offering is Westminster Securities Corporation
(the “Placement
Agent”).
The
Company is issuing investment units at the rate of $30,000 per unit, consisting
of (a) $30,000 of 8% secured convertible debentures (the “Debentures”),
each
convertible into 20,000 shares (“Shares”)
of the
Company’s common stock, no par value (“Common
Stock”)
at the
rate of $1.50 per Share, (b) 10,000 detachable warrants to purchase one share
each of Common Stock at an exercise price of $1.90 per share, expiring five
years from their date of issuance and (c) 10,000 detachable warrants to purchase
one share each of Common Stock at an exercise price of $2.75. The warrants
described in subparts (b) and (c) of the preceding sentence shall be
collectively referred to as the “Warrants”.
Investors purchasing 67 Units ($2,010,000) or more shall be issued additional
warrants (the “Additional
Warrants”)
at the
rate of 40,000 Additional Warrants per Unit purchased, which Additional Warrants
shall be identical in form to the Warrants, except that (a) 50% of such
Additional Warrants shall have an exercise price of $2.00 per share, shall
not
have a cashless exercise feature, and shall expire eighteen (18) months from
the
Final Closing (defined below), (b) 25% of such Additional Warrants shall
have an
exercise price of $2.50 per share, and (c) 25% of such Additional Warrants
shall
have an exercise price of $3.50 per share. The shares of Common Stock issuable
upon exercise of the Warrants shall be referred to as the “Warrant
Shares”,
and
the shares of Common Stock issuable upon exercise of the Additional Warrants
shall be referred to as the “Additional
Warrant Shares”.
The
Debentures and the Warrants shall be collectively referred to as the
“Units”.
The
Shares, Warrant Shares and Additional Warrant Shares shall be collectively
referred to as the “Underlying
Shares”.
The
Company may issue up to $4,000,000 of Units (the “Maximum
Offering”)
in
this Offering, The Company may also sell up to an additional $2,000,000 in
Units, representing an over-allotment allowance in the event the Offering
is
oversubscribed. The Investor understands that the Units and the Additional
Warrants are being issued pursuant to the exemption from registration
requirements of the Securities Act of 1933, as amended (the “Securities
Act”
or
the
“Act”),
in a
private placement pursuant to an exemption from registration under Regulation
D
promulgated under Section 4(2) and Rule 506 of the Act. As such, the Units
and
the Underlying Shares are “restricted securities”.
The
Units
are being offered on a “best efforts, all or none” basis by the Company through
the Placement Agent with respect to the initial $2,000,000 of Units (the
“Minimum
Offering”),
during an offering period commencing on January 19, 2007 (the “Commencement
Date”) and continuing until January 31, 2007. If the Minimum Offering is not
reached, the Offering will terminate and all funds will be returned without
interest or deduction. In the event the Minimum Offering is reached, the
Offering will continue until the earlier of (i) the close of business (5:00
p.m.
EDT) on February 28, 2007, (ii) termination by mutual agreement of the Company
and the Placement Agent, or (iii) completion of the sale of the Maximum
Offering, including any over-allotment sales (“Final Closing”). Any subscription
documents or funds received after the Final Closing will be returned.
All
proceeds received from subscribers for the Units offered hereby will be
deposited by the Placement Agent in a special non-interest bearing escrow
account (the “Escrow
Account”)
with
Signature Bank and will be released to the Company against delivery by the
Company to the Placement Agent of certificates representing the Debentures
and
the Warrants comprising the Units and, if applicable, the Additional Warrants
(each a “Closing”
and
each such date, “Closing
Date”,
with
the first such Closing being deemed the “Initial
Closing”).
1.
Subscription.
Subject
to the terms and conditions hereinafter set forth in this Subscription
Agreement, the Investor hereby subscribes to purchase Units as set forth
in the
Investor Signature Page attached hereto.
The
Units
shall be paid for by (i) the delivery of such amount in cash by wire transfer
or
check payable to the order of “Signature Bank as Escrow Agent for
TechnoConcepts, Inc.”, which is being delivered contemporaneously herewith or
(ii) the exchange of the principal amount of existing Series A Secured
Subordinated Promissory Notes.
1
Closings
will be held, at the discretion of the Company and the Placement Agent, at
reasonable intervals during the Offering period, but in no event later than
the
Final Closing, provided no Closing may be held until (i)
the
Minimum Offering has been sold and cash proceeds in cleared funds on deposit
in
the Escrow Account equal or exceed the Minimum Offering and (ii) no more
than
$1,000,000 in principal amount of Indebtedness (hereinafter defined) (not
including interest, fees or liquidated damages thereon) ranks senior in priority
to the Debentures as of such Closing Date.
2.
Conditions to Subscription.
The
Subscription is made subject to the following conditions: (i) that the Company
shall have the right to accept or reject this Subscription, in whole or in
part,
for any reason whatsoever; and (ii) that the Investor agrees to comply with
the
terms of this Subscription Agreement.
Acceptance
of this Subscription shall be deemed given by the countersigning of this
Subscription Agreement on behalf of the Company and inclusion of this
Subscription Agreement in a Closing.
3.
Representations
and Warranties of the Investor.
The
Investor, in order to induce the Company to accept this Subscription, hereby
warrants and represents as follows:
(a)
Organization; Authority.
The
Investor, if not an individual, is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization
with
the requisite power and authority to enter into and to consummate the
transactions contemplated by this Subscription Agreement and otherwise to
carry
out its obligations hereunder. The Investor was not formed for the purpose
of
purchasing Units pursuant to this Subscription Agreement. The purchase by
Investor of the Units hereunder has been duly authorized by all necessary
action
on the part of Investor. This Subscription Agreement has been duly executed
by
Investor, and when delivered by Investor in accordance with the terms hereof,
will constitute the valid and legally binding obligation of Investor,
enforceable against it in accordance with its terms, except (i) as limited
by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be
limited by applicable law. Investor agrees that the Investor’s subscription
shall be irrevocable by Investor, and that, except as required by applicable
law, Investor shall not be otherwise entitled to cancel, terminate or revoke
this Subscription Agreement or any of Investor’s obligations hereunder.
(b)
Investor
Representation.
Investor understands that the Units and Underlying Shares each are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law. The Investor hereby agrees that the Company
may
insert the following or similar legend on the certificates evidencing the
Units
and Underlying Shares, in compliance with federal and state securities laws:
“These
securities have not been registered with the Securities and Exchange Commission
or the Securities Commission of any state in reliance upon an exemption from
registration under the Securities Act of 1933, as amended (the “Securities Act”)
or any applicable securities laws of any state. They may not be sold, offered
for sale, or hypothecated in the absence of a registration statement in effect
with respect to the securities under the Securities Act or an opinion of
counsel
reasonably satisfactory to the Company that such registration is not required
pursuant to a valid exemption therefrom under the Securities Act.”
(c)
No
Distribution.
Investor is acquiring the Units as principal for its own account, in the
ordinary course of its business, and not with a view to or for distributing
or
reselling such Units or any part thereof. Investor has no present intention
of
distributing any of such Units or Underlying Shares and has no agreement
or
understanding, directly or indirectly, with any other individual, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency
or
subdivision thereof) or other entity of any kind (each, a “Person”)
regarding the distribution of such Units or Underlying Shares (this
representation and warranty not limiting such Investor’s right
to
sell the Debentures, Shares, Additional Warrants or Underlying Shares pursuant
to a Registration Statement or otherwise in compliance with applicable federal
and state securities laws).
2
(d)
Investor Status.
Investor is, and on each date on which it converts any Debentures and exercises
any Warrants or Additional Warrants it will be an “Accredited Investor” as
defined in Rule 501(a) under the Securities Act. In general, an “Accredited
Investor” is deemed to be an institution with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. In connection with a
subscription hereunder, Investor will complete, execute and return the Statement
of Accredited Investor attached hereto as Exhibit A certifying such status.
(e)
Experience of Investor.
Investor, either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to
be
capable of evaluating the merits and risks of the prospective investment
in the
Units, and has so evaluated the merits and risks of such investment. The
Investor has not authorized any Person to act as his Purchaser Representative
(as that term is defined in Regulation D of the General Rules and Regulations
under the Act) in connection with this transaction. Investor understands
that it
must bear the economic risk of this investment in the Units indefinitely,
and is
able to bear such risk and is able to afford a complete loss of such investment.
(f)
General
Solicitation.
Investor is not purchasing the Units as a result of any advertisement, article,
notice or other communication regarding the Units published in any newspaper,
magazine or similar media or broadcast over television or radio or presented
at
any seminar or any other general solicitation or general advertisement
(g)
Access to Information. The Investor has reviewed the Company’s Confidential
Offering Memorandum dated January 19, 2007 (the “Offering
Memorandum”)
which
contains summary information regarding the Offering, risk factors relating
to
the Offering, and the forms of Debenture, Warrants, Security Agreement and
Subsidiary Guaranty. The Investor has reviewed the SEC Reports (as defined
in
Section 4(h) below) and neither the Company nor the Placement Agent has made
any
other representations or warranties to the Investor with respect to the Company
except as contained herein, in the Offering Memorandum or in the SEC Reports.
The Investor has been afforded the opportunity to ask questions of, and receive
answers from, the officers and/or directors of the Company concerning the
terms
and conditions of the Offering and to obtain any additional information,
to the
extent that the Company possesses such information or can acquire it without
unreasonable effort or expense, necessary to verify the accuracy of the
information furnished; and has availed himself of such opportunity to the
extent
he considers appropriate in order to permit him to evaluate the merits and
risks
of an investment in the Securities. It is understood that all documents,
records
and books pertaining to this investment have been made available for inspection
by the Investor during reasonable business hours at its principal place of
business. Notwithstanding the foregoing, it is understood that the Investor
is
purchasing the Securities without being furnished any prospectus setting
forth
all of the information that would be required to be furnished under the
Securities Act and this Offering has not been passed upon or the merits thereof
endorsed or approved by any state or federal authorities.
(h)
Subscriptions
by Placement Agent.
The
Investor hereby acknowledges that the Placement Agent, its affiliates and/or
its
beneficial owners may subscribe for Units.
(i)
No
Conflicts.
The
execution, delivery and performance by Investor of this Subscription Agreement
and the consummation by Investor of the transactions contemplated hereby
will
not (i) result in a violation of the organizational documents of Investor,
(ii)
if an entity, conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which Investor is a party or (iii)
result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to Investor, except
in
the case of clauses (ii) and (iii) above, for such that are not material
and do
not otherwise affect the ability of Investor to consummate the transactions
contemplated hereby.
(j)
Prohibited Transactions.
During
the last thirty (30) days prior to the date hereof, Investor has not, directly
or indirectly, effected or agreed to effect any short sale, whether or not
against the box, established
any “put equivalent position” (as defined in Rule 16a-1(h) under the 0000 Xxx)
with respect to the Common Stock, granted any other right (including, without
limitation, any put or call option) with respect to the Common Stock or with
respect to any security that includes, relates to or derived any significant
part of its value from the Common Stock or otherwise sought to hedge its
position in the Securities (each, a “Prohibited Transaction”). Prior to the
earliest to occur of (i) the abandonment of the Offering, (ii) the effective
date of the Registration Statement or (iii) one hundred and twenty (120)
days
from the Final Closing, Investor shall not engage, directly or indirectly,
in a
Prohibited Transaction. Investor acknowledges that the representations,
warranties and covenants contained in this Section 3(j) are being made for
the
benefit of the Investors as well as the Company and that each of the other
Investors shall have an independent right to assert any claims against such
Investor arising out of any breach or violation of the provisions of this
Section 3(j).
3
(k)
No
Legal, Tax or Investment Advice.
Investor understands that nothing in this Subscription Agreement or any other
materials presented by or on behalf of the Company to the Investor in connection
with the purchase of the Units constitutes legal, tax or investment advice.
Investor has consulted such legal, tax and investment advisors as it, in
its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of the Units. Investor understands that the Placement Agent has
acted
solely as the agent of the Company in this placement of the Units and that
the
Placement Agent makes no representation or warranty with regard to the merits
of
this transaction or as to the accuracy of any information Investor may have
received in connection therewith. Investor acknowledges that it has not relied
on any information or advice furnished by or on behalf of the Placement Agent.
(l)
Confidentiality.
Investor will hold in confidence all information concerning this Subscription
Agreement and the placement of the Units hereunder until the earlier of such
time as (a) the Company has made a public announcement concerning the
Subscription Agreement and the placement of the Units hereunder and (b) this
Subscription Agreement is terminated.
The
Investor certifies that each of the foregoing representations and warranties
set
forth in subsection (a) through (l) inclusive of this Section 3 are true
as of
the date hereof, any applicable Closing Date and shall survive such dates.
4.
Representations
and Warranties of the Company.
The
Company hereby makes the following representations and warranties to the
Investor. Exceptions to the below, if any, shall be set forth in a disclosure
schedule, attached hereto, each such disclosure schedule numbered in accordance
with the section and paragraph number below to which it relates.
(a)
Subsidiaries.
The
Company has the following subsidiaries (collectively, “Subsidiaries”):
Asante Networks, Inc. (85% owned by the Company), Techno Jinshilin Ltd. (100%
owned by the Company), Techno Hong Kong Ltd. (100% owned by the Company)
and
TechnoConcepts, Inc. (Nevada) (100% owned by the Company). All capital stock
owned by the Company directly or through one or more Subsidiaries in each
such
Subsidiary is validly issued and is fully paid, non-assessable and free of
preemptive and similar rights.
(b)
Organization and Qualification. Each of the Company and its Subsidiaries
is an
entity duly incorporated or otherwise organized, validly existing and in
good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in material violation or default
of
any of the provisions of its certificate or articles of incorporation, bylaws
or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a
foreign corporation or other entity in each jurisdiction in which the nature
of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as
the case may be, could not have or reasonably be expected to result in (i)
a
material adverse effect on the legality, validity or enforceability of this
Subscription Agreement, (ii) a material adverse effect on the results of
operations, assets, business or financial condition of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under this Subscription Agreement (any of (i), (ii) or (iii),
a
“Material
Adverse Effect”)
and
no action,
claim, suit, investigation or proceeding (including, without limitation,
an
investigation or partial proceeding, such as a deposition), whether commenced
or
threatened (“Proceeding”)
has
been instituted in any such jurisdiction revoking, limiting or curtailing
or
seeking to revoke, limit or curtail such power and authority or qualification
except for any action, claim, suit, investigation or proceeding which would
not
have a Material Adverse Effect.
4
(c)
Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and
to
consummate the Offering and otherwise to carry out its obligations hereunder.
The execution and delivery of this Subscription Agreement by the Company
and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Company and no further
consent or action is required by the Company, its Subsidiaries, its board
of
directors or its stockholders in connection therewith other than in connection
with the Required Approvals (as defined below). This Subscription Agreement,
when executed and delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar
as
indemnification and contribution provisions may be limited by applicable
law.
(d)
No
Conflicts.
The
execution, delivery and performance of this Subscription Agreement by the
Company and the consummation by the Company of the Offering do not and will
not:
(i) conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational
or
charter documents, or (ii) subject to obtaining the Required Approvals (as
defined below), conflict with, or constitute a default (or an event that
with
notice or lapse of time or both would become a default) under, or give to
others
any rights of termination, amendment, acceleration or cancellation (with
or
without notice, lapse of time or both) of any agreement, credit facility,
debt
or other instrument (evidencing a Company or Subsidiaries’ debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or
by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority as currently in effect to which the Company or any Subsidiary is
subject (including federal and state securities laws and regulations), or
by
which any property or asset of the Company or any Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), would not
result
in a Material Adverse Effect.
(e)
Filings,
Consents and Approvals.
Except
as set forth in Schedule 4(g), neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with
the execution, delivery and performance by the Company of this Subscription
Agreement, other than: (i) the filing with the Securities and Exchange
Commission (“Commission”)
of the
Registration Statement, (ii) the filing with the Commission of a Form D pursuant
to Commission Regulation D, (iii) the filing of applicable UCC forms and
other
documentation necessary to secure collateral for the Debentures, and (iv)
applicable Blue Sky filings (collectively, the “Required
Approvals”)
(f)
Issuance
of the Securities.
The
Units, the Additional Warrants and the Underlying Shares, are duly authorized
and, when issued and paid for in accordance with this Subscription Agreement,
will be duly and validly issued, fully paid and nonassessable, free and clear
of
all liens, and not subject to any preemptive rights. The Company has reserved
from its duly authorized capital stock a number of shares of Common Stock
required for issuance of the Underlying Shares. The Debentures are secured
pursuant to a Security Agreement, and a Subsidiary Guarantee with respect
to the
Security Agreement.
(g)
Capitalization.
The
number of shares and type of all authorized, issued and outstanding capital
stock of the Company is as set forth in Schedule 4(g) attached hereto. No
Person
has any right of first refusal, preemptive right, right of participation,
or any
similar right to participate in the Offering. Except as disclosed in Schedule
4(g), there are no outstanding options, warrants, script rights to subscribe
to,
calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable
for, or giving any Person or entity any right to subscribe for or acquire,
any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound
to
issue additional shares of Common Stock, or securities or rights convertible
or
exchangeable into shares of Common Stock. Except as set forth in Schedule
4(g),
the issuance and sale of the Units will not obligate the Company to issue
shares
of Common Stock or other securities to any Person (other than pursuant to
this
Offering) and will not result in a right of any holder of Company securities
to
adjust the exercise, conversion, exchange or reset price under such securities.
All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with
all
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe
for
or purchase securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the issuance
and
sale of the Units and the Underlying Shares. There are no stockholders
agreements, voting agreements or other similar agreements with respect to
the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.
5
(h)
SEC
Reports; Financial Statements.
The
Company has filed all reports required to be filed by it under the Securities
Act and the Securities Exchange Act of 1934, as amended (“Exchange Act”),
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by
law to file such material) (the foregoing materials being collectively referred
to herein as the “SEC Reports”) in accordance with the time requirements
of the Securities Act and the Exchange Act. As of their respective dates,
the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company has advised Investor that a correct and complete
copy of
each of the SEC Reports (together with all exhibits and schedules thereto
and as
amended to date) is available at xxxx://xxx.xxx.xxx, a website maintained
by the Commission where Investor may view the SEC Reports. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.
Such
financial statements have been prepared in all material respects in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended.
(i)
Material Changes.
Since
the date of the latest audited financial statements included in the SEC Reports:
(i) there has been no event, occurrence or development that has had a Material
Adverse Effect, (ii)
the
Company has not incurred any material liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements
pursuant to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting or
the
identity of its auditors, except as disclosed in the SEC Reports, (iv) the
Company has not declared or made any dividend or distribution of cash or
other
property to its stockholders except in the ordinary course of business
consistent with prior practice, or purchased, redeemed or made any agreements
to
purchase or redeem any shares of its capital stock except consistent with
prior
practice or pursuant to existing Company stock option or similar plans, and
(v)
the Company has not issued any equity securities to any officer, director
or
Affiliate, except pursuant to existing Company stock option or similar plans
or
as disclosed in the SEC Reports.
(j)
Litigation.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary, or any of its properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which:
(i) adversely affects or challenges the legality, validity or enforceability
of
this Subscription Agreement or the Units or (ii) could, if there were an
unfavorable decision, individually or in the aggregate, have or reasonably
be
expected to result in a Material Adverse Effect. Neither the Company nor
any
Subsidiary, nor any director or officer thereof, is or
has
been the subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of a breach of fiduciary
duty.
There has not been, and to the knowledge of the Company, there is not pending
or
contemplated, any investigation by the Commission involving the Company or
any
current or former director or officer of the Company. The Commission has
not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
6
(k)
Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company or any Subsidiary which
could reasonably be expected to result in a Material Adverse Effect.
(l)
Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company
or any
Subsidiary under), nor has the Company or any Subsidiary received notice
of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it
is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any order
of any
court, arbitrator or governmental body, or (iii) is or has been in violation
of
any statute, rule or regulation of any governmental authority, including
without
limitation all foreign, federal, state and local laws applicable to its business
except in each case as would not have a Material Adverse Effect.
(m)
Regulatory Permits.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their business as currently conducted, except
where the failure to possess such permits would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect
(“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n)
Title
to Assets.
The
Company and the Subsidiaries have good and marketable title in all real and
personal property owned by them that is material to the business of the Company
and the Subsidiaries, in each case free and clear of any material liens,
encumbrances or other restrictions. Any real property and facilities held
under
lease by the Company and the Subsidiaries are held by it under valid, subsisting
and enforceable leases of which the Company and the Subsidiaries are in material
compliance.
(o)
Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar
rights necessary or material for use in connection with their respective
businesses as currently conducted and which the failure to so have could
have a
Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received any written notice that
the
Intellectual Property Rights used by the Company or any Subsidiary violates
or
infringes upon the rights of any Person. To the knowledge of the Company,
all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights
of
others.
(p)
Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries
are
engaged, including directors and officers insurance. To the best of Company’s
knowledge, such insurance contracts and policies are accurate and complete.
The
Company has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.
(q)
Transactions
with Affiliates and Employees.
None of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real
or personal property to or from, or otherwise requiring payments to or from
any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner, in each case in excess of $60,000 other than (i) for
payment
of salary or consulting fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company and (iii) for other employee
benefits, including stock option agreements under any stock option plan of
the
Company.
7
(r)
Internal
Accounting Controls.
Each of
the Company and the Subsidiaries is in material compliance with all provisions
of the Sarbanes Oxley Act of 2002 which are presently applicable to it. Each
of
the Company and the Subsidiaries maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions
are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action
is taken with respect to any differences The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities. The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of September 30, 2006 (such date, the
“Evaluation Date”). The Company presented in its Annual Report on Form
10-KSB for the year ended September 30, 2006 the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures
based
on their evaluations as of the Evaluation Date. Since the Evaluation Date,
there
have been no changes in the Company’s internal controls (within the meaning of
Item 308 of Regulation S-B under the Exchange Act) that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting, except as disclosed in the SEC Reports.
(s)
Private
Placement.
Assuming the accuracy of the Investor representations and warranties set
forth
in Section 3, no registration under the Securities Act is required for the
offer
and sale of the Units and the Additional Warrants by the Company to the
Investors as contemplated hereby.
(t)
Application
of Takeover Protections.
The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Investors as a result
of
the Investors and the Company fulfilling their obligations or exercising
their
rights under this Subscription Agreement, including without limitation as
a
result of the Company’s issuance of the Units and the Investor’s ownership of
the Units and Underlying Shares.
(u)
Disclosure.
The
Company confirms that neither it nor any other Person acting on its behalf
has
provided the Investor or its agents or counsel with any information that
constitutes or might constitute material, nonpublic information. The Company
understands and confirms that the Investor will rely on the foregoing
representations and covenants in effecting transactions in securities of
the
Company. All written statements provided to the Investor regarding the Company,
its business and the transactions contemplated hereby, furnished by or on
behalf
of the Company with respect to the representations and warranties made herein
are true and correct, in all material respects, with respect to such
representations and warranties and do not contain any untrue statement of
a
material fact or omit to state any material fact necessary in order to make
the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company acknowledges and agrees that the Investor
makes or has made no representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in this
Subscription Agreement.
(v)
No
Integrated Offering.
Assuming the accuracy of the Investor’s representations and warranties set forth
in this Subscription Agreement, neither the Company, nor any of its affiliates,
nor any Person acting on its or their behalf has, directly or indirectly,
made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this Offering to be integrated with
prior
offerings by the Company for purposes of Rule 502 of the Securities Act or
any
applicable shareholder approval provisions.
8
(w)
Solvency.
Based
on the financial condition of the Company as of each Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Units
hereunder, (i) the Company’s fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities)
as
they mature; (ii)
the
Company’s assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to
be
conducted including its capital needs taking into account the particular
capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash
flow
of the Company, together with the proceeds the Company would receive, were
it to
liquidate all of its assets, after taking into account all anticipated uses
of
the cash, would be sufficient to pay all amounts on or in respect of its
debt
when such amounts are required to be paid. The Company does not intend to
incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
(x)
Tax
Status.
Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company and each
Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon,
and the Company has no knowledge of a tax deficiency which has been asserted
or
threatened against the Company or any Subsidiary.
(y)
No
General Solicitation. Neither the Company nor any Person acting on behalf of
the Company has offered or sold any of the Units or Additional Warrants by
any
form of general solicitation or general advertising. The Company has offered
the
Units and the Additional Warrants for sale only to each Investor in the Offering
and certain other “accredited investors” within the meaning of Rule 501 under
the Securities Act.
(z)
Foreign Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other Person acting on behalf of the Company, has
(i)
directly or indirectly, used any corrupt funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully
any
contribution made by the Company (or made by any Person acting on its behalf
of
which the Company is aware) which is in violation of law, or (iv) violated
in
any material respect any provision of the Foreign Corrupt Practices Act of
1977,
as amended.
(aa)
Accountants.
The
Company’s accountants are set forth in the SEC Reports. To the Company’s
knowledge, such accountants, who the Company expects will express their opinion
with respect to the financial statements to be included in the Company’s
upcoming annual report, are a registered public accounting firm as required
by
the Securities Act.
(bb)
Indebtedness.
Schedule
4(bb)
sets
forth all outstanding secured and unsecured Indebtedness of the Company or
any
Subsidiary, or for which the Company or any Subsidiary has commitments. For
the
purposes of this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess of
$50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect
of
Indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary
is
in default with respect to any Indebtedness. As of the Closing Date, no more
than $1,000,000 in principal amount of Indebtedness (not including interest,
fees or liquidated damages thereon) or other claim against the Company or
any
Subsidiary will be senior to the Debentures in right of payment, whether
with
respect to interest or upon liquidation or dissolution, or otherwise, other
than
indebtedness secured by purchase money security interests (which is senior
only
as to underlying assets covered thereby) and capital lease obligations (which
is
senior only as to the property covered thereby).
9
(cc)
No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company
to
arise, between the accountants and lawyers formerly or presently employed
by the
Company, that would, individually or in the aggregate, have or reasonably
be
expected to result in a Material Adverse Effect.
(dd)
Maintenance Requirements.
The
Company’s Common Stock currently trades on the Over-the-Counter Bulletin Board.
The Company has no reason to believe that it will not in the foreseeable
future
continue to maintain the ongoing SEC reporting requirements for trading on
the
Over-the-Counter Bulletin Board.
The
Company certifies that each of the foregoing representations and warranties
set
forth in subsection (a) through (dd) inclusive of this Section 4 are true
as of
the date hereof, any applicable Closing Date and shall survive such dates.
5.
Registration Rights.
The
Company grants registration rights to the Investor under the following terms
and
conditions:
(a)
The
Company shall prepare and file, at its own expense, within thirty (30) days
of
the Final Closing, a registration statement under the Securities Act (the
“Initial
Registration Statement”,
provided that such Initial Registration Statement, may be an amendment to
the
Company’s registration statement that is currently pending Commission review
under File No. 333-124609) with the Commission sufficient to permit the
non-underwritten public offering and resale of all of the Shares and Warrant
Shares (as subject to adjustment) (the “Initial
Registrable Securities”)
through the facilities of all appropriate securities exchanges, if any, on
which
the Company’s Common Stock is being sold or on the over-the-counter market if
the Company’s Common Stock is traded thereon. The Company will use its best
efforts to cause such Initial Registration Statement to become effective
by the
following dates, as applicable (i) ninety (90) days from the Final Closing
in
the event the Commission reviews the Initial Registration Statement, (ii)
sixty
(60) days from the Final Closing in the event the Commission notifies the
Company that it will not review the Initial Registration Statement, or (iii)
three (3) business days from Commission clearance to request acceleration
of
effectiveness. The number of shares designated in the Initial Registration
Statement to be registered shall include all of the Initial Registrable
Securities and shall include appropriate language regarding reliance upon
Rule
416 to the extent permitted by the Commission. The Company will notify the
Investor of the date of effectiveness of the Registration Statement within
two
(2) business days of such event. In the event that the number of shares so
registered shall prove to be insufficient to register the resale of all of
the
Initial Registrable Securities, including if the Commission advises the Company
to limit the number of shares so registered in order that the selling
shareholders thereunder not be deemed underwriters in a primary offering,
then
any Initial Registrable Securities not registered in the Initial Registration
Statement shall be included in the Additional Registration Statement
(hereinafter defined).
(b)
The
Company shall prepare and file, at its own expense, within one hundred and
twenty (120) days of effectiveness of the Initial Registration Statement,
a
registration statement under the Securities Act (the “Additional
Registration Statement”)
with
the Commission sufficient to permit the non-underwritten public offering
and
resale of all of the Additional Warrant Shares (as subject to adjustment)
and
any Initial Registrable Securities not registered in accordance with Section
5(a) (collectively, the “Additional
Registrable Securities”)
through the facilities of all appropriate securities exchanges, if any, on
which
the Company’s Common Stock is being sold or on the over-the-counter market if
the Company’s Common Stock is traded thereon. The Company will use its best
efforts to cause such Registration Statement to become effective by the
following dates, as applicable (i) ninety (90) days from filing of the
Additional Registration Statement in the event the Commission reviews the
Additional Registration Statement, (ii) sixty (60) days from filing of the
Additional Registration Statement in the event the Commission notifies the
Company that it will not review the Additional Registration Statement, or
(iii)
three (3) business days from Commission clearance to request acceleration
of
effectiveness. The number of shares designated in the Additional Registration
Statement to be registered shall include all of the Additional Registrable
Securities and shall include appropriate language regarding reliance upon
Rule
416 to the extent permitted by the Commission. The Company will notify the
Investor of the date of effectiveness of the Additional Registration Statement
within two (2) business days of such event. In the event that the number
of
shares so registered shall prove to be insufficient to register the resale
of
all of the Additional Registrable Securities, then the Company shall be
obligated to file, within thirty (30) days of notice from any Investor, a
further Registration Statement registering such remaining shares and shall
use
its reasonable best efforts
to prosecute such additional Registration Statement to effectiveness within
ninety (90) days of the date of such notice.
10
(c)
The
term “Registration Statement” shall refer collectively to the Initial
Registration Statement, the Additional Registration Statement, and any other
registration statement required to be filed pursuant to this Section 5 to
register Registrable Securities. The term “Registrable Securities” shall refer
collectively to the Initial Registrable Securities and the Additional
Registrable Securities. The Company will maintain the Registration Statement
or
post-effective amendment filed under the terms of this Subscription Agreement
effective under the Securities Act until the earlier of (i) the date that
all of
the Registrable Securities have been sold pursuant to such Registration
Statement, (ii)
all
Registrable Securities have been otherwise transferred to Persons who may
trade
such shares without restriction under the Securities Act, and the Company
has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend, or (iii) all Registrable Securities may
be
sold at any time, without volume or manner of sale limitations pursuant to
Rule
144(k) or any similar provision then in effect under the Securities Act in
the
opinion of counsel to the Company, which counsel shall be reasonably acceptable
to the Investor (the “Effectiveness
Period”).
(d)
If,
at any time during which a Registration Statement required by Section 5(a)
and
5(b) above is not effective, the Company shall determine to proceed with
the
preparation and filing of a registration statement pursuant to the Securities
Act in connection with the proposed offer and sale of any of its securities
by
it or any of its security holders (other than a registration statement on
Form
X-0, X-0, or other limited purpose form), the Company will give written notice
of its determination to the Investor. Upon receipt of a written request from
the
Investor, within thirty (30)
days
after receipt of any such notice from the Company, the Company will cause
all
such Registrable Securities requested by the Investor to be included in such
registration statement, all to the extent required to permit the sale or
other
disposition by the Investor, of such shares. The obligation of the Company
under
this Section 5(d) shall be unlimited as to the number of registration statements
to which it applies, unless the Effectiveness Period has ended, provided
that
there shall be no duplication and any Registrable Shares which are already
included in a Registration Statement (other than a Registration Statement
which
has been withdrawn) may not be included in any other Registration Statement.
Notwithstanding the foregoing, the Company shall have the right to postpone
or
withdraw any registration effected pursuant to this Section 5(d). In addition,
if any registration effected pursuant to this Section 5(d) is a registered
public offering involving an underwriting, the Company shall so advise the
Investor as part of the written notice given pursuant to this Section 5(d).
In
such event, the right of any Investor to include Registrable Securities in
such
registration pursuant to this Section 5(d) shall be conditioned upon such
Investor’s execution of an underwriting agreement upon customary terms with the
underwriter or underwriters selected by the Company. Furthermore, if the
lead
underwriter advises the Company that marketing factors require a limitation
(or
elimination) of shares held by selling stockholders to be underwritten, the
number of Registrable Securities that may be included in such Registration
Statement and underwriting, if any, shall be allocated among all Investors
and
other holders of registration rights requesting registration in proportion,
as
nearly as practicable, to the respective number of shares of held by them
and
for which they have registration rights on the date the Company gives the
notice
specified in this Section 5(d).
(e)
All
fees, disbursements and out-of-pocket expenses and costs incurred by the
Company
in connection with the preparation and filing of the Registration Statement,
in
making filings with NASD or NASDR (including, without limitation, pursuant
to
NASD Rule 2710), and in complying with applicable federal securities and
Blue
Sky laws (including, without limitation, all attorneys’ fees of the Company)
shall be borne by the Company. The Investor shall bear the cost of underwriting
and/or brokerage discounts, fees and commissions, if any, applicable to the
Registrable Securities being registered and the fees and expenses of their
counsel. The Company shall use its reasonable best efforts to qualify any
of the
Registrable Securities for sale in such states as the Investor reasonably
designates and shall furnish indemnification. However, the Company shall
not be
required to qualify in any state which will require an escrow or other
restriction relating to the Company and/or the sellers, or which will require
the Company to qualify to do business in such state or require the Company
to
file therein any general consent to service of process. The Company at its
expense will supply the Investor with one unbound copy of the applicable
Registration Statement and any prospectus included therein and other related
documents.
(f)
Certificates evidencing the Registrable Securities shall not contain any
legend:
(i) following any sale of such Registrable Securities pursuant to Rule 144,
or
(ii) if such Registrable Securities are eligible for legend removal under
Rule
144(k), or (iii) if such legend is not required under applicable requirements
of
the Securities Act (including judicial interpretations and pronouncements
issued
by the staff of the Commission). The Company shall cause
its
counsel to issue a “blanket” legal opinion to the Company’s transfer agent
providing that while a Registration Statement covering the resale of any
Registrable Securities is effective under the Securities Act, the transfer
agent
should remove the restrictive legend on any Underlying Shares immediately
upon
submission of such shares to the transfer agent together with a representation
from Investor or Investor’s broker that prospectus delivery requirements under
the Securities Act and rules and regulations of the Commission have been
met.
The Company shall also cause its counsel to issue any additional legal opinion
to the Company’s transfer agent upon request of the Investor if required by the
Company’s transfer agent to effect the removal of the legend hereunder. If all
or any portion of a Debenture, Warrant or Additional Warrant is converted
or
exercised at a time when there is an effective registration statement to
cover
the resale of the Underlying Shares, or if such Underlying Shares may be
sold
under Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations thereof)
then such Underlying Shares shall be issued free of all legends. The Company
agrees that following the effectiveness of the Registration Statement or
at such
time as such legend is no longer required under this Section 5(f), it will,
no
later than three business days following the delivery by Investor to the
Company’s transfer agent of a certificate representing Registrable Securities
accompanied by appropriate stock power or other required documentation, as
applicable, issued with a restrictive legend (such third Business Day, the
“Legend
Removal Date”),
deliver or cause to be delivered to such Investor a certificate representing
such shares that is free from all restrictive and other legends, in each
case
without charge to the Investor other than customary transfer fees which may
be
charged by the transfer agent or broker-dealer. The Company may not make
any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section
5(f). Without limiting the Investor’s other legal remedies, the Company shall
immediately upon demand reimburse the Investor for the cost and losses
occasioned by any buy-in resulting from the Company’s failure to timely deliver
unlegended share certificates, provided Investor provides to the Company
evidence of the amount of such loss.
11
(g)
In
the event that (i) a Registration Statement is not filed or declared effective
by the Commission within the required time frames as set forth in Sections
5(a)
and 5(b) above, each as applicable, or (ii) such Registration Statement is
not
maintained as effective by the Company for the Effectiveness Period or as
allowed by 5(k)(2) below (each a “Registration
Default”)
then
the Company will pay Investor (pro rated on a daily basis), as partial
compensation for such failure and not as a penalty, one percent (1.0%) of
the
purchase price of the Registrable Securities purchased from the Company and
held
by the Investor for each month (or portion thereof) in which such failure
occurs
(regardless of whether one or more such Registration Defaults are then in
existence, but without duplication of such partial compensatory payments)
until
such Registration Statement has been declared effective. Such compensatory
payments shall be made to the Investors in cash, no later than the fifth
business day following the month in which such Registration Default(s) occurred,
provided, however, that the payment of such amounts shall not relieve the
Company from its obligations to register the Registrable Securities pursuant
to
this Section 5. Notwithstanding anything to the contrary contained herein,
in no
event shall any liquidated damages be payable with respect to the Warrants,
Additional Warrants, Warrant Shares or Additional Warrant Shares.
(h)
If
the Company does not remit the payment to the Investor as set forth in Section
5(g) above, the Company will pay the Investor interest at the rate of 12%
per
annum, or the highest rate permitted by law, if less, until such sums have
been
paid in full, and reasonable costs of collection, including attorneys’ fees, in
addition to the liquidated damages. The registration of the Registrable
Securities pursuant to this provision or payment of such compensatory amounts
shall not affect or limit the Investor’s other rights or remedies as set forth
in this Subscription Agreement or at law.
(i)
In
the event a Registration Statement is not effective at any time after one
year
following the issuance date of the Warrants (other than an Allowed Delay,
as
defined in Section 5(k)(2) below), compensatory payments pursuant to Section
5(g) above shall cease, the Warrants and certain of the Additional Warrants
shall become exercisable pursuant to a cashless exercise feature, and the
Company shall cause its counsel to issue such legal opinions as may be
reasonably requested by the Investor in connection with any sales of Underlying
Shares in accordance with Rule 144 under the Securities Act in accordance
with
the procedures of Section 5(f) above.
(j)
At
all times after one (1) year following the Final Closing, the Company will
prepare and furnish to Investor and make publicly available in accordance
with
Rule 144(c) such information as is required for Investor to sell the Registrable
Securities under Rule 144. The Company further covenants that it will take
such
further action as any holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such Person to sell
such
Registrable Securities without registration under the Securities Act within
the
limitation of the exemptions provided by Rule 144.
12
(k)
In
the case of each registration effected by the Company pursuant to any section
herein, the Company will keep each Investor advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense, the Company will:
(1)
Prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions
of the
Securities Act with respect to a disposition of all securities covered by
such
registration statement;
(2)
Notify the Investor at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any event as
a
result of which the prospectus included in such registration statement, as
then
in effect, includes an untrue statement of a material fact or omits to state
a
material fact required to be stated therein or necessary to make the statements
therein not misleading or incomplete in light of the circumstances then
existing, and at the request of the shareholders, prepare and furnish to
them a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the Investor,
such prospectus shall not include an untrue statement of a material fact
or omit
to state a material fact required to be stated therein or necessary to make
the
statements therein not misleading or incomplete in light of the circumstances
then existing; provided
that,
for not
more than ten (10) consecutive business days (or a total of not more than
thirty
(30) calendar days in any twelve (12) month period), the Company may delay
the
disclosure of material non-public information concerning the Company the
public
disclosure of which at the time is not, in the good faith opinion of the
Company
in the best interests of the Company and which may, based on the advice of
outside counsel, be delayed under applicable law or regulation (an “Allowed
Delay”);
provided,
further,
that
the Company shall promptly (a) notify each Investor in writing of the existence
of (but in no event, without the prior written consent of such Investor,
shall
the Company disclose to such Investor any of the facts or circumstances
regarding) material non-public information giving rise to an Allowed Delay
and
(b) advise each Investor in writing to cease all sales under such registration
statement until the termination of the Allowed Delay;
(3)
Use
its commercially reasonable best efforts to prevent the issuance of any stop
order or other suspension of effectiveness of a registration statement, and,
if
such an order is issued, to obtain the withdrawal of such order at the earliest
possible moment and to notify Investor (and, in the event of an underwritten
offering, the managing underwriter) of the issuance of such order and the
resolution thereof;
(4)
If
NASD Rule 2710 requires any broker-dealer to make a filing prior to executing
a
sale of Registrable Securities by an Investor, make an Issuer Filing with
the
NASD Corporate Financing Department pursuant to NASD Rule 2710 and respond
within five business days to any comments received from NASD in connection
therewith.
(5)
Otherwise use its commercially reasonable best efforts to comply with all
applicable rules and regulations of the Commission.
(l)
To
the extent Investor includes any Underlying Shares in a registration statement
pursuant to the terms hereof, the Company will indemnify and hold harmless
Investor, its directors and officers, and each Person, if any, who controls
Investor within the meaning of the Securities Act, from and against, and
will
reimburse Investor, its directors and officers and each controlling Person
with
respect to, any and all loss, damage, liability, cost and expense to which
Investor or such controlling Person may become subject under the Securities
Act
or otherwise, insofar as such losses, damages, liabilities, costs or expenses
are caused by any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or arise out of or are based upon
the
omission or alleged omission to state therein a material fact required to
be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided,
however,
that
the Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
so
made in conformity with information furnished by Investor or any such
controlling Person in writing specifically for use in the preparation thereof.
(m)
To
the extent Investor includes any Underlying Shares in a registration statement
pursuant to the terms hereof, Investor will indemnify and hold harmless the
Company, its directors and officers and any controlling Person
from and against, and will reimburse the Company, its directors and officers
and
any controlling Person with respect to, any and all loss, damage, liability,
cost or expense to which the Company, its directors and officers or such
controlling Person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused
by
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and
in
conformity with written information furnished by or on behalf of the Investor
specifically for use in the preparation thereof and provided further, that
the
maximum amount that may be recovered from Investor shall be limited to the
amount of proceeds received by Investor from the sale of such shares of Common
Stock
13
(n)
To
the extent any indemnification by an indemnifying party is prohibited or
limited
by law, the indemnifying party agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable hereunder to
the
extent permitted by law, provided that (i) no contribution shall be made
under
circumstances where the indemnifying party would not have been liable for
indemnification pursuant to the provisions hereof, (ii) no seller of securities
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of
the Securities Act) shall be entitled to contribution from any seller of
securities who was not guilty of such fraudulent misrepresentation, and (iii)
the amount of the contribution together with any other payments made in respect
of such loss, damage, liability or expense, by any seller of securities shall
be
limited to the net amount of proceeds received by such seller from the sale
of
such securities.
(o)
It
shall be a condition precedent to the Company’s obligations to take any action
pursuant to Section 5(a) that the Investor will execute and return the Selling
Securityholder Notice and Questionnaire attached hereto as Exhibit B. The
Investor shall also cooperate with the Company in connection with this
Subscription Agreement, including timely supplying all information and executing
and returning any other documents requested by the Company which are required
to
enable the Company to perform its obligations to register the Underlying
Shares.
6.
Other
Agreements of the Company and the Investor.
(a)
Right
to Pledge. The Company acknowledges and agrees that Investor may from time
to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Units or
Underlying Shares to a financial institution that is an “accredited investor” as
defined in Rule 501(a) under the Securities Act and who agrees to be bound
by
the provisions of this Agreement. Such a pledge would not be subject to approval
of the Company and no legal opinion of legal counsel of the pledgee, secured
party or pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. However, if required under the terms of
such
arrangement to transfer pledged or secured Units or Underlying Shares to
the
pledgees or secured parties, such a transfer would be subject to approval
of the
Company and a legal opinion of legal counsel of the pledgee, secured party
or
pledgor shall be required in connection therewith. At Investor’s expense, the
Company will execute and deliver such reasonable documentation as a pledgee
or
secured party of such securities may reasonably request in connection with
a
pledge or transfer of the Debentures, Shares, Warrants, Additional Warrants,
Warrant Shares or Additional Warrant Shares.
(b)
Acknowledgment
of Dilution.
The
Company acknowledges that the issuance of the Underlying Shares may result
in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial. The Company further acknowledges that its obligations under
this
Subscription Agreement, including without limitation its obligation to issue
the
Underlying Shares, are unconditional and absolute and not subject to any
right
of set off, counterclaim, delay or reduction, regardless of the effect of
any
such dilution or any claim the Company may have against any Investor and
regardless of the dilutive effect that such issuance may have on the ownership
of the other stockholders of the Company.
(c)
Furnishing
of Information.
Until
the earlier of (i) five (5) years from the Final Closing after such date
or (ii)
the date that all Debentures and Warrants issued in the Offering have been
converted, exercised, redeemed or expired, and all Registrable Securities
have
been sold, the Company covenants to timely file (or obtain extensions in
respect
thereof and file within the applicable grace period) all reports required
to be
filed by the Company after the date hereof pursuant to the Exchange Act.
14
(d)
Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Units or Additional
Warrants in a manner that would require the registration under the Securities
Act of the Offering or, if then listed or quoted on a trading market, that
would
be integrated with the Offering for purposes of the rules and regulations
of any
trading market.
(e)
Exercise
Procedures.
The
form of Notice of Conversion included in the Debenture and form of Notice
of
Exercise included in the Warrant and the Additional Warrants each set forth
the
totality of the procedures required of the Investor in order to convert its
Debenture and exercise its Warrant or Additional Warrants, respectively.
No
additional legal opinion or other information or instructions shall be required
of the Investor to convert its Debenture or exercise its Warrant or Additional
Warrants. The Company shall honor conversions of the Debentures and exercises
of
the Warrants and Additional Warrants and shall deliver the underlying Shares,
Warrant Shares or Additional Warrant Shares, respectively, in accordance
with
the terms, conditions and time periods set forth in this Subscription Agreement
and the forms of Debenture and of Warrant.
(f)
Shareholders Rights Plan.
No
claim will be made or enforced by the Company or, to the knowledge of the
Company, any other Person that any Investor is an “Acquiring Person” under any
shareholders rights plan or similar plan or arrangement in effect or hereafter
adopted by the Company, or that any Investor could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving the
Debentures, Warrants, Additional Warrants or Underlying Shares or under any
other agreement between the Company and the Investor. The Company shall conduct
its business in a manner so that it will not become subject to the Investment
Company Act.
(g)
Non-Public
Information.
The
Company covenants and agrees that neither it nor any other Person acting
on its
behalf will provide the Investor or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto Investor shall have executed a written agreement regarding
the
confidentiality and use of such information. The Company understands and
confirms that Investor shall be relying on the foregoing representations
in
effecting transactions in securities of the Company.
(h)
Use
of
Proceeds.
The
Company shall use the net proceeds from the sale of the Units hereunder for
technology development and for working capital purposes. The Company will
not
use the proceeds from the sale of the Units hereunder for the satisfaction
of
the Company’s debt other than (i) up to $475,000 in repayment of existing debt
of the Company as further described in Schedule 4(bb) hereto and (ii) payment
of
trade payables in the ordinary course of the Company’s business and prior
practices). The Company will not use any proceeds from the sale of the Units
to
redeem any Common Stock or securities convertible or exercisable into Common
Stock, or to settle any outstanding litigation.
(i)
Reimbursement.
If
Investor becomes involved in any capacity in any Proceeding by or against
any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Investor to or with
any
current stockholder), solely as a result of such Investor’s acquisition of the
Debentures, Warrants, Additional Warrants or Underlying Shares, and the Investor
is successful in the Proceeding, the Company will reimburse such Investor
for
its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same
terms
and conditions to any Affiliates of the Investor who is actually named in
such
action, proceeding or investigation, and partners, directors, agents, employees
and controlling persons (if any), as the case may be, of the Investor and
any
such Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Investor and any such Affiliate and any such Person.
(j)
Indemnification
of Investor.
Subject
to the provisions of this Section 6(j), the Company will indemnify and hold
the
Investor and its directors, officers, shareholders, partners, employees and
agents (each, an “Investor
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Investor Party may suffer or incur as a result
of or
relating to (a) any material breach of any of the representations, warranties,
covenants or agreements made by the Company in this Subscription Agreement
or (b)
any
action instituted against Investor, or its respective Affiliates, by any
stockholder of the Company who is not an Affiliate of Investor, with respect
to
any of the transactions contemplated by this Subscription Agreement (unless
such action
is
based upon a breach of Investor’s representation, warranties or covenants under
this Subscription Agreement or any agreements or understandings Investor
may
have with any such stockholder or any violations by the Investor of state
or
federal securities laws or any conduct by such Investor which constitutes
fraud,
gross negligence, willful misconduct or malfeasance). If any action shall
be
brought against any Investor Party in respect of which indemnity may be sought
pursuant to this Agreement, such Investor Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing. Any Investor Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Investor Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii)
the
Company has failed after a reasonable period of time to assume such defense
and
to employ counsel or (iii) in such action there is, in the reasonable opinion
of
such separate counsel, a material conflict on any material issue between
the
position of the Company and the position of such Investor Party. The Company
will not be liable to any Investor Party under this Agreement (i) for any
settlement by a Investor Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to
the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Investor Party’s breach of any of the representations,
warranties, covenants or agreements made by Investor in this Subscription
Agreement.
15
(k)
Transfer
and Tradability of the Underlying Shares.
The
Company shall provide a transfer agent and registrar for all shares of its
Common Stock, including the Shares, Warrant Shares and Additional Warrant
Shares
at least until such time as all the Underlying Shares have been sold. The
Company shall cause all shares of Common Stock which are registered in
accordance with the provisions of Section 5 above to be listed or included
for
quotation on each exchange or marketplace on which the Company’s shares of
Common Stock are then listed or included for quotation at least until the
earlier of (i) five (5) years from the Final Closing and (ii) such time as
all
the Shares, Warrant Shares and Additional Warrant Shares have been sold by
all
of the Investors in the Offering and there are no Debentures, Warrants or
Additional Warrants outstanding and unconverted or unexercised.
(l)
Future
Priced Securities.
From
the date hereof until the date that less than 20% of the Warrants remain
outstanding and unexercised, the Company shall be prohibited from effecting
or
entering into an agreement to effect any financing involving a “Variable
Rate Transaction”
unless
the Company obtains express written consent and authorization from the holders
of at least seventy-five percent (75%) of the then-outstanding and unexercised
Warrants. The term “Variable
Rate Transaction”
shall
mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A)
at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common
Stock
at any time after the initial issuance of such debt or equity securities,
or (B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock.
(m)
Right
of First Refusal.
For a
period of eighteen (18) months following the Final Closing, the Company agrees
to promptly notify each Investor in writing (a “Rights Notice”) of the
terms and conditions of any proposed private placement offering of Common
Stock
or securities convertible or exercisable into shares of Common Stock
(“Subsequent Financing”), not including offerings pursuant to (i) equity
incentive plans established for the benefit of the Company’s employees,
consultants, officers or directors, (ii) strategic partnerships or other
investments where a strategic investor(s) is(are) the sole investor(s), (iii)
up
to $2,010,000 in financing by Triumph Small Cap Fund, Inc. plus warrants
issued
in connection therewith, (iv) mergers or acquisitions, or (v) public offerings;
provided, however, prior to delivering to each Investor a Rights Notice,
the
Company shall first deliver to each Investor a written notice of its intention
to effect a Subsequent Financing (“Pre-Notice”) within three (3) trading
days of receiving an applicable offer, which Pre-Notice shall ask such Investor
if it wants to review the details of such financing. Upon the request of
an
Investor, and only upon a request by such Investor within three (3) trading
days
of receipt of a Pre-Notice, the Company shall promptly, but no later than
two
(2) trading days after such request, deliver a Rights Notice to such Investor.
The Rights Notice shall grant Investors the right to purchase their pro rata
portion, based on their respective initial purchase amounts hereunder, of
all or
part of the securities being offered in such Subsequent Financing, on the
same,
absolute terms and conditions as contemplated by such Subsequent Financing,
and
shall be delivered at least ten (10) business days prior to the closing of
any
such Subsequent Financing. Each Investor will have ten (10) business days
from
the date of the Rights Notice in which to advise the Company in writing whether
it intends to participate in such Subsequent Financing, and in what amounts,
which amount shall not exceed Investor’s purchase amount hereunder except as
allowed by the following sentence (unless otherwise agreed between the
Company
and Investor without infringing on the rights of any other Investor hereunder).
If any Investor elects not to participate in such Subsequent Financing, the
purchase right granted to such Investor pursuant to its Rights Notice shall
be
assigned pro rata among all other Investors participating in the Subsequent
Financing, based on the respective initial purchase amounts of such
participating Investors hereunder.
16
(n)
Equal
Treatment of Investors.
No
consideration shall be offered or paid to any Person to amend or consent
to a
waiver or modification of any provision of such Person’s Subscription Agreement
unless the same consideration is also offered to all Investors in the Offering.
For clarification purposes, this provision constitutes a separate right granted
to each Investor by the Company and shall not in any way be construed as
the
investors in the Offering acting in concert or as a group with respect to
the
purchase, disposition or voting of the Debentures, Shares, Warrants, Warrant
Shares, Additional Warrants, Additional Warrant Shares or otherwise.
7.
Specific
State Legends.
FOR
NEW HAMPSHIRE RESIDENTS ONLY:
NEITHER
THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS
BEEN
FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
RSA 421-B OF THE NEW HAMPSHIRE UNIFORM SECURITIES ACT IS TRUE, COMPLETE AND
NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION
IS
AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE
HAS
PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR
GIVEN
APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE,
OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
FOR
FLORIDA RESIDENTS ONLY:
EACH
FLORIDA RESIDENT WHO SUBSCRIBES FOR THE PURCHASE OF SECURITIES HEREIN HAS
THE
RIGHT, PURSUANT TO SECTION 517.061(11)(A)(5) OF THE FLORIDA SECURITIES ACT,
TO
WITHDRAW HIS SUBSCRIPTION FOR THE PURCHASE AND RECEIVE A FULL REFUND OF ALL
MONIES PAID WITHIN THREE BUSINESS DAYS AFTER THE EXECUTION OF THIS SUBSCRIPTION
AGREEMENT OR PAYMENT FOR THE PURCHASE HAS BEEN MADE, WHICHEVER IS LATER.
WITHDRAWAL WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH
THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO THE
COMPANY
AT THE ADDRESS SET FORTH IN THIS SUBSCRIPTION AGREEMENT INDICATING HIS INTENTION
TO WITHDRAW.
SUCH
LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE
AFOREMENTIONED THIRD BUSINESS DAY. IT IS ADVISABLE TO SEND SUCH LETTER BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND
ALSO
TO EVIDENCE THE TIME IT WAS MAILED. IF THE REQUEST IS MADE ORALLY, IN PERSON
OR
BY TELEPHONE TO AN OFFICER OF THE COMPANY, A WRITTEN CONFIRMATION THAT THE
REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
FOR
GEORGIA RESIDENTS ONLY THE
SECURITIES OFFERED HEREBY ARE BEING ISSUED OR SOLD IN RELIANCE ON PARAGRAPH
(13)
OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT
BE
SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT
OR
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
FOR
RESIDENTS OF ALL STATES:
THE
SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND
SUCH
LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND
SUCH
LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN
INDEFINITE PERIOD OF TIME.
17
THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY,
NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS
OF
THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
8.
Miscellaneous.
(a)
Termination.
The
Investor agrees that he shall not cancel, terminate or revoke this Subscription
Agreement or any agreement of the Investor made hereunder other than as set
forth herein, and that this Subscription Agreement shall survive the death
or
disability of the Investor. If the Company elects to cancel this Subscription
Agreement, in whole or in part, provided that it returns to the Investor,
without interest and without deduction, all sums paid by the Investor (or
such
rejected portion thereof), this Subscription shall be null and void and of
no
further force and effect, and no party shall have any rights against any
other
party hereunder
(b)
Entire
Agreement.
This
Subscription Agreement, together with the schedules and exhibits hereto,
contains the entire understanding of the Company and the Investor with respect
to the subject matter hereof.
(c)
Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Business
Day,
(b) the next Business Day after the date of transmission, if such notice
or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto on a day that is not a Business Day or
later
than 5:30 p.m. (New York City time) on any Business Day, (c) the second Business
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given. The address for such notices and communications
shall be to the Investor at his address set forth on the Investor Signature
Page, to the Company at the addresses set forth above, and to the Placement
Agent at 000 Xxxx Xxxxxx, 0xx
Xxxxx,
Xxx Xxxx, XX 00000.
(d)
Amendments;
Waivers.
No
provision of this Subscription Agreement may be waived or amended except
in a
written instrument signed, in the case of an amendment, by the Company and
the
Investor or, in the case of a waiver, by the party against whom enforcement
of
any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Subscription Agreement shall
be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof,
nor
shall any delay or omission of either party to exercise any right hereunder
in
any manner impair the exercise of any such right. Notwithstanding any of
the
representations, warranties, acknowledgments or agreements made herein by
the
Investor, the Investor does not thereby or in any manner waive any rights
granted to the Investor under federal or state securities laws.
(e)
Construction.
The
headings herein are for convenience only, do not constitute a part of this
Subscription Agreement and shall not be deemed to limit or affect any of
the
provisions hereof.
(f)
Successors
and Assigns.
This
Subscription Agreement shall be binding upon and inure to the benefit of
the
parties and their successors and permitted assigns. The Company may not assign
this Subscription Agreement or any rights or obligations hereunder without
the
prior written consent of each Investor in the Offering. Investor may assign
any
or all of its rights under this Subscription Agreement to any Person to whom
Investor assigns or transfers any the Debentures, Warrants, Additional Warrants
or Underlying Shares, provided such transferee agrees in writing to be bound,
with respect to such transferred securities, by the provisions hereof that
apply
to the Investor.
(g)
No
Third-Party Beneficiaries. This Subscription Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 6(j).
18
(h)
Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Subscription Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the
State
of New York, without regard to the principles of conflicts of law thereof.
Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Subscription
Agreement (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York.
Each party hereby irrevocably submits to the exclusive jurisdiction of the
state
and federal courts sitting in the City of New York, borough of Manhattan
for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court,
that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Subscription Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a
trial
by jury. If either party shall commence an action or proceeding to enforce
any
provisions of this Subscription Agreement, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
(i)
Survival.
The
representations and warranties contained herein shall survive each Closing
Date
and the delivery and/or exercise of the Units and Underlying Shares, as
applicable for the applicable statue of limitations for a period of three
(3)
years from the date hereof.
(j)
Execution.
In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on
whose
behalf such signature is executed) with the same force and effect as if such
facsimile signature page were an original thereof.
(k)
Severability.
If any
provision of this Subscription Agreement is held to be invalid or unenforceable
in any respect, the validity and enforceability of the remaining terms and
provisions of this Subscription Agreement shall not in any way be affected
or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon
so
agreeing, shall incorporate such substitute provision in this Subscription
Agreement.
(l)
Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) this Subscription Agreement, whenever Investor exercises
a right, election, demand or option under this Subscription Agreement or
the
Warrant or Additional Warrants, and the Company does not timely perform its
related obligations within the periods therein provided, then Investor may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or
in
part without prejudice to its future actions and rights; provided,
however,
in the
case of a rescission of an exercise of a Warrant or Additional Warrant, Investor
shall be required to return any shares of Common Stock subject to any such
rescinded exercise notice.
(m)
Replacement
of Securities.
If any
certificate or instrument evidencing any Debentures, Warrants or Underlying
Shares is mutilated, lost, stolen or destroyed, the Company shall issue or
cause
to be issued in exchange and substitution for and upon cancellation thereof,
or
in lieu of and substitution therefor, a new certificate or instrument, but
only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and customary and reasonable indemnity, if requested.
The
applicants for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs associated with the issuance of
such
replacement securities.
(n)
Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of Investor and the Company will
be
entitled to specific performance under this Subscription Agreement. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be adequate.
19
(o)
Payment Set Aside. To the extent that the Company makes a payment or
payments to Investor pursuant to this Subscription Agreement or an Investor
enforces or exercises its rights thereunder, and such payment or payments
or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law,
common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall
be
revived and continued in full force and effect as if such payment had not
been
made or such enforcement or setoff had not occurred.
(p)
Liquidated Damages.
The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under this Subscription Agreement is a continuing obligation of the
Company and shall not terminate until all unpaid partial liquidated damages
and
other amounts have been paid notwithstanding the fact that the instrument
or
security pursuant to which such partial liquidated damages or other amounts
are
due and payable shall have been canceled.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
20
INVESTOR
SIGNATURE PAGE FOR TECHNOCONCEPTS, INC. SUBSCRIPTION AGREEMENT
Please
print or type, Use ink only. (All Parties Must Sign)
The
undersigned Investor hereby certifies that he (i) has received and relied
solely
upon the SEC Reports, the Offering Memorandum and this Subscription Agreement
and their respective exhibits and schedules, (ii) agrees to all the terms
and
conditions of this Subscription Agreement, (iii) meets the suitability
standards
set forth herein and (iv) is a resident of the state or foreign jurisdiction
indicated below.
|
Dollar
Amount of Units Subscribed for: $__________________
|
($30,000
Units for $30,000 Debenture convertible @ $1.50, 10,000 Warrants
@ $1.90
and 10,000 Warrants @ $2.75)
|
|
o
Check here if
payment is being made by exchange of Series A Secured Subordinated
Promissory Notes
|
|
|
Name
of Investor (Print)
Name
of Joint Investor (if any) (Print)
Signature
of Investor
Signature
of Joint Investor (if any)
Capacity
of Signatory (if applicable)
Social
Security or Taxpayer Identification Number
Investor
Address:
Street
Address
|
If
other than individual check one and indicate capacity of
signatory under
the signature:
o
Trust
o
Estate
o
Uniform Gifts to Minors Act, State of
__________
o
Attorney-in-fact
o
Corporation
o
Other
If
Joint Ownership, Check one:
o
Joint Tenants with Right of
Survivorship
o
Tenants in Common
o
Tenants by the Entirety
o
Community by Property
Backup
Withholding Statement:
o
Please check this box only if the investor is
subject to backup withholding
Foreign
Person:
o
Please check this box only if the investor is a
nonresident alien, foreign corporation, foreign partnership,
foreign trust
or foreign estate
|
|
Country
________________ Passport # _______________
|
|
|
City State Zip
Code
|
ID
#___________________ ID Type _________________
|
|
Telephone:
( ) Fax:
( )
|
|
|
Email:_____________________________________________
|
|
|
Instructions
for Delivery of Securities:
|
|
|
o
Deposit to my Westminster brokerage
account
|
o
Deliver to an alternate
address:
|
|
o
Deliver to the address above
|
________________________________________________
|
|
________________________________________________
|
|
|
Broker:
|
|
|
o
Westminster Registered
Rep._______________________
|
o
Other Investor Representative:
____________________
|
The
investor agrees to the terms of this Subscription Agreement and,
as required by
the Regulations pursuant to the Internal Revenue Code, certifies
under penalty
of perjury that (1) the Social Security Number or Taxpayer Identification
Number
and address provided above is correct, (2) the investor is not subject
to backup
withholding (unless the Backup Withholding Statement box is checked)
either
because he has not been notified that he is subject to backup withholding
as a
result of a failure to report all interest or dividends or because
the Internal
Revenue Service has notified him that he is no longer subject to
backup
withholding and (3) the investor (unless, the Foreign Person box
above is
checked) is not a nonresident alien, foreign partnership, foreign
trust or
foreign estate.
THE
SUBSCRIPTION FOR UNITS OF TECHNOCONCEPTS, INC. BY THE ABOVE NAMED
INVESTOR(S) IS
ACCEPTED THIS ________ DAY OF ______________________, 2007.
| |
|
|
| By: | ||
| Name: |
|
|
| Title: | ||
21
Schedule
4(g)
Capitalization
The
number of shares and type of all authorized, issued and outstanding capital
stock of the Company, as of January 19, 2007, is as follows:
|
Authorized
|
|
Outstanding
|
|||||
|
Common
Stock:
|
100,000,000
|
31,391,316
|
|||||
|
Series
A-1 Preferred Stock:
|
5,000,000
|
4,000
|
|||||
|
Series
A-2 Preferred Stock:
|
12,000
|
12,000
|
|||||
|
Series
B Preferred Stock:
|
800
|
800
|
|||||
|
Series
B-1 Preferred Stock:
|
2,300
|
2,203
|
|||||
|
Series
C Preferred Stock:
|
25,000
|
—
|
|||||
Listed
below are all of the outstanding options, warrants, script rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any
Person
or entity any right to subscribe for or acquire, any shares of Common Stock,
or
contracts, commitments, understandings or arrangements by which the Company
is
or may become bound to issue additional shares of Common Stock, or securities
or
rights convertible or exchangeable into shares of Common Stock. Concerning
the
anti-dilution provisions identified below, the Company is obligated to provide
notice to the applicable security holder in the event of any reduction in
the
applicable security’s conversion price or exercise price, as the case may
be.
|
Assumes
Maximum Offering of $4 million
|
|||||||||||||
|
As
of
1/19/2007
|
Debt
to
Equity
Conversion
(1)
|
Offering
|
Post
Offering
|
||||||||||
|
Preferred
Stock
|
|||||||||||||
|
Preferred
A-1
|
4,000
|
4,000
|
|||||||||||
|
Preferred
A-2
|
12,000
|
12,000
|
|||||||||||
|
Preferred
B
|
800
|
800
|
|||||||||||
|
Preferred
B-1
|
2,203
|
2,203
|
|||||||||||
|
Common
Stock (2)(3)
|
31,391,316
|
3,784,760
|
1,333,333
|
36,509,409
|
|||||||||
|
Warrants
(2)(3)
|
28,135,110
|
15,233,148
|
4,333,333
|
47,701,591
|
|||||||||
|
Stock
Options ($1.95 wtd avg price)
|
6,204,500
|
-
|
-
|
6,204,500
|
|||||||||
|
Preferred
B Conversion
|
800,000
|
-
|
-
|
800,000
|
|||||||||
|
Preferred
B1 Conversion
|
2,203,000
|
-
|
-
|
2,203,000
|
|||||||||
|
8%
Secured Convertible
Debenture (4)
|
-
|
-
|
5,333,333
|
5,333,333
|
|||||||||
|
68,733,926
|
19,017,908
|
11,000,000
|
98,751,833
|
||||||||||
(1)
$5,420,668
of the Series A Notes Payable is converting into equity at $1.50 and
will also
receive warrants for 3,613,779 shares of common stock at $1.90 and warrants
3,613,779 shares of common stock at $2.75
(2)
Assumes
Triumph Small Cap Fund, Inc. ("Triumph") purchases 1,333,333 shares of
common
stock at $1.50 with 2 sets of warrants for 666,667 shares of common stock
at
$1.90 and $2.75, repsectively. In addition, since Triumph is purchasing
$2,000,000 in common stock, Triumph will receive 3 sets of warrants to
purchase
1,333,333 shares of common stock at $2.00 per share, $2.50 per share
and $3.50
per share, respectively.
(3)
Does
not
assume that anyone besides Triumph invests over $2,000,000 in the investment.
An
investment of at least $2,000,000 would result in additional warrants
for at
least 3,999,999 shares of common stock.
(4)
Assumes
Maximum Offering of $4,000,000, which, on an as converted basis, is composed
of
2,666,667 shares of common stock and warrants for 2,666,667 shares of
common
stock.
Warrant
Breakdown
|
$
1.00
|
$
1.90
|
$
2.10
|
$
2.50
|
$
2.75
|
$
3.00
|
$
3.50
|
$
3.75
|
$
3.85
|
$
4.00
|
$
4.50
|
$
6.00
|
|
19,621,990
|
1,500,000
|
1,500,000
|
1,720,800
|
1,500,000
|
469,000
|
1,524,160
|
40,000
|
150,000
|
24,160
|
75,000
|
10,000
|
22
Schedule
4(bb)
Indebtedness
Assumes
Maximum Offering of $4million
|
As
of
1/19/2007
|
Conversion
to
Equity
|
Exchanged
into
Offering
|
Offering
|
Post-
Offering
|
||||||||||||
|
Notes
Payable to Shareholder
|
58,497
|
-
|
-
|
-
|
58,497
|
|||||||||||
|
Notes
Payable (1)
|
950,000
|
-
|
-
|
(375,000
|
)
|
575,000
|
||||||||||
|
Convertible
Debentures (2)
|
250,000
|
-
|
-
|
-
|
250,000
|
|||||||||||
|
Series
A Notes Payable (3)(4)(5)(6)
|
10,590,822
|
(5,677,140
|
)
|
(456,089
|
)
|
-
|
4,457,592
|
|||||||||
|
January
2007 Convertible Debenture (7)
|
500,000
|
-
|
(500,000
|
)
|
-
|
-
|
||||||||||
|
8%
Secured Convertible Debentures
|
-
|
-
|
956,089
|
3,043,911
|
4,000,000
|
|||||||||||
|
Total
Debt
|
12,349,319
|
(5,677,140
|
)
|
-
|
2,668,911
|
9,341,089
|
||||||||||
(1)
$375,000 of the Notes Payable will be paid at closing. The maturity of
the
remaining Notes Payable will be extended until six months after the closing
of
this Offering.
(2)
The
Convertible Debentures have a secured interest in the assets of the Company
that
is senior to the Securities in the Offering.
(3)
$5,420,668 of the Series A Notes Payable is converting into equity at
$1.50 and
will also receive warrants for 3,613,779 shares of common stock at $1.90
and
warrants 3,613,779 shares of common stock at $2.75
(4)
Certain holders of the Series A Notes Payable, that convert in over $2,000,000
shares of common stock will receive three sets of warrants for shares
of common
stock equal to 100% of the common stock underlying the conversion of
their note,
exercisable at $2.10 per share, $2.50 per share and $3.50 per share,
respectively.
(5)
$445,000 of the Series A Notes Payable is converting into the Securities
of this
Offering at face value.
(6)
Includes accrued interest for the debt that is converting into equity
of the
Securities of this Offering of $267,561 and $164,353 for the debt that
is
currently not converting.
(7)
The
January 2007 Convertible Debenture is convertible into the Securities
of this
Offering at face value.
23
Exhibit
A
Statement
of Accredited Investor
0000
Xxxxxxxxx Xxxx
Xxxxx
000
Xxx
Xxxx,
XX 00000
Ladies
and Gentlemen:
The
undersigned hereby refers to the Subscription Agreement executed and delivered
to TechnoConcepts, Inc. (the “Company”) by the undersigned as of the date
herewith. In connection with the subscription thereunder by the undersigned
to
purchase securities of the Company, the undersigned hereby represents and
warrants to you that such individual or entity meets at least one of the
tests
listed on the attached Exhibit I for an “accredited investor” (as such term is
defined under Regulation D promulgated pursuant to the Securities Act of
1933,
as amended).
I
qualify
under:
o Paragraph
1 (Officer or Director of the Company)
o
Paragraph
2 (Income exceeds $200,000 (Individual) or $300,000 (Joint))
o
Paragraph
3 (Individual or Joint Assets exceed $1,000,000)
o
Paragraph
4 (Trust Assets exceed $5,000,000, with limitations)
o
Paragraph
5 (Corporate Assets exceed $5,000,000, with limitations)
o
Paragraph
6 (Entity owners are Accredited)
Dated:
______________, 2007
| Very truly yours, | ||
|
Name of Individual #1 or Entity |
||
|
Authorized Signature |
||
|
Name of Individual #2, if applicable |
||
|
Authorized Signature |
||
A-1
EXHIBIT
I TO STATEMENT OF ACCREDITED INVESTOR
ACCREDITED
INVESTOR STATUS
NOTE:
Individuals who hold certain positions with an issuer or its affiliates,
or who
have certain minimum individual income or certain minimum net worth (each
as
described below) may qualify as Accredited Investors. Partnerships, corporations
or other entities may qualify as Accredited Investors if they fulfill certain
financial and other standards or if all of their equity owners have incomes
and/or net worth which qualify them individually as Accredited Investors,
and
trusts may qualify as Accredited Investors if they meet certain financial
and
other tests (as described below).
You
may
qualify as an Accredited Investor under Regulation D promulgated under
the
Securities Act of 1933 (the “1933 Act”) if you meet any of the following tests:
FOR
INDIVIDUALS ONLY
1.
You
are a director or an executive officer of TechnConcepts, Inc. An “executive
officer” is the president, any vice president in charge of a principal business
unit, division or function (such as sales, administration or finance),
any other
officer who performs a policy making function or any other person who performs
similar policy making functions for TechnoConcepts, Inc.
OR
2.
You
had individual income (exclusive of any income attributable to your spouse)
of
more than $200,000 in each of the two most recent fiscal years, and reasonably
expect to have an individual income in excess of $200,000 in the current
year,
or your spouse and you had a joint income in excess of $300,000 in each
of the
two most recent fiscal years, and you reasonably expect to have a joint
income
in excess of $300,000 in the current year.
OR
3.
You
have an individual net worth, or your spouse and you have a combined net
worth
in excess of $1,000,000. For purposes of this statement, “net worth” means the
excess of total assets at fair market value, including home, home furnishings
and automobiles, over total liabilities.
FOR
TRUSTS ONLY
4.
The
Trust has total assets in excess of $5,000,000, was not formed for the
specific
purpose of acquiring securities of TechnoConcepts, Inc., and the purchase
of
such securities is directed by a person with such knowledge and experience
in
financial and business matters that he is capable of evaluating the risks
and
merits of the prospective investment in such securities.
FOR
CORPORATIONS, PARTNERSHIPS OR OTHER PURCHASING ENTITIES
5.
Any
corporation, partnership, limited liability company or limited liability
partnership not formed for the specific purpose of acquiring securities
of
TechnoConcepts, Inc. with total assets in excess of $5,000,000.
OR
6.
All
equity owners of the purchasing entity are Accredited Investors.
A-2
Exhibit
B
TechnoConcepts,
Inc.
Selling
Securityholder Notice and Questionnaire
The
undersigned beneficial owner of common stock, no par value (the “Common
Stock”),
TechnoConcepts, Inc., a Colorado corporation (the “Company”),
understands that the Company has filed or intends to file with the Securities
and Exchange Commission (the “Commission”)
a
registration statement (the “Registration
Statement”)
for
the registration and resale under Rule 415 of the Securities Act of 1933,
as
amended (the “Securities
Act”),
of
the securities subscribed for in accordance with the terms of the Subscription
Agreement among the Company and each Investor named therein (the “Subscription
Agreement”)
(the
“Registrable
Securities”).
A
copy of the Subscription Agreement is available from the Company upon request
at
the address set forth below. All capitalized terms not otherwise defined
herein
shall have the meanings ascribed thereto in the Subscription Agreement.
Certain
legal consequences arise from being named as a selling securityholder in
the
Registration Statement and the related prospectus. Accordingly, holders
and
beneficial owners of Registrable Securities are advised to consult their
own
securities law counsel regarding the consequences of being named or not
being
named as a selling securityholder in the Registration Statement and the
related
prospectus.
NOTICE
The
undersigned beneficial owner (the “Selling
Securityholder”)
of
Registrable Securities hereby elects to include the Registrable Securities
owned
by it and listed below in Item 3 (unless otherwise specified under such
Item 3)
in the Registration Statement.
The
undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1.
Name.
|
(a)
|
Full
Legal Name of Selling Securityholder
|
|
(b)
|
Full
Legal Name of Registered Holder (if not the same as (a) above)
through
which Registrable Securities Listed in Item 3 below are
held:
|
|
(c)
|
Full
Legal Name of Natural Control Person (which means a natural
person who
directly you indirectly alone or with others has power to vote
or dispose
of the securities covered by the questionnaire):
|
B-1
2.
Address for Notices to Selling Securityholder:
| Telephone: | Fax: |
| Contact Person (if other than Selling Securityholder): |
3.
Beneficial Ownership of Registrable Securities:
(a)
Type
and Principal Amount of Registrable Securities beneficially owned:
|
#
Shares of Common Stock
|
|
|
#
Shares of Common Stock Underlying Debentures
|
|
|
#
Shares of Common Stock Underlying Preferred Stock
|
|
|
#
Shares of Common Stock Underlying Warrants
|
|
|
TOTAL
|
4.
Broker-Dealer Status:
| (a) |
Are
you a broker-dealer?
|
Yes
o
No o
| Note: |
If
yes, the Commission’s staff has indicated that you may be identified as an
underwriter in the Registration
Statement.
|
| (b) |
Are
you an affiliate of a
broker-dealer?
|
Yes
o
No o
| (c) |
If
you are an affiliate of a broker-dealer, do you certify that
you bought
the Registrable Securities as an investment in the ordinary course
of
business, and at the time of the purchase of the Registrable
Securities to
be resold, you had no agreements or understandings, directly or
indirectly, with any person to distribute the Registrable
Securities?
|
Yes
o
No o
| Note: |
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
|
B-2
5.
Beneficial Ownership of Other Securities of the Company Owned by the Selling
Securityholder.
Except
as set forth below in this Item 5, the undersigned is not the beneficial
or
registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.
(a)
Type
and Amount of Other Securities beneficially owned by the Selling Securityholder:
6.
Relationships with the Company:
Except
as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had
any
other material relationship with the Company (or its predecessors or affiliates)
during the past three years.
State
any
exceptions here:
7. Short Selling Covenant:
Each
Holder understands and acknowledges that the Commission currently takes the
position that coverage of short sales of shares of the Common Stock “against the
box” prior to the effective date of the Registration Statement with the Shares
purchased hereunder is a violation of Section 5 of the Securities Act, as
set
forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Accordingly, each Holder hereby
agrees
not to use any of the Registrable Securities to cover any short sales made
prior
to the Effective Date.
The
undersigned agrees to promptly notify the Company of any inaccuracies or
changes
in the information provided herein that may occur subsequent to the date
hereof
at any time while the Registration Statement remains effective.
By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of
such
information in the Registration Statement and the related prospectus. The
undersigned understands that such information will be relied upon by the
Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.
IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice
and Questionnaire to be executed and delivered either in person or by its
duly
authorized agent.
| Dated: |
Beneficial
Owner Name:
|
||
|
|
|
||
| Signature: | |||
|
By:
Name:
Title:
|
|
PLEASE
FAX OR MAIL A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE
TOGETHER WITH YOUR EXECUTED SUBSCRIPTION AGREEMENT
B-3
