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EXHIBIT 10.27
SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Empyrean
Bioscience, Inc., a Delaware corporation (the "Company") hereby agrees to issue
and to sell to the Subscriber, Secured 8% Convertible Notes (the "Notes")
convertible in accordance with the terms thereof into shares of the Company's
$.0001 par value common stock (the "Company Shares") for the aggregate
consideration as set forth on the signature page hereof ("Purchase Price"). The
form of Convertible Note is annexed hereto as Exhibit A. (The Company Shares
included in the Securities (as hereinafter defined) are sometimes referred to
herein as the "Shares" or "Common Stock"). (The Notes, the Company Shares,
Common Stock Purchase Warrants ("Warrants") issuable to the recipients
identified on Schedule B hereto, and the Common Stock issuable upon exercise of
the Warrants are collectively referred to herein as, the "Securities"). Upon
acceptance of this Agreement by the Subscriber, the Company shall issue and
deliver to the Subscriber the Note against payment, by federal funds wire
transfer of the Purchase Price.
The following terms and conditions shall apply to this
subscription.
1. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) INFORMATION ON COMPANY. The Subscriber has been
furnished with the Company's Form 10-KSB for the year ended December 31, 2000 as
filed with the Securities and Exchange Commission (the "Commission") together
with all subsequently filed forms 10-QSB, and other publicly available filings
made with the Commission (hereinafter referred to as the "Reports"). In
addition, the Subscriber has received from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested in writing, and considered all factors the Subscriber
deems material in deciding on the advisability of investing in the Securities
(such information in writing is collectively, the "Other Written Information").
(b) INFORMATION ON SUBSCRIBER. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (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.
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(c) PURCHASE OF NOTE. On the Closing Date, the Subscriber
will purchase the Note for its own account and not with a view to any
distribution thereof.
(d) COMPLIANCE WITH SECURITIES ACT. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act, 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 unless a subsequent disposition is registered under the
1933 Act or is exempt from such registration.
(e) COMPANY SHARES LEGEND. The Company Shares, and the
shares of Common Stock issuable upon the exercise of the Warrants, shall bear
the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO EMPYREAN BIOSCIENCE, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) WARRANTS LEGEND. The Warrants shall bear the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
EMPYREAN BIOSCIENCE, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(g) NOTE LEGEND. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO EMPYREAN
BIOSCIENCE, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(h) COMMUNICATION OF OFFER. The offer to sell the
Securities was directly communicated to the Subscriber. At no time was the
Subscriber presented with or solicited by any leaflet,
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newspaper or magazine article, radio or television advertisement, or any other
form of general advertising or solicited or invited to attend a promotional
meeting otherwise than in connection and concurrently with such communicated
offer.
(i) REGULATORY COMPLIANCE. The Subscriber agrees that
Subscriber will comply with all relevant rules and regulations of the Securities
Exchange Act of 1934, as amended, including the provisions of Regulation M
promulgated thereunder.
(j) CORRECTNESS OF REPRESENTATIONS. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing Date (as hereinafter defined), shall be true and
correct as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
2. COMPANY REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to and agrees with the Subscriber that:
(a) DUE INCORPORATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and have the requisite corporate power to own their properties and to
carry on their business as now being conducted. Other than qualification and
good standing in the State of Ohio, which the Company represents to obtain with
five (5) business days of Closing, the Company 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 on the business, operations
or prospects or condition (financial or otherwise) of the Company.
(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 non-assessable.
(c) AUTHORITY; ENFORCEABILITY. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its 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 the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.
(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 in the Reports or Other Written
Information.
(e) CONSENTS. No consent, approval, authorization or order
of any court, governmental agency or body or arbitrator having jurisdiction over
the Company, the NASD, NASDAQ or the Company's Shareholders is required for
execution of this Agreement, and all other agreements entered into by the
Company relating thereto, including, without limitation issuance and sale of the
Securities, and the performance of the Company's obligations hereunder.
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(f) NO VIOLATION OR CONFLICT. Assuming the representations
and warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the 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, (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 is a party, by which the Company is bound, or to which any of the
properties of the Company is subject, or (D) the terms of any "lock-up" or
similar provision of any underwriting or similar agreement to which the Company
is a party; 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.
(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 State laws;
(ii) have been, or will be, duly and validly authorized
and on the date of issuance and on the Closing Date, as hereinafter defined, and
the date the Note is converted, and the Warrants are exercised, the Securities
will be duly and validly issued, fully paid and nonassessable (and if registered
pursuant to the 1933 Act, and resold pursuant to an effective registration
statement will be free trading and unrestricted, provided that the Subscriber
complies with the Prospectus delivery requirements);
(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 that would affect the execution by the Company or the
performance by the Company of its obligations under this Agreement, and all
other agreements entered into by the Company relating hereto. Except as
disclosed in the Reports or Other Written Information, 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.
(i) REPORTING COMPANY. The Company is a publicly-held
company subject to reporting obligations pursuant to Sections 15(d) and 13 of
the Securities Exchange Act of 1934, as amended (the "1934 Act") and has a class
of common shares registered pursuant to Section 12(g) of the 1934 Act. The
Company's common stock is trading on the NASD OTC Bulletin Board ("OTC Bulletin
Board"). Pursuant to
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the provisions of the 1934 Act, the Company has filed all reports and other
materials required to be filed thereunder with the Securities and Exchange
Commission during the preceding twelve months except as set forth in the
Reports.
(j) NO MARKET MANIPULATION. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued.
(k) INFORMATION CONCERNING COMPANY. The Reports and Other
Written Information 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, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports and Other Written Information 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.
(l) DILUTION. The number of Shares issuable upon conversion
of the Note may increase substantially in certain circumstances, including, but
not necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines prior to conversion of the Note. The Company's executive
officers and directors have studied and fully understand the nature of the
Securities being sold hereby and recognize that they have a potential dilutive
effect. The board of directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the Company.
The Company specifically acknowledges that its obligation to issue the Shares
upon conversion of the Note and exercise of the Warrants is binding upon the
Company and enforceable, except as otherwise described in this Subscription
Agreement or the Note, regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
(m) STOP TRANSFER. The Securities are restricted securities
as of the date of this Agreement. The Company will not issue any stop transfer
order or other order impeding the sale and delivery of the Securities, except as
may be required by federal securities laws.
(n) DEFAULTS. The Company is not in violation of its
Certificate of Incorporation or ByLaws. The Company is not (i) in default under
or in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a material adverse effect on the Company, (ii)
in default with respect to any order of any court, arbitrator or governmental
body or subject to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or other law
respecting antitrust, monopoly, restraint of trade, unfair competition or
similar matters, or (iii) to its knowledge in violation of any statute, rule or
regulation of any governmental authority which violation would have a material
adverse effect on the Company.
(o) NO INTEGRATED OFFERING. To the best of its knowledge
after due inquiry with regulatory authorities, neither the Company nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the 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 NASD OTC Bulletin
Board,
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as applicable, nor will the Company or subsidiaries take any action or steps
that would cause the offering of the Securities to be integrated with other
offerings.
(p) NO GENERAL SOLICITATION. Neither the Company 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 Act) in connection with the offer or sale of the Securities.
(q) LISTING. The Company's Common Stock is listed for
trading on the NASD OTC Bulletin Board and satisfies all requirements for the
continuation of such listing. The Company has not received any notice that its
common stock will be delisted from the NASD OTC Bulletin Board or that the
Common Stock does not meet all requirements for the continuation of such
listing.
(r) 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, 2000 and which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company's financial condition.
(s) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December
31, 2000, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, 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 and Other Written
Information.
(t) CAPITALIZATION. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing Date are
set forth on Schedule 2 hereto. Except as set forth in the Reports and Other
Written Information, there are no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable for or giving
any right to subscribe for any shares of capital stock of the Company. All of
the outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable.
(u) 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, will be true and correct as of the Closing
Date, and, unless the Company otherwise notifies the Subscriber prior to the
Closing Date, shall be true and correct in all material respects as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date and shall run until the Note is repaid in full or converted in
full.
3. REGULATION D OFFERING. This Offering is being made pursuant
to the exemption from the registration provisions of the Securities Act of 1933,
as amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. 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 conversion of the Note and exercise of the Warrants.
4. REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to and disposes of such Securities pursuant to Rule 144(d) and/or Rule 144(k)
under the
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1933 Act in the opinion of counsel reasonably satisfactory to the Company, or
(b) upon resale subject to an effective registration statement after the
Securities are registered under the 0000 Xxx. The Company agrees to cooperate
with the Subscriber in connection with all resales pursuant to Rule 144(d) and
Rule 144(k) and provide legal opinions necessary to allow such resales provided
the Company and its counsel receive all reasonably requested written
representations from the Subscriber and selling broker, if any. If the Company
fails to remove any legend as required by this Section 4 (a "Legend Removal
Failure"), then beginning on the tenth (10th) day following the date that the
Subscriber has requested the removal of the legend and delivered all items
reasonably required to be delivered by the Subscriber, the Company continues to
fail to remove such legend, the Company shall pay to each Subscriber or assignee
holding shares subject to a Legend Removal Failure an amount equal to one
percent (1%) of the Purchase Price of the shares subject to a Legend Removal
Failure per day that such failure continues. If during any twelve (12) month
period, the Company fails to remove any legend as required by this Section 4 for
an aggregate of thirty (30) days, each Subscriber or assignee holding Securities
subject to a Legend Removal Failure may, at its option, require the Company to
purchase all or any portion of the Securities subject to a Legend Removal
Failure held by such Subscriber or assignee at a price per share equal to 120%
of the applicable Purchase Price.
5. REDEMPTION. The Company may not redeem the Securities
without the consent of the holder of the Securities except as otherwise
described herein.
6. FEES/WARRANTS.
(a) The Company shall pay to counsel to the Subscriber its
fees of $15,000 ($5,000 of which has previously been paid) for services rendered
to Subscriber in connection with this Agreement and the other Subscription
Agreements for aggregate subscription amounts of up to $1,000,000 (the
"Offering"). The Company will pay the escrow agent for the Offering a fee of
$750. The Company will pay to the Fund Managers identified on Schedule B hereto
a cash fee in the amount of: ten percent (10%) of the Purchase Price ("Fund
Manager's Fee") and of the actual cash proceeds received by the Company in
connection with the exercise of the Warrants issued in connection with the
Offering ("Warrant Exercise Compensation"). The Fund Manager's Fee must be paid
each Closing Date with respect to the Notes issued on such date. The Warrant
Exercise Compensation must be paid to the Fund Managers identified on Schedule B
hereto, within ten (10) days of receipt of the Warrant exercise "Purchase Price"
(as defined in the Warrant). The Fund Manager's Fee and legal fees will be
payable out of funds held pursuant to a Funds Escrow Agreement to be entered
into by the Company, Subscriber and an Escrow Agent. On the Closing Date, the
Company will pay the Fund Manager identified on Schedule B, the sum of $2,500 as
an expense allowance ("Expense Allowance").
(b) The Company will also issue and deliver to the
Subscriber, Warrants in the amounts designated on Schedule B hereto in
connection with the Initial Offering. A form of Warrant is annexed hereto as
Exhibit D. The per share "Purchase Price" of Common Stock as defined in the
Warrant shall be equal to 120% of the average of the three lowest closing prices
of the Common Stock as reported by Bloomberg Financial for the Pink Sheets, the
NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market,
American Stock Exchange, or New York Stock Exchange (each of the foregoing the
Principal Market"), or such other principal market or exchange where the Common
Stock is listed or traded for the ten (10) trading days preceding but not
including the Closing Date. The Warrant designated on Schedule B hereto must be
delivered to the Subscriber on the Closing Date. Failure to timely deliver the
Warrant Exercise Compensation or the Warrants shall be an Event of Default as
defined in Article III of the Note.
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(c) The Fund Manager's Fee, legal fees and escrow agent's
fee will be paid to the Fund Managers and attorneys only when, as, and if a
corresponding subscription amount is released from escrow to the Company and out
of the escrow proceeds. All the representations, covenants, warranties,
undertakings, remedies, liquidated damages, indemnification, rights in Section 9
hereof, and other rights but not including registration rights made or granted
to or for the benefit of the Subscriber are hereby also made and granted to the
Subscriber in respect of the Warrants and Company Shares issuable upon exercise
of the Warrants.
(d) The Company on the one hand, and the Subscriber on the
other hand, agree to indemnify the other against and hold the other harmless
from any and all liabilities to any other persons claiming brokerage commissions
or fund manager's fees except as identified on Schedule B hereto 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. Except as set forth on Schedule B hereto,
the Company represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the offering described in
the Subscription Agreement.
7. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after
it receives notice of issuance by the Securities and Exchange Commission, any
state securities commission or any other regulatory authority of any stop order
or of any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of the
Company Shares, and Common Stock issuable upon the exercise of the Warrants upon
a Principal Market, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain such listing so long
as any other shares of Common Stock shall be so listed. If and when so listed,
the Company will maintain the listing of its 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 National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company will provide the
Subscriber copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal Market.
(c) The Company shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements, if any, 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
Subscriber and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the effectiveness of
the Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10.1(iv) hereof, the Company will (i) cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, (ii) comply in all respects with its reporting and filing obligations under
the Exchange Act, (iii) comply with all reporting requirements that is
applicable to an issuer with a class of Shares registered pursuant to Section
12(g) of the Exchange Act, and (iv) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will not
take any action or file any document (whether or not permitted by the Act or the
Exchange Act or the rules thereunder) to terminate or
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suspend such registration or to terminate or suspend its reporting and filing
obligations under said Acts until the sale by the Subscriber and Warrant
Recipients of all the Company Shares and Securities issuable by the Company
pursuant to this Agreement. Until at least two (2) years after the Warrants have
been exercised, the Company will use its commercial best efforts to continue the
listing of the Common Stock on the OTC Bulletin Board, and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and NASDAQ.
(e) The Company undertakes to use the proceeds of the
Subscriber's funds for the purposes set forth on Schedule 7(e) hereto. Purchase
Price may not and will not be used to pay debt or non-trade obligations
outstanding on or after the Closing Date other than the pay down of the
Company's revolver with Huntington National Bank. A deviation from the use of
proceeds set forth on Schedule 7(e) of more than 10% per item or more than 20%
in the aggregate shall be deemed a material breach of the Company's obligations
hereunder.
(f) The Company undertakes to use its best efforts to
maintain its officers and directors errors and omissions liability insurance
policy covering the transactions contemplated in this Agreement.
(g) The Company undertakes to reserve pro rata on behalf of
each holder of a Note or Warrant, from its authorized but unissued Common Stock,
at all times that Notes or Warrants remain outstanding, a number of Common
Shares equal to not less than 200% of the amount of Common Shares necessary to
allow each such holder to be able to convert all such outstanding Notes, at the
then applicable Conversion Price and one Common Share for each Common Share
issuable upon exercise of the Warrants.
8. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING
INDEMNIFICATION.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber, Subscriber's 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 Subscriber or any such person
which results, arises out of or is based upon (i) any misrepresentation by
Company or breach of any warranty by Company in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach or
default in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into by the
Company and Subscriber relating hereto.
(b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers and
directors at all times 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 misrepresentation by 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 Subscriber of any covenant or undertaking to be
performed by Subscriber hereunder, or any other agreement entered into by the
Company and Subscriber relating hereto.
(c) The procedures set forth in Section 10.6 shall apply to
the indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. CONVERSION OF NOTE.
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(a) Upon the conversion of the Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action (including
the issuance of 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 the Shares will be unlegended, free-trading, and
freely transferable, and will not contain a legend restricting the resale or
transferability of the Company Shares provided the Shares are being sold
pursuant to an effective registration statement covering the Shares to be sold
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 (as defined in the Note) to the Company via
confirmed telecopier transmission. 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
or cause the 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 (the "Delivery Date").
A Note representing the balance of the Note not so converted will be provided to
the Subscriber, if requested by Subscriber. To the extent that a Subscriber
elects not to surrender a Note for reissuance upon partial payment or
conversion, the Subscriber hereby indemnifies the Company against any and all
loss or damage attributable to a third-party claim in an amount in excess of the
actual amount then due under the Note.
(c) The Company understands that a delay in the delivery of
the Shares in the form required pursuant to Section 9 hereof, or the Mandatory
Redemption Amount described in Section 9.2 hereof, beyond the Delivery Date or
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 late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
Conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. 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 late payment charges described
above shall be payable through the date notice of revocation or rescission is
given to the Company.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
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9.2. MANDATORY REDEMPTION. 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 an Event of Default (as defined in the Note) or
for any reason other than pursuant to the limitations set forth in Section 9.3
hereof, and such event or failure is not cured within three (3) business days,
then at the Subscriber's election, the Company must pay to the Subscriber ten
(10) business days after request by the Subscriber or on the Delivery Date (if
requested by the Subscriber) a sum of money determined by multiplying up to the
outstanding principal amount of the Note designated by the Subscriber by 130%,
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.
9.3. 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 4.99% 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 4.99%. The Subscriber may void the conversion limitation
described in this Section 9.3 upon 75 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 4.99% amount
described above and which shall be allocated to the excess above 4.99%.
9.4. INJUNCTION - POSTING OF BOND. In the event a Subscriber
shall elect to convert a Note or part thereof, the Company may not refuse
conversion based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of such Subscriber
in the amount of 130% of the amount of the Note, which is 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.
9.5. 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 ten (10) 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 anticipated receiving
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
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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.
9.6 ADJUSTMENTS. The Conversion Price and amount of Shares
issuable upon conversion of the Notes shall be adjusted consistent with
customary anti-dilution adjustments.
9.7. OPTIONAL REDEMPTION. The Company will have the option of
redeeming any outstanding Notes ("Optional Redemption") by paying to the
Subscriber a sum of money as follows:
from the Closing Date through 30 days after the
Closing Date - 120% from 31 days through 90 days
after the Closing Date - 135% from 91 days through
180 days after the Closing Date - 150% after 180 days
following the Closing Date - 200%
of the principal amount of the Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Subscriber
arising under this Subscription Agreement, Note or any other document delivered
herewith ("Redemption Amount") outstanding on the day notice of redemption
("Notice of Redemption) is given to a Subscriber ("Redemption Date"). A Notice
of Redemption may not be given in connection with any portion of Note for which
notice of conversion has been given by the Subscriber at any time before receipt
of a Notice of Redemption. The Subscriber may elect within five (5) business
days after receipt of a Notice of Redemption to give the Company Notice of
Conversion in connection with some or all of the Note principal and interest
which was the subject of the Notice of Redemption. A Notice of Redemption must
be accompanied by a certificate signed by the chief executive officer or chief
financial officer of the Company stating that the Company has on deposit and
segregated ready funds equal to the Redemption Amount. The Redemption Amount
must be paid in good funds to the Subscriber no later than the seventh (7th)
business day after the Redemption Date ("Optional Redemption Payment Date"). In
the event the Company fails to pay the Redemption Amount by the Optional
Redemption Payment Date, then the Redemption Notice will be null and void and
the Company will thereafter have no further right to effect an Optional
Redemption, and at the Subscriber's election, the Redemption Amount will be
deemed a Mandatory Redemption Payment and the Optional Redemption Payment Date
will be deemed a Mandatory Redemption Payment Date. Such failure will also be
deemed an Event of Default under the Note. Any Notice of Redemption must be
given to all holders of Notes issued in connection with the Offering, in
proportion to their holdings of Note principal on a Redemption Date. A Notice of
Redemption may be given by the Company, provided (i) no Event of Default, as
described in the Note shall have occurred or be continuing; and (ii) the Company
Shares issuable upon conversion of the full outstanding Note principal are
included for unrestricted resale in a registration statement effective as of the
Redemption Date. Note proceeds may not be used to effect an Optional Redemption.
10.1. REGISTRATION RIGHTS. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 91 days
after the Closing Date, but not later than three years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any record
holder or holders of more than 50% of the aggregate of the Company's Shares
issued and issuable upon Conversion of the Notes (the Common Stock issued or
issuable upon conversion of the Notes or issuable by virtue of ownership of the
Note, being, the "Registrable Securities"), shall prepare and file with the SEC
a registration statement under the Act covering the Registrable Securities which
are the
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subject of such request, unless such Registrable Securities are the subject of
an effective registration statement. In addition, 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 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 10.1(i). As
a condition precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests. The obligation of the Company under this Section 10.1(i)
shall be limited to one registration statement.
(ii) If the Company at any time proposes to register any
of its securities under the 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 Subscriber or Holder pursuant to an effective registration statement, each
such time it will give at least 30 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 20 days after the giving
of any such notice by the Company, to register any of the Registrable
Securities, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "Seller"). In the event that any registration pursuant to this
Section 10.1(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 10.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration statement
referred to in this Section 10.1(ii) without thereby incurring any liability to
the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(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, such
written request shall be deemed to have been given pursuant to Section 10.1(ii)
rather than Section 10.1(i), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section
10.1(ii).
(iv) The Company shall file with the Commission within
30 days after the Closing Date (the "Filing Date"), and use its reasonable
commercial efforts to cause to be declared effective Form SB-2 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 Act. The
registration statement described in this paragraph must be declared effective by
the Commission within 90 days of the Closing Date (as defined herein)
("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
250% of the Company Shares issuable at the Conversion Price that would be in
effect on the Closing Date or the date of filing of such registration statement
(employing the Conversion Price which would result in the greater number of
Shares), assuming the conversion of 100% of the Notes. The Registrable
Securities shall be reserved and set aside exclusively for the benefit of the
Subscriber, and not issued, employed or reserved for anyone other than the
Subscriber.
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Such registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 10.1(iv).
10.2. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities ("Sellers") copies of all
filings and Commission letters of comment;
(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 the latest of: (i) twelve months after the latest Maturity Date
of a Note; (ii) thirty months after the Closing Date; or (iii) until such
registration statement has been effective for a period of not less than 270
days, and comply with the provisions of the Act with respect to the disposition
of all of the Registrable Securities covered by such registration statement in
accordance with the Seller's intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, 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) 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 Seller and each underwriter
under such registration statement at any time when a prospectus relating thereto
is required to be delivered under the 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;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, 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
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employees to supply all publicly available, non-confidential information
reasonably requested by the seller, underwriter, attorney, accountant or agent
in connection with such registration statement.
10.3. PROVISION OF DOCUMENTS.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration hereunder, the
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. In connection with each registration
pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public
offering, the Company and the Seller agree to enter into a written agreement
with the managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
10.4. NON-REGISTRATION EVENTS. The Company and the Subscriber
agree that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 30 days after
written request by the Holder and not declared effective by the Commission
within 90 days after such request (or the Filing Date and Effective Date,
respectively, in reference to the Registration Statement on Form SB-2 or such
other form described in Section 10.1(iv)), and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement described in Sections 10.1(i) or 10.1(ii) is not
filed within 30 days of such written request, or is not declared effective by
the Commission on or prior to the date that is 90 days after such request, or
(ii) the registration statement on Form SB-2 or such other form described in
Section 10.1(iv) is not filed on or before the Filing Date or not declared
effective on or before the sooner of the Effective Date, or within five business
days of receipt by the Company of a written or oral communication from the
Commission that the registration statement described in Section 10.1(iv) will
not be reviewed, or (iii) any registration statement described in Sections
10.1(i), 10.1(ii) or 10.1(iv) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately by an
additional registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the aggregate per year but not more than 20
consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) (each such event referred
to in clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as
a "Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay, at the Subscriber's option, in cash or
stock at the applicable Conversion Price, as Liquidated Damages to each holder
of any Registrable Securities an amount equal to two percent (2%) per month or
part thereof during the pendency of such Non-Registration Event, of the
principal of the Notes issued in connection with the Offering, whether or not
converted, then owned of record by such holder or issuable as of or subsequent
to the occurrence of such Non-Registration Event. Payments to be made pursuant
to this Section 10.4 shall be due and payable within five (5) business days
after demand in immediately available funds. In the event a Mandatory Redemption
Payment is demanded from the Company by the Holder pursuant to Section 9.2 of
this Subscription Agreement, then the Liquidated Damages described in this
Section 10.4 shall no longer accrue on the portion of the Purchase Price
underlying the Mandatory Redemption Payment, from and after the date the Holder
receives the Mandatory Redemption Payment. It shall also be deemed a
Non-Registration Event if at any time a Note is outstanding, there is less than
125% of the amount of Common
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Shares necessary to allow full conversion of such Note at the then applicable
Conversion Price registered for unrestricted resale in an effective registration
statement.
10.5. EXPENSES. All expenses incurred by the Company in
complying with Section 10, 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, and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional counsel,
if any. The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 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.
10.6. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will 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 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 Act pursuant to Section 10, 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 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 Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the 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 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 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise
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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 Act pursuant to Section 10, 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 gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 10.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.6(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 10.6(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 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 Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 10.6 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 10.6 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.6; 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
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price of all such securities offered by it pursuant to such registration
statement; and (z) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 10(f) of the Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
10.7. UNDERWRITER LIABILITY. Nothing contained in this
Agreement or any document delivered herewith shall require or imply that the
Subscriber is or be an Underwriter as defined in the 1933 Act of 1934 Act, nor a
"statutory underwriter." The Subscriber shall not be required to take any action
or assume any liability or obligation which would or could impose Underwriter or
"statutory underwriter" status or liability on the Subscriber.
11. OFFERING RESTRICTIONS. Except (i) as disclosed in the Reports or
Other Written Information prior to the date of this Subscription Agreement, (ii)
stock or stock options granted to employees or directors of the Company pursuant
to a plan which has been approved by the shareholders of the Company, (iii)
STOCK OR STOCK OPTIONS GRANTED TO MEMBERS OF THE BOARD OF DIRECTORS IN PAYMENT
FOR BOARD OR COMMITTEE MEETINGS ATTENDED OR FOR GUARANTEES FOR PERFORMANCE,
(iv) STOCK ISSUED IN CONNECTION WITH THE SETTLEMENT WITH ICS, (v) STOCK OR
STOCK OPTIONS GRANTED TO THE COMPANY'S MANAGEMENT AS INCENTIVE COMPENSATION IN
LIEU OF CASH PAYMENTS, (vi) STOCK OR STOCK OPTIONS GRANTED IN A PRIVATE
PLACEMENT TO THE COMPANY'S CONSULTANTS AND VENDORS (NOT TO EXCEED 1,500,000
SHARES) (these exceptions hereinafter referred to as the "Excepted Issuances"),
the Company will not issue any equity, convertible debt or other securities,
prior to the expiration of a period equal to the later of (x) 270 days during
which the registration statement described in Section 10.1(iv) above has been
effective, or (y) 24 months after the Closing Date, other than with respect to a
bona fide business acquisition of or by the Company. The Excepted Issuances
(other than (i) above) may be issued during the above described time periods
provided such securities are not transferable until after a time period equal to
one year during which the registration statement described in Section 10.1(iv)
above has been effective. Notwithstanding the above, if the Subscriber elects
not to, or can not, further fund the Company following the transaction
contemplated hereby, the Subscriber shall waive the provisions of this Section
11.
12. SECURITY INTEREST. As a condition of Closing, the Company will
deliver to the Subscriber Common Shares of the Company owned by certain
shareholders of the Company, together with signature guaranteed stock powers.
Collectively, the foregoing stock is referred to as "Security Shares." The
Security Shares will be held by the Subscriber pursuant to a Security Agreement.
The Company will also execute all such documents reasonably necessary to
memorialize and further protect the security interest described above.
13. MISCELLANEOUS.
(a) NOTICES. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to
Empyrean Bioscience, Inc., 00000 Xxxxxxxx Xxxx Xxxx, Xxxxx X, Xxxxxxxxx, Xxxx
00000, telecopier number: (000) 000-0000, with a copy by telecopier only to:
Xxxxxx X. Xxxxxxxx, Benesch, Friedlander, Xxxxxx & Xxxxxxx LLP, 0000 XX Xxxxxxx
Xxxxxxxx, 000 Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000, telecopier number: (216)
363-4588, and (ii) if to the Subscriber, to the name, address and telecopy
number set forth on the signature page hereto, with a copy by telecopier only to
Xxxxxx X.
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Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
telecopier number: (000) 000-0000.
(b) CLOSING. The consummation of the transactions contemplated
herein shall take place at the offices of Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of all
conditions to Closing set forth in this Agreement. The closing date shall be the
date that subscriber funds representing the net amount due the Company from the
Purchase Price are transmitted by wire transfer to the Company (the "Closing
Date").
(c) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement represents the
entire agreement between the parties hereto with respect to the subject matter
hereof and thereby, controls and supersedes any prior understandings, agreements
or representations by or between the parties, written or oral, and may be
amended only by a writing executed by both parties. No right or obligation of
either party shall be assigned by that party without prior notice to and the
written consent of the other party.
(d) EXECUTION. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.
(e) LAW GOVERNING THIS AGREEMENT. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. Both parties and the individuals executing
this Agreement and other agreements 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.
(f) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
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 of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) CONFIDENTIALITY. The Company agrees that it will not disclose
publicly or privately the identity of the Subscriber unless expressly agreed to
in writing by the Subscriber or only to the extent required by law.
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(h) AUTOMATIC TERMINATION. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth (10th) business day following the date this
Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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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.
EMPYREAN BIOSCIENCE, INC.
A Delaware Corporation
By:
-------------------------------------
Name:
Title:
Dated: June 11, 2001
ATTEST:
By:
-----------------------------------
--------------------------------------------------------------------------------
Purchase Price: $1,000,000.00
-------------
Warrants: 333,333
ACCEPTED: Dated as of June 11, 2001
LAURUS MASTER FUND, LTD. - Subscriber
A Cayman Island corporation
c/o Onshore Corporate Services Ltd.
X.X. Xxx 0000 G.T.
Xxxxxxxxxx Xxxxx, Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
Fax: 000-000-0000
By:
------------------------------
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SCHEDULE B TO SUBSCRIPTION AGREEMENT
------------------------------------
------------------------------------------------------------------------------------------------------------------------------
FUND MANAGER FUND MANAGER'S FEES AND WARRANT EXERCISE COMPENSATION
------------------------------------------------------------------------------------------------------------------------------
LAURUS CAPITAL MANAGEMENT, L.L.C. 10% Fund Manager's Fees and Warrant Exercise
000 Xxxx 00xx Xxxxxx, Xxxxx 0000 Compensation payable in connection with investment and
Xxx Xxxx, Xxx Xxxx 00000 warrant exercise by Laurus Master Fund Ltd. for which
Fax: 000-000-0000 Laurus Capital Management, L.L.C. is the Fund Manager.
------------------------------------------------------------------------------------------------------------------------------
Recipient of $2,500 Expense Allowance described in Section 6(e) is: Laurus
Capital Management, L.L.C.
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Schedule 2 to Subscription Agreement
EMPYREAN BIOSCIENCE, INC.
CAPITALIZATION TABLE
As of June 8, 2001
Common Stock, $.0001 par value
------------------------------
Shares authorized 90,000,000
Shares outstanding 49,187,592
Preferred Stock, $.0001 par value
---------------------------------
Shares authorized 10,000,000
Shares outstanding -
24
Schedule 7(e) to Subscription Agreement
EMPYREAN BIOSCIENCE, INC.
USE OF PROCEEDS
$000
----
Inventory purchases 480
Advertising and sales promotion 103
Payroll and benefits 81
Royalties and sales commissions 140
Other operating expenses 65
----
Total 869
