SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of February 11,
2005, by and among Airtrax Inc., a New Jersey corporation (the "Company"), and
the subscribers identified on the signature page hereto (each a "Subscriber" and
collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to Five Million Dollars ($5,000,000) (the "Purchase Price") of
principal amount of promissory notes of the Company ("Note" or "Notes")
convertible into shares of the Company's common stock, no par value (the "Common
Stock") at a per share conversion price equal to $1.30, and share purchase
warrants (the "Warrants") in the form attached hereto as Exhibit A, to purchase
shares of Common Stock (the "Warrant Shares"). The Notes, shares of Common Stock
issuable upon conversion of the Notes (the "Shares"), the Warrants and the
Warrant Shares are collectively referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Conditions to Closing. Subject to the satisfaction or waiver of the
terms and conditions of this Agreement, on the "Closing Date" (as defined in
Section 2 below), each Subscriber shall purchase and the Company shall sell to
each Subscriber a Note in the principal amount designated on the signature page
hereto and the amount of Warrants determined pursuant to Section 3 below. The
aggregate principal amount of the Notes to be purchased by the Subscribers on
the Closing Date shall, in the aggregate, be equal to the Purchase Price.
2. Closing. The consummation of the transactions contemplated herein shall
take place at the offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of all conditions to
Closing set forth in this Agreement ("Closing Date").
3. Warrants.
(a) A Warrants. On the Closing Date, the Company will issue and
deliver Class A Warrants to the Subscribers. Fifty (50) Class A Warrants will be
issued for each one hundred (100) Shares which would be issued on the Closing
Date assuming the complete conversion of the Notes issued on the Closing Date at
the Conversion Price in effect on the Closing Date. The per Warrant Share
exercise price to acquire a Warrant Share upon exercise of a Class A Warrant
shall be $1.85. The Class A Warrants shall be exercisable until five (5) years
after the Closing Date. The Class A Warrants shall have a cashless feature.
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(b) B Warrants. On the Closing Date, the Company will issue and
deliver Class B Warrants to the Subscribers. Twenty-Five (25) Class B Warrants
will be issued for each one hundred (100) Shares which would be issued on the
Closing Date assuming the complete conversion of the Notes issued on the Closing
Date at the Conversion Price in effect on the Closing Date. The per Warrant
Share exercise price to acquire a Warrant Share upon exercise of a Class B
Warrant shall be $____ (101% of the three day average closing bid prices of the
Common Stock on the trading day immediately preceding the Closing Date). The
Class B Warrants shall be exercisable until five (5) years after the Closing
Date. The Class B Warrants shall have a cashless feature.
4. Subscriber's Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) Organization and Standing of the Subscribers. If the Subscriber is
an entity, such Subscriber is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Subscriber has the requisite power
and authority to enter into and perform this Agreement and to purchase the Notes
and Warrants being sold to it hereunder. The execution, delivery and performance
of this Agreement by such Subscriber and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its Board of Directors, stockholders,
partners, members, as the case may be, is required. This Agreement has been duly
authorized, executed and delivered by such Subscriber and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Subscriber enforceable against the Subscriber in accordance with the terms
thereof.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by such Subscriber of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of such Subscriber's charter documents or bylaws or other
organizational documents or (ii) 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 or obligation to which
such Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber). Such Subscriber is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Notes or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Subscriber is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Information on Company. The Subscriber has been furnished with or
has had access at the XXXXX Website of the Commission to the Company's Form
10-KSB for the year ended December 31, 2003 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, and filings made with
the Commission available at the XXXXX website (hereinafter referred to
collectively as the "Reports"). In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "Other Written Information"), and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities. The Subscriber has had full
opportunity to conduct, and has conducted, a complete and thorough due diligence
investigation of the Company, and such opportunity has been made available to
the Subscriber's professional representative(s) to ask questions of and receive
answers from representatives of the Company concerning the Company and its
financial condition and prospects, as well as request additional information
necessary to verify the accuracy of the Reports and Other Written Information
provided to Subscriber.
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(e) Information on Subscriber. The Subscriber is, and will be at the
time of the issuance of the Notes and at the time of conversion of any of the
Notes and exercise of any of the Warrants, an "accredited investor", as such
term is defined in Regulation D promulgated by the Commission under the 1933
Act, is experienced in investments and business matters, has made investments of
a speculative nature and has purchased securities of United States
publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities. The Subscriber is
able to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate. The Subscriber is not required to be
registered as a broker-dealer under Section 15 of the Securities Exchange Act of
1934, as amended (the "1934 Act") and the Subscriber is not a broker-dealer.
(f) Purchase of Notes and Warrants. On the Closing Date, the
Subscriber will purchase the Notes and Warrants as principal for its own account
for investment only and not with a view toward, or for resale in connection
with, the public sale or any distribution thereof.
(g) Compliance with Securities Act. The Subscriber understands and
agrees that the Securities have not been registered under the 1933 Act or any
applicable state securities laws, by reason of their issuance in a transaction
that does not require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of Subscriber contained herein),
and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. In any event, and subject to
compliance with applicable securities laws, the Subscriber may enter into lawful
hedging transactions with third parties, which may in turn engage in short sales
of the Securities in the course of hedging the position they assume and the
Subscriber may also enter into short positions or other derivative transactions
relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other
positions or otherwise settle short sales or other transactions, or loan or
pledge the Securities, or interests in the Securities, to third parties that in
turn may dispose of these Securities. Resales of the Securities by the
Subscriber will be made in compliance with all applicable securities laws
including Regulation M of the Securities Exchange Act and prospectus delivery
requirements.
(h) Shares Legend. The Shares and the Warrant Shares shall bear the
following or similar legend:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO AIRTRAX INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(i) Warrants Legend. The Warrants shall bear the following
or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO AIRTRAX INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(j) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO AIRTRAX
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(k) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(l) Authority; Enforceability. This Agreement and other agreements
delivered together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and Subscriber has full corporate power and
authority necessary to enter into this Agreement and such other agreements and
to perform its obligations hereunder and under all other agreements entered into
by the Subscriber relating hereto.
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(m) Restricted Securities. Subscriber understands that the Securities
have not been registered under the 1933 Act and such Subscriber will not sell,
offer to sell, assign, pledge, hypothecate or otherwise transfer any of the
Securities unless pursuant to an effective registration statement under the 1933
Act. Notwithstanding anything to the contrary contained in this Agreement, such
Subscriber may transfer (without restriction and without the need for an opinion
of counsel) the Securities to its Affiliates (as defined below) provided that
each such Affiliate is an "accredited investor" under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this Agreement. For
the purposes of this Agreement, an "Affiliate" of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity. Affiliate
includes each subsidiary of the Company. For purposes of this definition,
"control" means the power to direct the management and policies of such person
or firm, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
(n) No Governmental Review. Each Subscriber understands that no United
States federal or state agency or any other governmental or state agency has
passed on or made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
(o) No Market Manipulation. No Subscriber has taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Securities or affect
the price at which the Securities may be issued or resold.
(p) Short Position and Short Sales. Each Subscriber covenants that
neither it nor any of their affiliates will engage in any illegal short sales of
or illegal hedging transactions with respect to the Common Stock during the
period from the Closing Date until the later of (i) prior to Effective Date of
the registration statement required to be filed pursuant to this Agreement, or
(ii) 90 days after the Closing Date.
(q) Correctness of Representations. Each Subscriber represents as to
such Subscriber that the foregoing representations and warranties are true and
correct as of the date hereof and, unless a Subscriber otherwise notifies the
Company prior to each Closing Date shall be true and correct as of each Closing
Date.
(r) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
5. Company Representations and Warranties. The Company represents and
warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company and each of its material
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted other than those jurisdictions in which
the failure to so qualify would not have a material adverse effect. The Company
and each of its material subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction where the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure to so qualify
would not have a material adverse effect. (For purposes of this Agreement, a
"Material Adverse Effect" shall mean a material adverse effect on the financial
condition, results of operations, properties or business of the Company taken as
a whole.)
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(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company has been duly authorized and validly issued and are fully
paid and nonassessable.
(c) Authority; Enforceability. This Agreement, the Note, the Warrants,
the Escrow Agreement, and any other agreements delivered together with this
Agreement or in connection herewith (collectively "Transaction Documents") have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the Subsidiaries of the Company
except as described on Schedule 5(d).
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its Affiliates, the OTC Bulletin Board ("Bulletin Board") nor
the Company's shareholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under the Transaction Documents by the Company relating thereto by
the Company will:
(i) violate, conflict with, result in a breach of, or constitute
a default (or an event which with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) under (A) the articles
or certificate of incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or over the properties
or assets of the Company or any of its Affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect; or
(ii) result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company or any of
its Affiliates; or
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(iii) except as disclosed on Schedule 5(d), result in the
activation of any anti-dilution rights or a reset or repricing of any debt or
security instrument of any other creditor or equity holder of the Company, nor
result in the acceleration of the due date of any obligation of the Company; or
(iv) except as disclosed on Schedule 11.1, result in the
activation of any piggy-back registration rights of any person or entity holding
securities of the Company or having the right to receive securities of the
Company; or
(v) result in a violation of Section 5 under the 0000 Xxx.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon transfer under
the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and on
the date of issuance of the Shares and upon exercise of the Warrants, the Shares
and Warrant Shares will be duly and validly issued, fully paid and nonassessable
or if registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted) , provided that
each Subscriber complies with the prospectus delivery requirements of the 1933
Act);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company; and
(iv) will not subject the holders thereof to personal liability
by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under the Transaction Documents.
Except as disclosed in the Reports, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect.
(i) Reporting Company. The Company is a publicly-held company subject
to reporting obligations pursuant to Section 13 of the 1934 Act and has a class
of common shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant
to the provisions of the 1934 Act, the Company has timely filed all reports and
other materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Securities or affect
the price at which the Securities may be issued or resold.
(k) Information Concerning Company. The Reports contain all material
information relating to the Company and its operations and financial condition
as of their respective dates which information is required to be disclosed
therein. Since the date of the financial statements included in the Reports, and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no Material Adverse Event relating to the Company's business,
financial condition or affairs not disclosed in the Reports. The Reports do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made.
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(l) Stop Transfer. The Securities, when issued prior to the
effectiveness of the "Registration Statement" (as defined in Section __ of this
Agreement), will be restricted securities. Subscriber agrees that, in order to
ensure compliance with the restrictions referenced at Section 4(h), (i) and (j)
herein, the Company may issue "stop transfer" instructions to its transfer agent
consistent with the legends.
(m) Defaults. The Company is not in violation of its articles of
incorporation or bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to the
Company's knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect.
(n) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board which if so integrated would eliminate the exemption as
described in Section 6 of this Agreement for the offering. The Company will not
conduct any offering other than the transactions contemplated hereby that will
be integrated with the offer or issuance of the Securities which if so
integrated would impair the exemption for the offering.
(o) No General Solicitation. Neither the Company, nor any of its
Affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 0000 Xxx) in connection with the offer or sale
of the Securities.
(p) Listing. The Company's common stock is quoted on the OTC Bulletin
Board. The Company has not received any oral or written notice that its common
stock is not eligible nor will become ineligible for quotation on the Bulletin
Board nor that its common stock does not meet all requirements for the
continuation of such quotation and the Company satisfies all the requirements
for the continued quotation of its common stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are not
disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since December 31,
2003 and which, individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect.
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(r) No Undisclosed Events or Circumstances. Since December 31, 2003,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding capital stock of
the Company as of the date of this Agreement and the Closing Date (not including
the Securities) are set forth on Schedule 5(s). Except as set forth on Schedule
5(d), there are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or giving any right
to subscribe for any shares of capital stock of the Company or any of its
Subsidiaries. All of the outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company's equity or rights to receive equity of
the Company. The board of directors of the Company has concluded, in its good
faith business judgment that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Notes, and the Warrant
Shares upon exercise of the Warrants is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company or parties entitled to receive equity of the
Company.
(u) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers.
(v) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to each Closing Date, shall be true and correct in all
material respects as of each Closing Date.
(w) DTC Status. The Company's transfer agent is a participant in and
the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program.
(x) Investment Company. The Company is not an Affiliate of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(y) Registration Statement. As of the date of this Agreement, and as
of the Closing Date, the Company will not have any registration statement
pending before the Commission.
(z) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
6. Regulation D Offering. The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to Subscriber from the
Company's legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers. A form of the
legal opinion is annexed hereto as Exhibit C. The Company will provide, at the
Company's expense, such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants pursuant to an effective
registration statement.
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7.1. Conversion of Note.
(a) Upon the conversion of a Note or part thereof, the Company shall,
at its own cost and expense, take all necessary action, including obtaining and
delivering, an opinion of counsel to assure that the Company's transfer agent
shall issue stock certificates in the name of Subscriber (or its nominee) or
such other persons as designated by Subscriber and in such denominations to be
specified at conversion representing the number of shares of Common Stock
issuable upon such conversion. The Company warrants that no instructions other
than these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that, unless waived by the Subscriber, the Shares
will be free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Shares provided the Shares are
being sold pursuant to an effective registration statement covering the Shares
or are otherwise exempt from registration when sold.
(b) Subscriber will give notice of its decision to exercise its right
to convert the Note or part thereof by telecopying an executed and completed
Notice of Conversion (a form of which is annexed as Exhibit A to the Note) to
the Company via confirmed telecopier transmission or otherwise pursuant to
Section 13(a) of this Agreement. The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied. Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date. The Company will
itself or cause the Company's transfer agent to transmit the Company's Common
Stock certificates representing the Shares issuable upon conversion of the Note
to the Subscriber via express courier for receipt by such Subscriber within five
(5) business days after receipt by the Company of the Notice of Conversion (such
third day being the "Delivery Date"). In the event the Shares are electronically
transferable, then delivery of the Shares must be made by electronic transfer
provided request for such electronic transfer has been made by the Subscriber
and the Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation, the
prospectus delivery requirements. A Note representing the balance of the Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided the Subscriber delivers the original Note to the
Company. In the event that a Subscriber elects not to surrender a Note for
reissuance upon partial payment or conversion, the Subscriber hereby indemnifies
the Company against any and all loss or damage attributable to a third-party
claim in an amount in excess of the actual amount then due under the Note.
(c) The Company understands that a delay in the delivery of the Shares
in the form required pursuant to Section 7.1 hereof, or the Mandatory Redemption
Amount described in Section 7.2 hereof, respectively after the Delivery Date or
the Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty) to
the Subscriber for late issuance of Shares in the form required pursuant to
Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
business day after the Delivery Date for each $10,000 of Note principal amount
being converted of the corresponding Shares which are not timely delivered. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Subscriber, in the event that the Company fails
for any reason to effect delivery of the Shares by the Delivery Date or make
payment by the Mandatory Redemption Payment Date, the Subscriber will be
entitled to revoke all or part of the relevant Notice of Conversion or rescind
all or part of the notice of Mandatory Redemption by delivery of a notice to
such effect to the Company whereupon the Company and the Subscriber shall each
be restored to their respective positions immediately prior to the delivery of
such notice, except that the liquidated damages described above shall be payable
through the date notice of revocation or rescission is given to the Company.
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(d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.
7.2. Mandatory Redemption at Subscriber's Election. In the event the
Company is prohibited from issuing Shares, or fails to timely deliver Shares on
a Delivery Date, or upon the occurrence of any other Event of Default (as
defined in the Note or in this Agreement) or for any reason other than pursuant
to the limitations set forth in Section 7.3 hereof, then at the Subscriber's
election, the Company must pay to the Subscriber ten (10) business days after
request by the Subscriber the outstanding principal amount of the Note, together
with accrued but unpaid interest thereon ("Mandatory Redemption Payment"). The
Mandatory Redemption Payment must be received by the Subscriber on the same date
as the Company Shares otherwise deliverable or within ten (10) business days
after request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding, and any obligation
to deliver Shares with respect to conversion of the redeemed portion of the Note
shall be extinguished.
7.3. Maximum Conversion. The Subscriber shall not be entitled to convert on
a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of common stock beneficially owned by the Subscriber and its Affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
provision is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its Affiliates of more than 9.99% of the
outstanding shares of common stock of the Company on such Conversion Date. For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Subscriber shall not be limited to aggregate conversions of
only 9.99% and aggregate conversions by the Subscriber may exceed 9.99%. The
Subscriber may void the conversion limitation described in this Section 7.3 upon
and effective after 61 days prior written notice to the Company. The Subscriber
may allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 9.99% amount described above and which shall
be allocated to the excess above 9.99%.
7.4. Injunction Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof or exercise the Warrant in whole or in part, the
Company may not refuse conversion or exercise based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless, an injunction
from a court, on notice, restraining and or enjoining conversion of all or part
of such Note or exercise of all or part of such Warrant shall have been sought
and obtained by the Company and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 120% of the amount of the Note, or
aggregate purchase price of the Warrant Shares which are sought to be subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment.
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7.5. Buy-In. In addition to any other rights available to the Subscriber,
if the Company fails to deliver to the Subscriber such shares issuable upon
conversion of a Note by the Delivery Date and if after seven (7) business days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber was entitled to receive
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
7.6 Adjustments. The Conversion Price, Warrant exercise price and amount of
Shares issuable upon conversion of the Notes and exercise of the Warrants shall
be adjusted as described in this Agreement, the Notes and Warrants.
7.7. Mandatory Conversion. Provided an Event of Default has not occurred,
then commencing after the later of both the Approval Date and Effective Date and
ending ten (10) days after the later of the Approval Date and Effective Date,
the Company will have the option by written notice to the Subscriber ("Notice of
Mandatory Conversion") of compelling the Subscriber to convert the outstanding
and unpaid principal of the Notes and accrued interest, thereon, into Common
Stock at the Conversion Price then in affect ("Mandatory Conversion"). The date
the Notice of Mandatory Conversion is given is the "Mandatory Conversion Date."
The Notice of Mandatory Conversion shall specify the aggregate principal amount
of the Note which is subject to Mandatory Conversion. Mandatory Conversion
Notices must be given proportionately to all Holders of Notes who received Notes
similar in term and tenure as this Note. A Notice of Mandatory Conversion may
not be given unless the Registration Statement described in Section 11.1 (iv)
has been effective for the unrestricted public resale of Shares and Warrant
Shares. The Company shall reduce the amount of Note principal and interest
subject to a Notice of Mandatory Conversion by the amount of Note Principal and
interest for which the Subscriber had delivered a Notice of Conversion to the
Company during the seven (7) trading days preceding the Mandatory Conversion
Date. Each Mandatory Conversion Date shall be a deemed Conversion Date and the
Company will be required to deliver the Common Stock issuable pursuant to a
Mandatory Conversion Notice in the same manner and time period as described in
Section 2.2 of the Note.
7.8. Redemption. The Note and Warrants shall not be redeemable or callable
except as described in the Note.
7.9. Shareholder Approval. The Company and Subscribers agree that until the
Company obtains shareholder approval of an increase in the authorized Common
Stock of the Company to not less than 100,000,000 Shares of Common Stock (the
"Approval"), each Subscriber may not convert a Note. The Company filed a
preliminary proxy statement for a meeting of the Company's shareholders relating
to the Approval with the Commission on January 11, 2005. The Company covenants
to use its reasonable best efforts to obtain the Approval not later than April
30, 2005 ("Approval Date"). If the Company fails to obtain the Approval on or
before the Approval date, interest shall accrue on the Note at the default
interest rate set forth in Section 1.1 of the Note, from the Approval Date until
the date the Approval is obtained.
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8. Legal Fee/Escrow Agent/Broker's Commission/Broker's Warrants.
(a) Legal Fee. The Company shall pay to Grushko & Xxxxxxx, P.C., a fee
of $25,000 ("Legal Fees") as payment for services rendered to the Subscribers in
connection with this Agreement and the purchase and sale of the shares of Common
Stock (the "Offering") and acting as Escrow Agent for the Offering. The Legal
Fees will be payable out of funds held pursuant to the Escrow Agreement.
(b) Broker's Commission. The Company on the one hand, and each
Subscriber (for himself only) on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or Broker's Commission other than First Montauk
Securities Corp. ("Broker") on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby and arising out of such party's actions.
Anything in this Agreement to the contrary notwithstanding, each Subscriber is
providing indemnification only for such Subscriber's own actions and not for any
action of any other Subscriber. Each Subscriber's liability hereunder is several
and not joint. The Company agrees that it will pay Broker a cash fee equal to
10% of the Purchase Price on the Closing Date (as defined herein) directly out
of the funds held pursuant to the Escrow Agreement ("Broker's Commissions") as
payment to broker for acting as a finder in connection with the sale of the
Securities hereunder. The Broker will also receive on the Closing Date an amount
equal to 3% of the Purchase Price as a non-accountable expense allowance. The
Company represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the offering described in
this Agreement except the Broker.
(c) Broker's Warrants. On the Closing Date, the Company will issue to
the Broker, or at the Broker's written instructions to officers or employees of
the Broker, Warrants similar to and carrying the same rights as the Warrants
issuable to the Subscribers ("Broker's Warrants"). The Broker will receive, in
the aggregate, one Broker's Warrant for each ten (10) Shares issuable on
Conversion of the Notes on the Closing Date to the Subscribers. All the
representations, covenants, warranties, undertakings, remedies, liquidated
damages, indemnification, and other rights including but not limited to
reservation and registration rights made or granted to or for the benefit of the
Subscribers are hereby also made by the Company and granted to the holders of
the Broker's Warrants.
9. Covenants of the Company. The Company covenants and agrees with the
Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers, promptly
after it receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.
13
(b) Listing. The Company shall promptly secure the listing of the
shares of Common Stock and the Warrant Shares upon each national securities
exchange, or automated quotation system upon which they are or become eligible
for listing (subject to official notice of issuance) and shall maintain such
listing so long as any Warrants are outstanding. The Company will maintain the
listing of its Common Stock on the American Stock Exchange, Nasdaq SmallCap
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "Principal Market")), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.
(c) Market Regulations. The Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Subscribers and promptly provide copies thereof to Subscriber.
(d) Reporting Requirements. From the date of this Agreement and until
the sooner of (i) two (2) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitation, the Company will (A) cause its Common Stock to continue to
be registered under Section 12(b) or 12(g) of the 1934 Act, (B) comply in all
respects with its reporting and filing obligations under the 1934 Act, (C)
comply with all reporting requirements that are applicable to an issuer with a
class of shares registered pursuant to Section 12(b) or 12(g) of the 1934 Act,
as applicable, and (D) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will use its best
efforts not to take any action or file any document (whether or not permitted by
the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the Closing Date. Until
the earlier of the resale of the Common Stock and the Warrant Shares by each
Subscriber or two (2) years after the Warrants have been exercised, the Company
will use its best efforts to continue the listing or quotation of the Common
Stock on a Principal Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market. The Company agrees to timely file a Form D with respect to the
Securities if required under Regulation D and to provide a copy thereof to each
Subscriber promptly after such filing.
(e) Use of Proceeds. The proceeds of the Offering will be employed by
the Company for working capital and general corporate purposes. Except as set
forth on Schedule 9(e), the Purchase Price may not and will not be used for
accrued and unpaid officer and director salaries, payment of financing related
debt, redemption of outstanding notes or equity instruments of the Company nor
non-trade obligations outstanding on a Closing Date.
(f) Reservation. Subject to Stockholder Approval, prior to the Closing
Date, the Company undertakes to reserve, pro rata, on behalf of each holder of a
Note or Warrant, from its authorized but unissued common stock, a number of
common shares equal to 150% of the amount of Common Stock necessary to allow
each holder of a Note to be able to convert all such outstanding Notes and
interest and reserve the amount of Warrant Shares issuable upon exercise of the
Warrants. Failure to have sufficient shares reserved pursuant to this Section
9.1(f) for three (3) consecutive business days or ten (10) days in the aggregate
shall be a material default of the Company's obligations under this Agreement.
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(g) Taxes. From the date of this Agreement and until the sooner of (i)
two (2) years after the Closing Date, or (ii) until all the Shares and Warrant
Shares have been resold or transferred by all the Subscribers pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
(h) Insurance. From the date of this Agreement and until the sooner of
(i) two (2) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will keep true records and books of account
in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and conform
in all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets.
(k) Intellectual Property. From the date of this Agreement and until
the sooner of (i) two (2) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company shall maintain in full force and effect its
corporate existence, rights and franchises and all licenses and other rights to
use intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.
(l) Properties. From the date of this Agreement and until the sooner
of (i) two (2) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement (as defined in Section 11.1(iv) hereof) or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.
15
(m) Confidentiality/Public Announcement. From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company agrees that except in
connection with a Form 8-K or the Registration Statement, it will not disclose
publicly or privately the identity of the Subscribers unless expressly agreed to
in writing by a Subscriber or only to the extent required by law and then only
upon five days prior notice to Subscriber. In any event and subject to the
foregoing, the Company shall file a Form 8-K or make a public announcement
describing the Offering not later than the first business day after the Closing
Date. In the Form 8-K or public announcement, the Company will specifically
disclose the amount of common stock outstanding immediately after the Closing. A
form of the proposed Form 8-K or public announcement to be employed in
connection with the Offering is annexed hereto as Exhibit D.
(n) Further Registration Statements. Except for a registration
statement filed on behalf of the Subscribers pursuant to Section 11 of this
Agreement or in connection with the securities identified on Schedule 11.1
hereto, the Company will not file any registration statements, including but not
limited to Form S-8, with the Commission or with state regulatory authorities
without the consent of the Subscriber until the sooner of (i) the Registration
Statement (as defined in Section 11.1(iv) of this Agreement) shall have been
effective in connection with the public resale of the Shares and Warrant Shares
for 60 days or (ii) until all the Shares have been resold or transferred by the
Subscribers pursuant to the Registration Statement or Rule 144, without regard
to volume limitations ("Exclusion Period"). The Exclusion Period will be tolled
during the pendency of an Event of Default as defined in the Note.
(o) Blackout. The Company undertakes and covenants that until the
first to occur of (i) the end of the Exclusion Period, as defined in Section
9(n) hereof, or (ii) until all the Shares and Warrant Shares have been resold
pursuant to such registration statement or Rule 144, without regard to volume
limitations, the Company will not enter into any acquisition, merger, exchange
or sale or other transaction that could have the effect of delaying the
effectiveness of any pending registration statement or causing an already
effective registration statement to no longer be effective or current.
(p) Non-Public Information. The Company covenants and agrees that
neither it nor any other person acting on its behalf will provide any Subscriber
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
10. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' officers, directors, agents,
Affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.
16
(b) Each Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company's officers, directors, agents,
Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers, relating hereto.
(c) In no event shall the liability of any Subscriber or permitted
successor hereunder or under any Transaction Document or other agreement
delivered in connection herewith be greater in amount than the dollar amount of
the net proceeds actually received by such Subscriber upon the sale of
Registrable Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply to the
indemnification set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing one hundred and six
(106) days after the Filing Date, but not later than two (2) years after the
Closing Date ("Request Date"), upon a written request therefor from any record
holder or holders of more than 50% of the Shares issued and issuable upon
conversion of the Notes and Warrant Shares actually issued upon exercise of the
Warrants, the Company shall prepare and file with the Commission a registration
statement under the 1933 Act registering the Shares, Warrant Shares issuable
upon exercise of the Warrants including Shares issuable upon conversion of
interest accruing on the Notes (collectively "Registrable Securities") which are
the subject of such request for unrestricted public resale by the holder
thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities
shall not include (A) Securities which are registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, or (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon the
receipt of such request, the Company shall promptly give written notice to all
other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
(10) days after the Company gives such written notice. Such other requesting
record holders shall be deemed to have exercised their demand registration right
under this Section 11.1(i). Notwithstanding the foregoing, the Company may, at
its option, register up to an additional 1,812,430 shares of Common Stock and
warrants to purchase 906,200 shares of Common Stock that may be directly placed
by the Company with its existing shareholders, as set forth in Schedule 11.1
attached hereto, in the Registration Statement required to be filed pursuant to
this Agreement.
(ii) If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will, subject to
the terms of this Agreement, cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "Seller" or "Sellers"). In the event that any registration
pursuant to this Section 11.1(ii) shall be, in whole or in part, an underwritten
public offering of common stock of the Company, the number of shares of
Registrable Securities to be included in such an underwriting may be reduced by
the managing underwriter if and to the extent that the Company and the
underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.
17
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 11.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account and the Company actually
does file such other registration statement, such written request shall be
deemed to have been given pursuant to Section 11.1(ii) rather than Section
11.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission a Form SB-2
registration statement (the "Registration Statement") (or such other form that
it is eligible to use) in order to register the Registrable Securities for
resale and distribution under the 1933 Act not later than ten (10) days after
the effectiveness of the registration statement to be filed in February, 2005
("Other Registration Statement") (the "Filing Date"); provided, however, that in
the event that Approval (as defined in Section 7.9) has not yet been obtained
before ten (10) days after the effective date of the Other Registration
Statement, then the Company shall be required to file the Registration Statement
no later than ten (10) days after the Approval is obtained (but in any event not
later than the Approval Date). The Company will use its best efforts to amend
the Other Registration Statement to include the Registrable Securities provided
necessary consents are obtained and the Approval is obtained prior to the
effectiveness of the Other Registration Statement. The Company shall cause the
Registration Statement to be declared effective not later than one hundred and
five (105) days after the Filing Date (the "Effective Date"). The Company will
register not less than a number of shares of common stock in the aforedescribed
registration statement that is equal to 150% of the Shares issuable upon
conversion of the Notes and all of the Warrant Shares issuable pursuant to this
Agreement upon exercise of the Warrants. The Registrable Securities shall be
reserved and set aside exclusively for the benefit of each Subscriber and
Warrant holder, pro rata, and not issued, employed or reserved for anyone other
than each such Subscriber and Warrant holder. The Registration Statement will
immediately be amended or additional registration statements will be immediately
filed by the Company as necessary to register additional shares of Common Stock
to allow the public resale of all Common Stock included in and issuable by
virtue of the Registrable Securities. Without the written consent of the
Subscriber, no securities of the Company other than the Registrable Securities
will be included in the Registration Statement except as provided on Schedule
11.1. It shall be deemed a Non-Registration Event if at any time after the date
the Registration Statement is declared effective by the Commission ("Actual
Effective Date") the Company has registered for unrestricted resale on behalf of
the Subscriber fewer than 100% of the amount of Common Shares issuable upon full
conversion of all sums due under the Notes and 100% of the Warrant Shares
issuable upon exercise of the Warrants.
18
11.2. Registration Procedures. If and whenever the Company is required by
the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the registration
of any Registrable Securities under the 1933 Act, the Company will, as
expeditiously as possible:
(a) subject to the timelines provided in this Agreement, prepare and
file with the Commission a registration statement required by Section 11, with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as herein provided), promptly provide to the
holders of the Registrable Securities copies of all filings and Commission
letters of comment and notify Subscribers (by telecopier and by e-mail addresses
provided by Subscribers) and Grushko & Xxxxxxx, P.C. (by telecopier and by email
to Xxxxxxxxx@xxx.xxx) on or before 6 pm EST on the same business day that the
Company receives notice that (i) the Commission has no comments or no further
comments on the Registration Statement, and (ii) the registration statement has
been declared effective (failure to timely provide notice as required by this
Section 11.2(a) shall be a material breach of the Company's obligation and an
Event of Default as defined in the Notes and a Non-Registration Event as defined
in Section 10.4 of this Agreement);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until such registration statement has been effective for a period of two (2)
years, and comply with the provisions of the 1933 Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Sellers' intended method of disposition set
forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's expense, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its commercially reasonable best efforts to register or
qualify the Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of such jurisdictions as the Sellers shall
request in writing, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Sellers when a prospectus relating thereto
is required to be delivered under the 1933 Act, of the happening of any event of
which the Company has knowledge as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing; and
(g) provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the Sellers,
and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
19
11.3. Provision of Documents. In connection with each registration
described in this Section 11, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company and the Subscribers agree that
the Sellers will suffer damages if the Registration Statement is not filed by
the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 11.1(i) or 11.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 11 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(A) the Registration Statement is not filed on or before the Filing Date, (B) is
not declared effective on or before the Effective Date, provided the Company has
failed to reasonably and adequately respond to all oral or written comments made
by the Commission as they relate to the Registration Statement, within ten
business days of the receipt by the Company or its counsel of such comments, (C)
the Registration Statement is not declared effective within three (3) business
days after receipt by the Company or its attorneys of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (D) if the registration
statement described in Sections 11.1(i) or 11.1(ii) is not filed within 60 days
after such written request, or is not declared effective within 120 days after
such written request, (E) any registration statement described in Sections
11.1(i), 11.1(ii) or 11.1(iv) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded within fifteen (15)
business days by an effective replacement or amended registration statement) for
a period of time which shall exceed 30 days in the aggregate per year (defined
as a period of 365 days commencing on the date the Registration Statement is
declared effective) or more than 20 consecutive days, or (F) failure to file the
Other Registration Statement within five days after the effectiveness of the
registration statement to be filed in February, 2005 (each such event referred
to in clauses A through F of this Section 11.4 is referred to herein as a
"Non-Registration Event"), then the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to two percent
(2%) for each thirty (30) days on a daily, pro rata basis, of the Purchase Price
of the Notes remaining unconverted and purchase price of Shares issued upon
conversion of the Notes owned of record by such holder which are subject to such
Non-Registration Event. The Company must pay the Liquidated Damages in cash or
an amount equal to two hundred percent of such cash Liquidated Damages if paid
in additional shares of registered unlegended free-trading shares of Common
Stock. Such Common Stock shall be valued at the Conversion Price in effect on
each thirty (30) day or shorter period for which Liquidated Damages are payable.
The Liquidated Damages must be paid within ten (10) days after the end of each
thirty (30) day period or shorter part thereof for which Liquidated Damages are
payable. In the event a Registration Statement is filed by the Filing Date but
is withdrawn prior to being declared effective by the Commission, then such
Registration Statement will be deemed to have not been filed. All oral or
written and accounting comments received from the Commission relating to the
Registration Statement must be responded to within thirty (30) days.
Notwithstanding the foregoing, the Company shall not be liable to the Subscriber
under this Section 11.4 for any events or delays occurring as a consequence of
the acts or omissions of the Subscribers contrary to the obligations undertaken
by Subscribers in this Agreement. Liquidated Damages will not accrue nor be
payable pursuant to this Section 11.4 nor will a Non-Registration Event be
deemed to have occurred for times during which Registrable Securities are
transferable by the holder of Registrable Securities pursuant to Rule 144(k)
under the 1933 Act.
20
11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, costs of insurance and fee of one
counsel for all Sellers are called "Registration Expenses." All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of one counsel to the Seller,
are called "Selling Expenses." The Company will pay all Registration Expenses in
connection with the registration statement under Section 11. Selling Expenses in
connection with each registration statement under Section 11 shall be borne by
the Seller and may be apportioned among the Sellers in proportion to the number
of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all Sellers thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities under
the 1933 Act pursuant to Section 11, the Company will, to the extent permitted
by law, indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
21
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the 1933 Act in any case in which either (i) a
Seller, or any controlling person of a Seller, makes a claim for indemnification
pursuant to this Section 11.6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
22
11.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third (3rd) business day
being the "Unlegended Shares Delivery Date") after the business day on which the
Company has received (i) a notice that Registrable Securities have been sold
either pursuant to the Registration Statement or Rule 144 under the 1933 Act,
(ii) a representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable and if required, have been satisfied,
and (iii) the original share certificates representing the shares of Common
Stock that have been sold, and (iv) in the case of sales under Rule 144,
customary representation letters of the Subscriber and/or Subscriber's broker
regarding compliance with the requirements of Rule 144, the Company at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery of
shares of Common Stock without any legends including the legend set forth in
Section 4(h) above, issuable pursuant to any effective and current Registration
Statement described in Section 11 of this Agreement or pursuant to Rule 144
under the 1933 Act (the "Unlegended Shares"); and (z) cause the transmission of
the certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the unsold shares of Common Stock, if
any, to the Subscriber at the address specified in the notice of sale, via
express courier, by electronic transfer or otherwise on or before the Unlegended
Shares Delivery Date. Transfer fees shall be the responsibility of the Seller.
(b) In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime Broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(c) The Company understands that a delay in the delivery of the
Unlegended Shares pursuant to Section 11 hereof later than two business days
after the Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the Company agrees to
pay late payment fees (as liquidated damages and not as a penalty) to the
Subscriber for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to 120% of the Purchase Price of such Common
Stock and Warrant Shares ("Unlegended Redemption Amount"). The amount of the
aforedescribed liquidated damages that have accrued or been paid for the twenty
day period prior to the receipt by the Subscriber of the Unlegended Redemption
Amount shall be credited against the Unlegended Redemption Amount. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand.
(d) In addition to any other rights available to a Subscriber, if the
Company fails to deliver to a Subscriber Unlegended Shares as required pursuant
to this Agreement, within seven (7) business days after the Unlegended Shares
Delivery Date and the Subscriber purchases (in an open market transaction or
otherwise) shares of common stock to deliver in satisfaction of a sale by such
Subscriber of the shares of Common Stock which the Subscriber was entitled to
receive from the Company (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
23
(e) In the event a Subscriber shall request in writing delivery of
Unlegended Shares as described in Section 11.7 and the Company is required to
deliver such Unlegended Shares pursuant to Section 11.7, the Company may not
refuse to deliver Unlegended Shares based on any claim that such Subscriber or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, the Company files for an
injunction or temporary restraining order from a court, on notice, restraining
and or enjoining delivery of such Unlegended Shares or exercise of all or part
of said Warrant shall have been sought and obtained and the Company has posted a
surety bond for the benefit of such Subscriber in the amount of 120% of the
amount of the aggregate purchase price of the Common Stock and Warrant Shares
which are subject to the injunction or temporary restraining order, which bond
shall remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Subscriber to the
extent Subscriber obtains judgment in Subscriber's favor.
12. (a) Right of First Refusal. Until twelve (12) months after the
Closing Date, the Subscribers shall be given not less than ten (10) business
days prior written notice of any proposed sale by the Company of its common
stock or other securities or debt obligations, except in connection with (i) the
Company's issuance of warrants or options to purchase Common Stock to employees
of the Company, whether pursuant to an employee stock option or compensation
plan or otherwise, (ii) up to approximately 1,430,000 shares of Common Stock
which may be issued to Crossfire Network, Inc., National Financial
Communications and Xx. Xxxxx Xxxxxxx, as consultants, as set forth in Schedule
12(d) annexed hereto (iii) as a result of the exercise of options or warrants or
conversion of convertible notes which are granted or issued pursuant to this
Agreement, (iv) as full and partial consideration in connection with a merger,
consolidation or purchase of substantially all of the securities or assets of
any corporation or other entity, including, without limitation, the proposed
acquisition by the Company of Filco GmbH, (v) up to 100,000 shares of
non-convertible preferred stock to be issued to Arcon Corp., as payment for
accrued dividends, (vi) the issuance of securities in situations involving
strategic business partnerships, and acquisition candidates, and (vii) the
issuance of securities pursuant to securities or arrangements that are
outstanding or in place prior to the date of this Agreement as have been
described in the Reports or Other Written Information filed with the Commission
or delivered to the Subscribers prior to the Closing Date (collectively the
foregoing are "Excepted Issuances"). The Subscribers who exercise their rights
pursuant to this Section 12(a) shall have the right during the ten (10) business
days following receipt of the notice to purchase such offered common stock, debt
or other securities in accordance with the terms and conditions set forth in the
notice of sale in the same proportion as their portion of the Purchase Price
bears to the total Purchase Price. In the event such terms and conditions are
modified during the notice period, the Subscribers shall be given prompt notice
of such modification and shall have the right during the ten (10) business days
following the notice of modification, whichever is longer, to exercise such
right.
24
Notwithstanding the foregoing, the Right of First Refusal rights granted to
the Subscribers shall be effective to the extent that the participation rights
granted to the investors in the Company's financing which closed on November 22
and 23, 2004 have not been exercised. Accordingly, the Right of First Refusal
rights granted hereby shall only be honored by the Company, if, and to the
extent, that the investors in the November 22 and 23, 2004 financing do not
exercise their right of first refusal.
(b) Offering Restrictions. Other than Excepted Issuances, until the
end of the Exclusion Period, the Company will not enter into an agreement to nor
issue any equity, convertible debt or other securities convertible into common
stock or equity of the Company nor modify any of the foregoing which may be
outstanding at anytime so as to provide for a price per share or conversion or
exercise price per share which shall be less than the Conversion Price in
respect of the Shares or the Warrant exercise price in respect of the Warrant
Shares, without the prior written consent of the Subscriber, which consent may
be withheld for any reason. For so long as the Notes are outstanding the Company
will not enter into any equity line of credit or similar agreement, nor issue or
agree to issue any floating or variable priced equity linked instruments nor any
of the foregoing or equity with price reset rights.
(c) Favored Nations Provision. Other than the Excepted Issuances, if
at any time until (i) the Registration Statement has been effective for the
unrestricted public resale of the Shares and Warrant Shares for 180 days (which
period shall be tolled during the pendancy of an Event of Default), or (ii)
until all the Shares and Warrant Shares have been resold or transferred by the
Subscribers pursuant to the Registration Statement or Rule 144, without regard
to volume limitations, the Company shall offer, issue or agree to issue any
common stock or securities convertible into or exercisable for shares of common
stock (or modify any of the foregoing which may be outstanding) to any person or
entity at a price per share or conversion or exercise price per share which
shall be less than the Conversion Price in respect of the Shares, or if less
than the Warrant exercise price in respect of the Warrant Shares, without the
consent of each Subscriber holding Notes and/or Shares, then the Company shall
issue, for each such occasion, additional shares of Common Stock to each
Subscriber so that the average per share purchase price of the shares of Common
Stock issued to the Subscriber (of only the Common Stock or Warrant Shares still
owned by the Subscriber) is equal to such other lower price per share and the
Conversion Price and Warrant Exercise Price shall automatically be reduced to
such other lower price per share. The average Purchase Price of the Shares and
average exercise price in relation to the Warrant Shares shall be calculated
separately for the Shares and Warrant Shares. The foregoing calculation and
issuance shall be made separately for Shares received upon conversion and
separately for Warrant Shares. The delivery to the Subscriber of the additional
shares of Common Stock shall be not later than the closing date of the
transaction giving rise to the requirement to issue additional shares of Common
Stock. The Subscriber is granted the registration rights described in Section 11
hereof in relation to such additional shares of Common Stock except that the
Filing Date and Effective Date vis-a-vis such additional common shares shall be,
respectively, the sixtieth (60th) and one hundred and twentieth (120th) date
after the closing date giving rise to the requirement to issue the additional
shares of Common Stock. For purposes of the issuance and adjustment described in
this paragraph, the issuance of any security of the Company carrying the right
to convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the issuance of such convertible security, warrant,
right or option and again at any time upon any subsequent issuances of shares of
Common Stock upon exercise of such conversion or purchase rights if such
issuance is at a price lower than the Conversion Price in effect upon such
issuance. The rights of the Subscriber set forth in this Section 12 are in
addition to any other rights the Subscriber has pursuant to this Agreement, the
Note, any Transaction Document, and any other agreement referred to or entered
into in connection herewith.
25
(d) Option Plan Restrictions. Except as disclosed on Schedule 12(d),
there are no officer, director, employee and consultant stock option or stock
incentive plans or arrangements currently in effect or contemplated by the
Company has been submitted to the Subscribers. No other plans or arrangements
will be adopted nor may any options or equity not included in such plans or
arrangements be issued for so long as any sum is outstanding under the Note.
(e) Maximum Exercise of Rights. In the event the exercise of the
rights described in Sections 12(a) and 12(c) would result in the issuance of an
amount of common stock of the Company that would exceed the maximum amount that
may be issued to a Subscriber calculated in the manner described in Section 7.3
of this Agreement, then the issuance of such additional shares of common stock
of the Company to such Subscriber pursuant to Section 12(c) will be deferred in
whole or in part until such time as such Subscriber is able to beneficially own
such common stock without exceeding the maximum amount set forth calculated in
the manner described in Section 7.3 of this Agreement. The determination of when
such common stock may be issued shall be made by each Subscriber as to only such
Subscriber. Each Subscriber will not be permitted to exercise the rights
described in Section 12(a) in excess of the amount calculated pursuant to
Section 7.3 of this Agreement.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Airtrax Inc., 000X
Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxx Xxxxxx 00000, Attn:Xxxxx Xxxxx, CEO, telecopier:
(000) 000-0000, with a copy by telecopier only to: Xxxxxxx X. Xxxxxxxx, Esq.,
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP, 1065 Avenue of the Xxxxxxxx, 00xx Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, telecopier: (000) 000-0000, (ii) if to the
Subscribers, to: the one or more addresses and telecopier numbers indicated on
the signature pages hereto, with an additional copy by telecopier only to:
Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
telecopier number: (000) 000-0000, and (iii) if to the Broker, to: First Montauk
Securities Corp., 000 Xxxxxx Xxxxxxx Xxxx, Xxx Xxxx, XX 00000, Attn: Xxxxxx
Xxxxxxxxxx, Director of Corporate Finance, telecopier: (000) 000-0000.
(b) Entire Agreement; Assignment. This Agreement and other documents
delivered in connection herewith represent the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by both parties. Neither the Company nor the Subscribers
have relied on any representations not contained or referred to in this
Agreement and the documents delivered herewith. No right or obligation of the
Company shall be assigned without prior notice to and the written consent of the
Subscribers.
26
(c) Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(d) Law Governing this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to conflicts of laws principles that would result in the application of
the substantive laws of another jurisdiction. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. The parties and the individuals executing this
Agreement and other agreements referred to herein or delivered in connection
herewith on behalf of the Company agree to submit to the jurisdiction of such
courts and waive trial by jury. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to one or more preliminary
and final injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity. Subject to Section 13(d) hereof, each of the Company, Subscriber
and any signator hereto in his personal capacity hereby waives, and agrees not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in New York of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Nothing in this Section shall affect
or limit any right to serve process in any other manner permitted by law.
(f) Independent Nature of Subscribers. The Company acknowledges that
the obligations of each Subscriber under the Transaction Documents are several
and not joint with the obligations of any other Subscriber, and no Subscriber
shall be responsible in any way for the performance of the obligations of any
other Subscriber under the Transaction Documents. The Company acknowledges that
each Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the Registration Statement and (ii) review by, and
consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
[THIS SPACE INTENTIONALLY LEFT BLANK]
27
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
AIRTRAX INC.
a New Jersey corporation
By:/s/ Xxxxx Xxxxx
---------------
Name: Xxxxx Xxxxx
Title: President and CEO
Dated: February 11, 2005
---------------------------------------- -------------------- -------------------- -------------------
SUBSCRIBER NOTE PRINCIPAL CLASS A CLASS B WARRANTS
WARRANTS
---------------------------------------- -------------------- -------------------- -------------------
XXXXXXXXXXX LIMITED PARTNERSHIP $200,000.00
00 Xxxxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx
X0X 0X0, Xxxxxx
Fax: (000) 000-0000
______________________________________
(Signature)
By:
--------------------------------------
28
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
AIRTRAX INC.
a New Jersey corporation
By:/s/ Xxxxx Xxxxx
-----------------
Name: Xxxxx Xxxxx
Title: President and CEO
Dated: February 11, 2005
-------------------------------------------------------- --------------------- ------------------- -------------------
SUBSCRIBER NOTE PRINCIPAL CLASS A CLASS B WARRANTS
WARRANTS
-------------------------------------------------------- --------------------- ------------------- -------------------
WHALEHAVEN CAPITAL FUND LIMITED $350,000.00
0xx Xxxxx, 00 Xxx-Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
Fax: (000) 000-0000
______________________________________
(Signature)
By:
--------------------------------------
29
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
AIRTRAX INC.
a New Jersey corporation
By/s/ Xxxxx Xxxxx
----------------
Name: Xxxxx Xxxxx
Title: President and CEO
Dated: February 11, 2005
-------------------------------------------------------- -------------------- ------------------- --------------------
SUBSCRIBER NOTE PRINCIPAL CLASS A CLASS B WARRANTS
WARRANTS
-------------------------------------------------------- -------------------- ------------------- --------------------
NITE CAPITAL LP $400,000.00
000 X. Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxx
Fax: (000) 000-0000
______________________________________
(Signature)
By:
--------------------------------------
30
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (D)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
AIRTRAX INC.
a New Jersey corporation
By:/s/ Xxxxx Xxxxx
---------------
Name: Xxxxx Xxxxx
Title: President and CEO
Dated: February 11, 2005
--------------------------------------------------------- --------------------- ------------------- ------------------
SUBSCRIBER NOTE PRINCIPAL CLASS A CLASS B WARRANTS
WARRANTS
--------------------------------------------------------- --------------------- ------------------- ------------------
_______________________________________
Print Name of Subscriber
_______________________________________
(Signature)
_______________________________________
Print Name and Title
Address:________________________________
_______________________________________
Fax: ___________________________________
Tax ID (if any):__________________________
31
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Class A Warrant
Exhibit B Escrow Agreement
Exhibit C Form of Legal Opinion
Exhibit D Form of Public Announcement or Form 8-K
Schedule 5(d) Additional Issuances
Schedule 5(s) Capitalization
Schedule 9(e) Use of Proceeds
Schedule 12(d) Officer, Director, Employee and Consultant Stock
Option Plans or Arrangements
32
SCHEDULES TO
SUBSCRIPTION AGREEMENT
dated as of February 11, 2005 by and, among Airtrax, Inc., a New Jersey
corporation (the "Company"), and each purchaser identified on the signature
pages hereto (each, including its successors and assigns, a "Purchaser" and
collectively the "Purchasers")
33
Schedule 5(d)
Additional Issuances.
The following is a list of (i) warrants or options to acquire, or instruments
convertible into or exchangeable for, or the sale or issuance of any shares of,
Common Stock of the Company; and (ii) anti-dilution rights triggered by this
transaction:
Warrants:
906,200 warrants exercisable at $1.25 per share
2,615,375 warrants exercisable at $1.25 per share
820,000 warrants exercisable at $1.25 per share
164,000 warrants exercisable at $1.25 per share
865,000 warrants exercisable at $2.50 per share
100,000 warrants exercisable at $1.00 per share
Options:
900,000 options exercisable at $0.01 per share
100,000 options exercisable for two years beginning December 7, 2004
Preferred Stock:
275,000 shares of preferred stock
34
Schedule 5(s)
Capitalization
(a) the authorized capital stock of the Company on the date hereof;
20,000,000 common shares
500,000 preferred shares
(b) the number of shares of capital stock issued and outstanding;
15,129,342 shares of common stock
275,000 shares of preferred stock
(c) the number of warrant to purchase shares of common stock issued and
outstanding;
906,200 warrants exercisable at $1.25 per share
2,615,375 warrants exercisable at $1.25 per share
820,000 warrants exercisable at $1.25 per share
164,000 warrants exercisable at $1.25 per share
865,000 warrants exercisable at $2.50 per share
100,000 warrants exercisable at $1.00 per share
(c) the number of options to purchase shares of common stock issued and
outstanding;
900,000 options exercisable at $0.01 per share
100,000 options exercisable for two years beginning December 7, 2004
35
SCHEDULE 9(e)
Use of Proceeds
Working capital and general corporate purposes.
36
Schedule 11.1
Registration Rights
1,812,403 shares of Common Stock and warrants to purchase 906,200 shares of
Common Stock pursuant to certain Subscription Agreements.
1,640,000 shares of Common Stock and warrants to purchase 820,000 shares of
Common Stock pursuant to a Purchase Agreement and certain Joinders to the
Purchase Agreement dated November 22, 2004 and November 23, 2004, respectively.
Warrants to purchase 164,000 shares of Common Stock issued to First Montauk
Securities Corp., as the Company's placement agent pursuant to a Purchase
Agreement dated November 22, 2004.
Warrants to purchase 100,000 shares of Common Stock issued to First Montauk
Securities Corp. pursuant to an Advisory Agreement dated September 20, 2004.
Options to purchase 900,000 shares of Common Stock to be issued to Fil Filipov
in consideration of the proposed acquisition of Filco GmbH.
Options to purchase 100,000 shares of Common Stock to be issued to Fil Filipov
in consideration of his services as a Director for two years beginning December
7, 2004.
20,000 shares of common stock to be issued to Xxxxx Xxxxxxx in consideration for
lease payments at H&R Industries from January 1, 2004 through March 31, 2005.
50,000 shares of common stock previously issued to Xxx Xxxxxxxxx for services
between the ANC Group and Airtrax Inc.
37
Schedule 12(d)
Officer, Director, Employee and Consultant Stock Option Plans or Arrangements
Employment Agreements with Xxxxxxxx X. Xxxxxxx and Xxxxxx X. Xxxxxxxxx - (i)
stock options not exceeding 25,000 shares of Common Stock per year during the
term of his employment; (ii) 2,500 shares of Common Stock for each year of
service for the sum of $1.00; and (iii) after 6 months continuous employment and
each year thereafter, the right to purchase up to 10,000 shares of Common Stock
at a rate equal to 35% of the lowest rate paid for stock in the 30 days
preceding the purchase of said stock.
Employment Agreement with Xxxxx X. Xxxxx - (i) options to purchase up to 500,000
shares of Common Stock of the Company per year at the rate equal to the "bid"
price of one share of stock as of July 1, 2004 for year one of the Employment
Agreement; (ii) options to purchase up to 750,000 shares of Common Stock of the
Company per year at the rate equal to the "bid" price of one share of stock as
of July 1, 2004 for year two of the Employment Agreement.
Employment Agreement with Xxxxx Xxxxxxx - The Company's Board of Directors will
determine whether to approve 100,000 shares of Common Stock to Xx. Xxxxxxx in
his capacity as the Company's Chief Financial Officer.
Options to purchase 900,000 shares of Common Stock to be issued to Fil Filipov,
who was appointed to the Company's board in December 2004, in consideration of
the proposed acquisition of Filco GmbH and options to purchase 100,000 shares of
Common Stock to be issued to Fil Filipov, for services as Director for a two
year period beginning December 2004
Consulting Agreement with Crossfire Network, Inc. - warrants to purchase (i)
30,000 shares of Common Stock upon execution of the Consulting Agreement; (ii)
100,000 shares of Common Stock when sales of 50 lift trucks are completed; (iii)
100,000 shares of Common Stock when sales of 500 lift trucks are completed; (iv)
100,000 shares of Common Stock when sales of 1,000 lift trucks are completed;
(v) 100,000 shares of Common Stock when sales of 1,500 lift trucks are
completed; and (vi) 100,000 shares of Common Stock thereafter at each time when
sales of 1,000 lift trucks are completed.
Proposed Consulting Agreement with National Financial Communications
1) 500,000 shares of stock;
2) 100,000 options at $3.50;
3) 100,000 options at $4.50;
4) 100,000 options at $5.50;
Warrants to purchase 100,000 shares of Common Stock issued to First Montauk
Securities Corp. pursuant to an Advisory Agreement dated September 20, 2004.
275,000 shares of Preferred Stock to Arcon Corp., wholly owned by Xxxxx Xxxxx,
President of the Company. The Company's Board of Directors will determine
whether to issue an additional 100,000 shares of Preferred Stock to Arcon Corp.
as payment for accrued dividends.
38
