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EXHIBIT 2.1
SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and The Recovery
Network, Inc., a Colorado corporation (the "Company") hereby agrees to issue and
to sell to the Subscriber, the number of shares of the Company's $.01 par value
common stock (the "Company Shares") as set forth on the signature page hereof.
(The Company Shares are sometimes referred to herein as the "Shares" or "Common
Stock"). The Company will also issue to the Subscriber Common Stock Purchase
Warrants ("Warrants") pursuant to Section 7(f) herein for the aggregate
consideration as set forth on the signature page hereof ("Purchase Price"). The
Company Shares, Warrants, Commission Shares and Common Stock Purchase Warrants
issuable to the Placement Agents ("Placement Warrants"), identified on Schedule
A hereto, and the Common Stock issuable upon exercise of the Warrants and
Placement Warrants, the Additional Shares, and the Put Securities (as
hereinafter defined) 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 Company Shares against payment, by federal funds
(U.S.) 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
and has read the Company's Registration Statement on Form S-3, as amended (File
No. 333-27787) and subsequent Forms 10-QSB and 8-K, and Schedule 14A, each as
filed with the U.S. Securities and Exchange Commission (the "Commission")
(collectively, with exhibits thereto, 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, 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, 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
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qualified to purchase and own the Securities being purchased by the Subscriber.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof.
(c) Purchase of Securities. On the Closing Date, the
Subscriber will purchase the Company Shares and, if issued pursuant to the
terms hereof, the Warrants, 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 Securities
Act of 1933, as amended (the "1933 Act") by reason of their issuance in a
transaction that does not require registration under the 1933 Act, 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, the Commission
Shares and the shares of Common Stock issuable upon the exercise of the
Warrants and Placement 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 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE RECOVERY NETWORK, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(f) Warrants Legend. The Warrants and Placement 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, 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 AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
RECOVERY NETWORK, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
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(g) 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, 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.
(h) 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 and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect 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 and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement and all
agreements related hereto and referred to herein have 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. The Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreement entered into by the Company relating hereto
and contemplated hereby.
(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.
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(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 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 the issuance and
sale of the Securities, and the performance of the Company's obligations
hereunder and pursuant to any agreement referred to herein or relating hereto.
(f) No Violation or Conflict. Neither the issuance and sale of the
Securities nor the performance of the Company's obligations under this
Agreement and all other agreements entered into by the Company relating thereto
by the Company will:
(i) violate, conflict with, result in a breach of, or constitute
a default (or an event which with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) under (A) the articles
of incorporation, charter or bylaws of the Company, or any of its affiliates or
subsidiaries, (B) any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company, or any of its affiliates of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates or over the properties or assets of the
Company, or any of its affiliates or subsidiaries, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or
other instrument to which the Company, or any of its affiliates or subsidiaries
is a party, by which the Company, or any of its affiliates or subsidiaries is
bound, or to which any of the properties of the Company, or any of its
affiliates or subsidiaries is subject, or (D) the terms of any "lock-up" or
similar provision of any underwriting or similar agreement to which the
Company, or any of its affiliates or subsidiaries is a party; or
(ii) result in the creation of imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company, any of
its affiliates or subsidiaries.
(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, on the Closing Date and Put Closing Date, and the date the
Warrants and Placement 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 or an
exemption from registration) free trading and unrestricted;
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(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities or
creditors of the Company;
(iv) will not subject the holders thereof to personal liability by
reason of being such holders; and
(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 or subsidiaries 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 thereto.
(i) Reporting Company. The Company is publicly-held company whose
common stock is (and has been for the past 90 days) registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act") and is duly listed for trading on the NASD OTC Bulletin Board. 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 Securities and
Exchange Commission during the preceding twelve months, and, is eligible to
file a Form S-3 or Form SB-2 to register the Securities.
(j) No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the common stock of the Company to facilitate the sale or resale of the
Securities or affect the price at which the Securities may be issued or resold.
(k) Information Concerning Company. The Reports and Other Written
Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates and include all
information 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 Reset (as hereinafter
defined) and upon exercise of the Warrants and Placement Warrants may increase
substantially in certain circumstances, including, but not necessarily limited
to, the circumstance wherein the trading price of the Common Stock declines in
the future. 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
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interests of the Company. The Company specifically acknowledges that its
obligation to issue Shares upon Reset and exercise of the Warrants and
Placement Warrants is binding upon the Company and enforceable, except as
otherwise described in this Subscription Agreement, 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 at such time as
the Securities are registered for public sale or an exemption from registration
is available.
(n) Defaults. Neither the Company nor any of its subsidiaries is
in violation of its Articles of Incorporation or Bylaws. Neither the Company
nor any of its subsidiaries is (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 material to its business.
(o) 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 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. Nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Securities to be
integrated with other offerings.
(p) Use of Proceeds. The proceeds of the Subscriber funds to be
released to the Company will be used for working capital and for expenses of
this offering.
(q) 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 Act) in connection with the offer or sale of
the Securities.
(r) Listing. The Company's common stock is listed for trading on
NASD OTC Bulletin Board. The Company has not received any notice that its
common stock will be delisted from the OTC Bulletin Board or that the common
stock does not meet all requirements for the continuation of such listing.
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(s) 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 Subscriber prior to the Closing Date and Put Closing Date, shall be true
and correct in all material respects as of the Closing Date and Put Closing
Date. The foregoing representations and warranties and all representations,
warranties and undertakings of the Company set forth in this Subscription
Agreement shall survive the Closing Date and Put Closing Date.
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 B. The Company will provide, at
the Company's expense, such other legal opinions in the future as are
reasonably necessary for the issuance and/or exercise of the Commission Shares,
Warrants, Placement Warrants and Put Securities (as hereinafter defined).
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 dispose of such Securities pursuant to Rule 144(k) under the Act, or (b)
upon resale subject to an effective registration statement after the Securities
are registered under the Act. 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 reasonably requested certifications from the
Subscriber and selling broker, if any.
5. Redemption. The Company may not redeem any of the Securities
without the consent of the holder of the Securities, except as described in
Section 9.2 of this Subscription Agreement.
6. Legal Fees/Commissions. The Company shall pay to counsel to the
Subscriber its fee of $22,500 for services rendered to the Subscriber in
reviewing this Agreement and other subscription agreements for the aggregate
subscription amounts of up to $500,000 and acting as escrow agent. The 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. In connection
with Subscription Agreements relating to up to $500,000 of subscriber funds,
the Company will issue and deliver to the Placement Agents as compensation,
Common Stock of the Company ("Commission Shares") and Placement Warrants in the
form agreed to by Company and Placement Agents, in the amounts designated on
Schedule A hereto. The Commission Shares and Placement Warrants will be issued
to the Placement Agents when, as, and if the corresponding subscription
amount is released from escrow to the Company or on the Company's behalf. All
the representations, covenants, warranties, indemnifications and undertakings,
including but not limited to registration rights made or granted to or for the
benefit
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of the Subscriber are hereby also made and granted to the Placement Agents in
respect of the Commission Shares, Placement Warrants and Company Shares
issuable upon exercise of the Placement Warrants.
7.1 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, Commission Shares and Common Stock issuable upon the exercise of the
Warrants and Placement Warrants upon each national securities exchange, or
automated quotation system, 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. The Company will
use its best efforts to maintain the listing and trading of its common stock on
the NASD OTC Bulletin Board, and within 90 days of the Closing Date obtain a
listing of its common stock and Company Shares on the NASDAQ SmallCap 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 on any exchange or quotation
system on which the common stock is listed. Failure to obtain a listing of the
common stock and Company Shares on the NASDAQ SmallCap Market within 90 days of
the Closing Date is a material default by the Company of its obligations
hereunder.
(c) The Company shall notify the SEC, NASD 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
Subscriber and Placement Agents and promptly provide copies thereof to
Subscriber.
(d) Until at least three (3) years after the effectiveness of the
Registration Statement on Form S-3 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, and (iii) 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 suspend
such registration or to terminate or suspend its reporting and
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filing obligations under said Acts until the later of (i) three (3) years after
the effective date of the Registration Statement on Form S-3 or such other
Registration Statement described in Section 10.1(iv) hereof, or (ii) the sale
by the Subscribers and Placement Agents of all the Company Shares issuable by
the Company pursuant to this Agreement. The Company agrees to obtain a listing
for its common stock on the NASDAQ SmallCap Market within 90 days of Closing.
Until at least two (2) years after the Warrants and Placement Warrants have
been exercised, the Company will maintain the listing or trading of its common
stock on NASDAQ SmallCap Market 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, as appropriate.
(e) The Company undertakes to use the proceeds of the Subscriber's
funds for working capital and expenses of this offering.
(f) Warrant Issuance. On or before five (5) business days after
sixty (60) calendar days after the Effective Date (as described in Section
10.1(iv) hereof), the Company shall issue and deliver to the Subscriber,
Warrants to purchase 15,000 shares of Common Stock ("Warrants") for each
$100,000 of Purchase Price and Put Consideration for which the Subscriber is
the holder of the corresponding Company Shares or Put Shares, provided the
Subscriber is the holder of not less than one-half (1/2) of the Common Shares
Purchased, set forth on the signature page hereto, as of sixty (60) calendar
days after the Effective Date. The Warrants will be identical to the Placement
Warrants except that the Warrants will be exercisable for three years from the
issue date.
8. Covenants of the Company and Subscriber Regarding Indemnifications.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend Subscriber against any claim, cost, expense, liability, obligation, loss
or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon Subscriber 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 Reports or other
Written Information; or (ii) any breach or default in performance by Company of
any covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company 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 which results, arises out of or is
based upon (a) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (b) 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
Subscribers relating hereto.
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9.1 Reset.
(a) The amount of Company Shares issuable to the Subscriber shall be
redetermined from time to time as described herein (the "Reset") and if
appropriate, additional shares of Common Stock (the "Additional Shares") will be
issued and delivered to the Subscriber as provided herein. The original purchase
price set forth on the signature page of this Subscription Agreement (the
"Purchase Price") shall be deemed the purchase price of all the shares of
Common Stock to be delivered pursuant to this Subscription Agreement including
the Additional Shares. Provided the Additional Shares are issued after the
effective date of the Registration Statement described in Section 10.1 (iv)
hereof, such Additional Shares will be free-trading on the books and records of
the Company and issued without restrictive legend.
(b) The Reset shall be determined on the first NASDAQ SmallCap
Market trading day of each calendar month commencing October 1, 1999 (each a
"Reset Date") for an amount of the Purchase Price equal to up to 25% of the
Purchase Price, at the Subscriber's written election at any time during each
calendar month ("Designated Portion") per Reset Date.
(c) If the Company's common stock is listed for trading on the
NASDAQ SmallCap Market on a Reset Date and the Closing Bid Price of the common
stock on such Reset Date is less than 130% of the Issue Price set forth on the
signature page hereto, (subject to adjustment for stock splits, stock dividends
and similar events), then on each Reset Date a number of Company Shares will be
calculated for the Designated Portion of the Purchase Price by dividing the
Designated Portion of the Purchase Price by a number equal to eighty-five
percent (85%) of the lowest closing bid price for the common stock on the
NASDAQ SmallCap Market, or on any securities exchange or other securities
market on which the common stock was listed, traded or quoted for the calendar
month immediately preceding the Reset Date (the "Reset Price"). If the Reset
Price is less than the Issue Price designated on the signature page hereto,
then the Company will issue to the Subscriber the number of shares of Common
Stock obtained by subtracting (y) the number of shares obtained by dividing the
Designated Portion of Purchase Price by the Issue Price from (z) the number of
shares obtained by dividing the Designated Portion of Purchase Price by the
Reset Price.
(d) If the Company's Common Stock is not listed for trading on the
NASDAQ SmallCap Market or National Market System on a Reset Date and the
Closing Bid Price of the Common Stock on such Reset Date is less than 175% of
the Issue Price (subject to adjustment for stock split, stock dividends and
similar events), then on each Reset Date a number of Company Shares will be
calculated for the Designated Portion of the Purchase Price by Dividing the
Designated Portion of the Purchase Price by a number equal to eighty-five
percent (85%) of the lowest closing bid price for the common stock on the
NASDAQ SmallCap Market, or on any securities exchange or other securities
market on which the common stock was listed, traded or quoted for the calendar
month immediately preceding the Reset Date. If the Reset Price is less than the
Issue Price, then the Company will issue to the Subscriber the number of shares
of Common Stock obtained by subtracting (y) the number of shares obtained by
dividing the
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Designated Portion of Purchase Price by the Issue Price from (z) the number of
shares obtained by dividing the Designated Portion of Purchase Price by the
Reset Price.
(e) Reset rights described herein shall end on the sooner to occur
of two years after the Effective Date of the registration statement as
described in Section 10.1(iv) hereof, or upon the Subscriber having realized
net proceeds from sales of the Company Shares equal to 150% of the Purchase
Price and Put Consideration actually paid by the Subscriber, of which
occurrence the Subscriber shall notify the Company in writing.
(f) In no event will the Subscriber be required to return any
Company Shares to the Company. Each Reset calculation shall be made independent
of all other Reset calculations.
(g) The Company agrees to deliver the Additional Shares to the
Subscriber in hand, or Redemption Amount (as defined herein) if such payment of
the Redemption Amount is permitted hereunder, no later than ten (10) business
days, in the case of the Additional Shares, or five (5) business days in the
case of the Redemption Amount, after notice from the Subscriber of the
Designated Portion (each a "Delivery Date"). The Company understands that a
delay in the delivery of either the Additional Shares or failure to timely
deliver the Redemption Amount described in Sections 9.2 and 9.3 beyond the
required Delivery Date could result in economic loss to the Subscriber. As
compensation to the Subscriber for such loss, the Company agrees to pay as
liquidated damages payments to the Subscriber for late delivery of Additional
Shares or Redemption Amount beyond the required Delivery Date, in the amount of
$100 per business day after the Delivery Date for each $10,000 of Designated
Portion of Purchase Price for which a Reset has been calculated. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand. The late payment charges described in this Section 9.1(g)
shall be payable through the date the Additional Shares or Redemption Amount is
received in hand by the Subscriber.
(h) Securities and Company Shares as defined and employed in this
Subscription Agreement shall include Additional Shares for all purposes
including but not limited to Section 10 of this Subscription Agreement.
(i) 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 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.
9.2 Optional Redemption. In the event the Reset Price on a Reset Date is
less than $.50 per share (subject to adjustment for stock splits, stock
dividends and similar events), then at the Company's election, in lieu of
delivering the Additional Shares on the Delivery Date, the Company may deliver
no later than five business days after notice from the Subscriber of the
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Designated Portion a sum of money equal to 130% of the Designated Portion for
such Resent Date ("Redemption Amount"). In the event the Additional Shares or
payment of the Redemption Amount is not received by the Subscriber in US funds
on or before the required Delivery Date, then the Company shall thereafter no
longer have the right described in this paragraph to substitute cash payment in
lieu of delivery of Additional Shares. As a precondition to exercising the right
to substitute the Redemption Amount in lieu of delivering Additional Shares, the
Company must notify the Subscriber in writing of its intention to do so no later
than one (1) business day after notice from the Subscriber of the Designated
Portion.
9.3 Mandatory Redemption. In the event the Company does not issue and
deliver Additional Shares on a Delivery Date for any reason, then at the
Subscriber's election in lieu of delivering such Additional Shares the Company
must pay to the Subscriber immediately after request, a sum of money equal to
the Redemption Amount calculated in the manner described in Section 9.2 hereof.
9.4 Additional Reset. In addition to the other Reset rights described
herein, if within ninety (90) days from the Closing Date, the Company's Common
Stock is not listed or included for trading on any of the NASDAQ SmallCap
Market, National Market System, or American Stock Exchange, then the Company
shall issue and deliver to the Subscriber prior to ninety-six (96) days from
the Closing Date an amount of Company Shares equal to the Common Shares
Purchased, as designated on the signature page hereto so that the per share
Purchase Price will be reduced to $.50. After receipt of such shares, the per
share Purchase Price for purposes of Reset calculations described in this
Section 9 shall be equal to $.50 and the number of Company Shares actually
received shall be employed for Reset calculations.
9.5 Reset Limitation. The Company and Subscriber agree that the
Subscriber shall not be entitled to Reset on a Reset Date that amount of the
Purchase Price 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 such Reset Date, and
(ii) the number of shares of common stock issuable upon such Reset with respect
to which the determination of this proviso is being made on such Reset 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 Reset Date. For the purposes of the proviso 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 prohibited
from exercising over time of its Reset Rights in connection with the Reset of
an aggregate 100% Purchase Price. Subscriber may revoke the restriction
described in this paragraph upon seventy-five (75) days prior written notice to
the Company.
9.6 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
Reset or if applicable the Redemption Amount, by the Delivery Date and if after
the Delivery Date the Subscriber purchases (in an open market transaction or
otherwise) shares of common stock to deliver in
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satisfaction of a sale by such Subscriber of the common stock which the
Subscriber anticipated receiving upon such Reset (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 corresponding portion of Designated
Amount for which Additional Shares were not timely delivered, 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 Reset of $10,000 of Designated
Amount, 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.
9.7. Injunction - Posting of Bond. In the event a Subscriber shall
exercise its Reset Rights, 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, unless, an injunction from
a court, on notice, restraining and/or enjoining the exercise of the
Subscriber's Reset rights shall have been obtained and the Company posts a
surety bond for the benefit of such Subscriber in the amount of 130% of the
amount of the Designated Amount, 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 it obtains judgment.
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 31 days after the
Closing Date, but not later than three years after the Closing 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 in connection
with the $500,000 aggregate offering to which this Subscription Agreement
relates (the Securities, Additional Shares and securities issued or issuable by
virtue of ownership or exercise of the Securities, and the Put Securities
(defined in Section 11.1(a) hereof) if actually issued, being, the "Registrable
Securities"), shall prepare and file with the SEC a registration statement
under the Act covering the Registrable Securities which are the 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
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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 30 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, the Company may withdraw
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) except
that the Company or underwriter, if any, may not withdraw such registration or
limit the amount of Registrable Securities included in such registration.
(iv) The Company shall file with the Commission within thirty
(30) days of the Closing Date (the "Filing Date"), and use its reasonable
commercial efforts to cause to be declared effective a Form S-3 registration
statement (or such other form that it is eligible to use) within ninety (90)
days of the Closing Date 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 ninety (90)
days of the Closing Date ("Effective Date"). The Company will register not
less than 120,000 shares of Common Stock in the aforedescribed registration
statement for each $25,000 of Purchase Price and one share of Common Stock for
each Commission Share and common share issuable upon exercise of the
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Warrants and Placement Warrants. The Registrable Securities shall be reserved
and set aside exclusively for the benefit of the Subscriber and Placement
Agents, as the case may be, and not issued, employed or reserved for anyone
other than the Subscriber and Placement Agents, as the case may be. 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.
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 copies of all filings;
(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 for not less than 6 months after the latest exercise period of any
common stock purchase warrant or other convertible instrument included in
the Registrable Securities, 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;
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(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 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 Provisions 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. In the
event of a firm commitment underwritten public offering in which the
Registrable Securities are so included, the lockup, if any, requested by the
managing underwriter may not exceed ninety (90) days after the effective date
thereof.
(b) In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information 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 the 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 60 days after request by
the Holder and not declared effective by the Commission within 120 days after
such request [or the Filing Date and Effective Date, respectively, in reference
to the Registration Statement on Form S-3 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 60
days of such request, or is not declared effective by the Commission on or
prior to the date that is 120 days after such request, or (ii) the registration
statement on Form S-3
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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 days of receipt by the Company of a 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 in cash as
Liquidated Damages to each holder of any Registrable Securities an amount equal
to three (3%) percent for each thirty (30) days or part thereof, of the
Purchase Price of the Company Shares, and the aggregate amount of the exercise
prices of the Warrants and Placement Warrants, whether or not exercised, then
owned of record by such holder as of the occurrence of such Non-Registration
Event. Payments to be made pursuant to Section 10.4 shall be due and payable
immediately upon demand in immediately available funds.
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 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, fee of one counsel, if any, to
represent all the Sellers, 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 each
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)
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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 will not be liable in any such case if and
to the extent that 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, the underwriter 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 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 proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed 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
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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) 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 on 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, (A) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) 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.
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11.1. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the Company
additional Company Shares ("Put Shares") for up to the Maximum Put
Consideration designated on the signature page hereto. Collectively the Put
Shares and Put Commissions (as hereinafter defined) are referred to as the "Put
Securities".) The Holders of the Put Securities are granted all the rights,
remedies and indemnification granted to the Subscriber in connection with the
Securities, including but not limited to, the registration rights described in
Section 10 hereof, and the Reset Rights described in Section 9 hereof.
(b) The agreement to purchase the Put Shares is contingent on
the following (unless waived by the Subscriber):
(i) The timely filing and timely effectiveness of the
registration statement described in Section 10.1(iv) hereof relating to all the
Registrable Securities.
(ii) As of the Put Date and Put Closing Date (as defined
hereinafter), the Company will be a full reporting company with the class of
Shares registered pursuant to Section 12(g) of the Securities Exchange Act of
1934.
(iii) The closing bid price of the Company's common stock
on the NASDAQ SmallCap Market or such other securities exchange or market where
the Company's common stock is listed for trading ("Closing Bid Price") for
each of the ten trading days prior to the giving of a Put Notice (as defined
hereinafter) and until to the Put Closing Date will not be less than $1.00.
(iv) No material adverse change in the Company's business
or business prospects shall have occurred after the date of the most recent
financial statements included in the Reports. Material adverse change is
defined as any effect on the business, operations, properties, prospects, or
financial condition of the Company that is material and adverse to the Company
and its subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, or any other agreement entered into or to be entered into in
connection herewith, in any material respect.
(v) There not being an adverse variation of 20% or more
from the quarterly and annual revenue, gross income and Net Profit projections
set forth on Schedule C hereto for the periods set forth on Schedule C hereto.
Schedule C will be retained by the Escrow Agent referred to in Section 6 hereof
and not delivered to the Subscriber unless the Escrow Agent determines in its
own discretion that the actual revenue and/or income differ from the
projections by 20% or more. In any event, the Escrow Agent may deliver the
projections to the Subscriber at the Escrow Agent's discretion. Until eighteen
months from the Closing Date, the Company undertakes to deliver to the Escrow
Agent copies of all periodic reports and other
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filings by the Company with the Securities and Exchange Commission within two
(2) business days of filing with the Securities and Exchange Commission.
(vi) The execution and delivery to the Subscriber of a
certificate signed by its chief executive officer representing the truth and
accuracy of all the Company's representations and warranties contained in this
Subscription Agreement as of the Put Date and the Put Closing Date and
confirming the undertakings contained herein, and representing the satisfaction
of all contingencies and conditions required for the exercise of the Put.
(vii) The Company's compliance after the date hereof with
the listing requirements of the NASD OTC Bulletin Board, and the Company's not
having received notice from the NASD OTC Bulletin Board (and any principal
market on which the Company's Common Stock is listed for trading) that the
Company is not in compliance with the requirements for continued listing.
(viii) The execution by the Company and delivery to the
Subscriber of all documents reasonably necessary to memorialize the rights and
obligations of each of the parties in relation to the Put.
(ix) There shall not have occurred a change in the current
members of the board of directors of the Company nor of the President,
Vice-President, Chief Financial Officer, Chief Executive Officer, or Chief
Operating Officer of the Company prior to the giving of a Put Notice or Put
Closing Date.
(x) A Closing shall have occurred on an aggregate of
$500,000 on the same terms and conditions described in this Subscription
Agreement.
(xi) The Company shall have obtained a listing for trading
of its Common Stock on the NASDAQ SmallCap Market on or before 90 days after
the Closing Date.
(c) The exercise of the Put is further contingent on the
non-occurrence of any of the following events, each an Event of Default:
(i) The Company shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed.
(ii) Any money judgment, writ or similar process shall be
entered or filed against Company or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
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(iii) Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Company.
(iv) Delisting of any of the Company's securities from
the NASD OTC Bulletin Board or such other principal exchange on which such
security was listed for trading, or receipt by the Company of notice from NASDAQ
or such other principal exchange that the Company is not in compliance with its
listing requirements.
(v) A concession by the Company or a default by the
Company under any one or more obligations in an aggregate monetary amount in
excess of $50,000.
(vi) An SEC stop trade order or NASDAQ trading
suspension.
(vii) Any representation or warranty of the Company
made in this Subscription Agreement or in connection herewith, or in any
agreement, statement or certificate given in writing pursuant hereto or in any
other agreement to which the Company and Subscriber are parties, or in
connection herewith or therewith shall be materially false or misleading.
(viii) The occurrence of a Non-Registration Event.
(ix) Any material default by the Company of any
covenant or undertaking described in this Subscription Agreement or any document
delivered in connection herewith or under any other agreement to which the
Company and Subscriber are parties.
(d) The exercise of the Put is expressly contingent on the
declaration of effectiveness by the Securities and Exchange Commission and the
continued effectiveness of the Registration Statement on Form S-3 or such other
form as described in Section 10.1(iv) hereof relating to the Registrable
Securities and the Company's ability to issue Common Stock on the Put Closing
Date pursuant to an effective registration statement, with such Common Stock,
upon resale, being unlegended freely transferable Common Stock.
11.2. Exercise of Put.
(a) The Company's right to exercise the Put expires two weeks
after the obtention of a listing of the Company's Common Stock on the NASDAQ
SmallCap Market, which must occur within 90 days of the Closing Date ("Put
Exercise Period").
(b) The Put may be exercised by the Company by the giving to
the Subscriber of a written notice of exercise ("Put Notice") during the Put
Exercise Period in relation to all the subject Put Securities. The date a Put
Notice is given is a Put Date. Each Put Notice must be accompanied by the (i)
officer's certificate described in Section 11.1(b)(viii) above; (ii) a copy of
the filed registration statement; (iii) notice of declaration of effectiveness;
(iv) five copies of the final prospectus; (v) a legal opinion relating to the
Put Securities in form
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reasonably acceptable to Subscriber, and (vi) proof of timely listing on the
NASDAQ SmallCap Market.
(c) Unless otherwise agreed to by the Subscribers, Put Notices
must be given to all Subscribers in proportion to the amounts agreed to be
purchased by all Subscribers undertaking to purchase Put Shares in the $500,000
offering to which this Subscription Agreement relates. The aggregate amount of
all such Put Notices may not exceed $1,500,000. In the event the Company does
not exercise the Put during the Put Exercise Period, then the Subscriber may
exercise the Put on behalf of the Company, giving notice to the Company of such
exercise during the fourteen (14) business days following the Put Exercise
Period. Only one Put Notice may be given to the Subscriber.
(d) Payment by the Subscriber in relation to a Put Notice
relating to the Put must be made within 10 days of receipt of a Put Notice.
Payment will be made against delivery to the Subscriber or an escrow agent to
be agreed upon the Company and Subscriber, of the Put Shares and items set forth
in Section 11.2(b) above, and delivery to the Placement Agents of the Put
Commissions relating to the Put being exercised.
11.3. Put Price.
(a) If the Put is exercised by the Company, the price for each
Put Share shall be $1.00 for each Put Share ("Put Price").
(b) If the Put is exercised by the Subscriber on the Company's
behalf pursuant to Section 11.2(C) hereof and provided the Closing Bid Price for
each of the 20 trading days prior to the giving of a Put Notice by the
Subscriber is more than $1.75 and the aggregate trading volume in the Company's
common stock is more than 100,000 common shares per day for each of the 20
trading days prior to the giving of a Put Notice by the Subscriber, then the Put
Price shall be $1.00 plus one-half the difference between $1.75 and the Closing
Bid Price on the trading day preceding the Put Date.
(c) If the Put is exercised by the Subscriber on the Company's
behalf pursuant to Section 11.2(C) hereof and the Closing Bid Price for each of
the 20 trading days prior to the giving of a Put Notice by the Subscriber is
$1.75 or less or the aggregate trading volume in the Company's common stock is
less than 100,000 common share per day for each of the 20 trading days prior
to the giving of a Put Notice by the Subscriber, then the Put Price shall be
$1.00.
11.4. Put Commission Warrants. The Put Commission Warrants (as defined
herein) payable in connection with the Put will be identical to the Placement
Warrants except that such Put Warrants will be exercisable commencing on the
Put Closing Date and for three years thereafter at the lower of the exercise
price of the Placement Warrants or the closing bid price of the Company's
Common Stock on the NASDAQ SmallCap Market on the day prior to the Put Closing
Date.
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11.5. Put Commissions. The Placement Agents identified on Schedule A
hereto shall receive aggregate commissions in connection with the closing of the
Put as follows: (i) one Company Share for each ten (10) Put Shares purchased by
the Subscriber; and (ii) one Put Warrant for each $2 of Put purchase price paid
by a Subscriber in connection with the Put. Collectively, the foregoing are
referred to as Put Commissions. The aggregate Put Commissions are set forth on
Schedule A hereto. Put Commissions shall be payable only in connection with the
Put Purchase Price actually paid by a Subscriber. The attorney for the
Subscriber shall receive a payment at the Put Closing equal to one and one-half
(1.5%) of the Put Consideration.
11.6. Adjustments. The Put Price and number of Common Shares to be issued
pursuant to this Section shall be subject to adjustment from time to time upon
the happening of certain events while the Put right remains outstanding, as
follows:
(a) Stock Splits, Combinations and Dividends. If the shares of
common stock are subdivided or combined into a greater or smaller number of
shares of common stock, or if a dividend is paid on the common stock in shares
of common stock, the Put Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of common stock outstanding immediately after such event bears
to the total number of shares of common stock outstanding immediately prior to
such event.
(b) Share Issuance. Subject to the provisions of this Section, if
the Company at any time shall issue any shares of common stock prior to Put
Closings on up to $1,500,000 [otherwise than as provided in Section 11.6(a) or
this subparagraph 11.6(b) for a consideration less than the Put Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Put Price shall be reduced as follows: (i) the number
of shares of common stock outstanding immediately prior to such issue shall be
multiplied by the Put Price in effect at the time of such issue and the product
shall be added to the aggregate consideration, if any, received by the Company
upon such issue of additional shares of common stock; and (ii) the sum so
obtained shall be divided by the number of shares of common stock outstanding
immediately after such issue. The resulting quotient shall be the adjusted Put
Price. For purposes of this adjustment, 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 an
adjustment to the Put Price upon the issuance of shares of common stock upon
exercise of such conversion of purchase rights.
11.7 The Company and Subscriber agree that the Company and Subscriber
may not exercise the Put in connection with the 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 the Closing
date, and (ii) the number of shares of common stock issuable upon the exercise
of the Put with respect to which the determination of this proviso is being
made on a Put Date, which would result in beneficial ownership by the
Subscriber and its
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affiliates of more than 9.99% of the outstanding shares of common stock of the
Company. For the purposes of the proviso 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,
except as otherwise provided in clause (i) of such proviso. Any conflict between
this Section 11.7 and Section 9.5 hereof or the potential application of this
Section 11.7 and Section 9.5 at the same time shall be resolved by the
Subscriber at the Subscriber's election, provided that the aggregate maximum
amount of common shares that may be issued is not exceeded. The Subscriber may
revoke the restriction described in this paragraph upon seventy-five (75) days
prior written notice to the Company.
11.8. Put Reset Rights. The Subscriber is hereby granted identical Reset
Rights in relation to the Put Shares and aggregate Put Price as described in
Section 9 of this Subscription Agreement.
12. (a) Right of First Refusal. Until 180 days after the effective
date of the Registration Statement described in Section 10.1(iv) hereof, the
Subscriber 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 as disclosed in the Reports or Other
Written Information. The Subscriber shall have the right during the ten (10)
business days following the notice to agree to purchase an amount of common
shares or other securities in the same proportion as the Company Shares being
purchased in the aggregate offering to which this Subscription Agreement
relates (i.e. $500,000 in the aggregate), of those securities proposed to be
issued and sold, in accordance with the terms and conditions set forth in the
notice of sale. In the event such terms and conditions are modified during the
notice period, the Subscriber shall be given promptly notice of such
modification and shall have the right during the original notice period or for
a period of ten (10) business days following the notice of modification,
whichever is longer, to exercise such right. In the event the right of first
refusal described in this Section is exercised by the Subscriber and the
Company thereby receives net proceeds from such exercise, then commissions and
fees will be paid by the Company to the Placement Agents in the same amounts as
specified in the notice of sale.
(b) Offering Restrictions. Except with respect to securities
otherwise disclosed in the Reports or Other Written Information, the Company
will not issue any equity, convertible debt or other securities prior to 120
days after the Effective Date.
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 The Recovery Network, Inc., 0000 Xxxxx Xxxxxx, Xxxxx 000, Xxxxx
Xxxxxx, XX 00000, telecopier number: (000) 000-0000, and (ii) if to the
Subscriber, to the name, address and telecopy number
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set forth on the signature page hereto. Any notice that may be given pursuant
to this Agreement, or any document delivered in connection with the foregoing
may be given by the Subscriber on the first business day after the observance
dates in the United States of America by Orthodox Jewry of Rosh Hashanah, Yom
Kippur, the first two days of the feast of Tabernacles, Shemini Atzeret Simchat
Torah, the first two and final two days of Passover and Pentecost, with such
notice to be deemed given and effective, at the election of the Subscriber on a
holiday date that precedes such notice. Any notice received by the Subscriber
on any of the aforedescribed holidays may be deemed by the Subscriber to be
received and effective as if such notice had been received on the first
business day after the holiday.
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Xxxxxxx, 000 Xxxxxxxx,
Xxxxx 000, 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"). The
Closing date for the Put shall be the date on which Subscriber funds
representing the net amount due the Company from the Put Consideration are
transmitted to or on behalf of the Company ("Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents 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. 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
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.
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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.
THE RECOVERY NETWORK, INC.
By: /s/ [Signature Illegible]
----------------------------
Dated: June 10, 1999
Purchase Price: $100,000.00
Issue Price (per share): $1.00
Common Shares Purchase (aggregate): 100,000
Maximum Common Stock Purchase Warrants: 60,000
(Maximum) Put Consideration: $300,000.00
ACCEPTED: Dated as of June __, 1999
AUSTOST ANSTALT XXXXXX - Subscriber
7440 Fuerstentum
Xxxxxxxxxxx, Xxxxxxxxxxx 000
Fax: 000-000-000000000
By:
------------------------------
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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.
THE RECOVERY NETWORK, INC.
By:
----------------------------
Dated: June __, 1999
Purchase Price: $100,000.00
Issue Price (per share): $1.00
Common Shares Purchase (aggregate): 100,000
Maximum Common Stock Purchase Warrants: 60,000
(Maximum) Put Consideration: $300,000.00
ACCEPTED: Dated as of June 10, 1999
AUSTOST ANSTALT XXXXXX - Subscriber
7440 Fuerstentum
Xxxxxxxxxxx, Xxxxxxxxxxx 000
Fax: 000-000-000000000
By: /s/ [Signature Illegible]
------------------------------
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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.
THE RECOVERY NETWORK, INC.
By: /s/ [Signature Illegible]
----------------------------
Dated: June 10, 1999
Purchase Price: $100,000.00
Issue Price (per share): $1.00
Common Shares Purchase (aggregate): 100,000
Maximum Common Stock Purchase Warrants: 60,000
(Maximum) Put Consideration: $300,000.00
ACCEPTED: Dated as of June __, 1999
BALMORE FUNDS S.A. - Subscriber
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
By:
------------------------------
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30
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.
THE RECOVERY NETWORK, INC.
By:
----------------------------
Dated: June __, 1999
Purchase Price: $100,000.00
Issue Price (per share): $1.00
Common Shares Purchase (aggregate): 100,000
Maximum Common Stock Purchase Warrants: 60,000
(Maximum) Put Consideration: $300,000.00
ACCEPTED: Dated as of June 10, 1999
BALMORE FUNDS S.A. - Subscriber
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
By: /s/ [Signature Illegible]
------------------------------
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31
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.
THE RECOVERY NETWORK, INC.
By: /s/ [Signature Illegible]
---------------------------
Dated: June 10, 1999
Purchase Price: $100,000.00
Issue Price (per share): $1.00
Common Shares Purchased (aggregate): 100,000
Maximum Common Stock Purchase Warrants: 60,000
(Maximum) Put Consideration: $300,000.00
ACCEPTED: Dated as of June __, 1999
AMRO INTERNATIONAL, S.A. - Subscriber
c/o Ultra Finanz
Grossmuenster Xxxxx 00
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx CH 8022
Fax: 000-000-000-0000
By:
---------------------------
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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.
THE RECOVERY NETWORK, INC.
By:
---------------------------
Dated: June __, 1999
Purchase Price: $100,000.00
Issue Price (per share): $1.00
Common Shares Purchased (aggregate): 100,000
Maximum Common Stock Purchase Warrants: 60,000
(Maximum) Put Consideration: $300,000.00
ACCEPTED: Dated as of June 10, 1999
AMRO INTERNATIONAL, S.A. - Subscriber
c/o Ultra Finanz
Grossmuenster Xxxxx 00
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx CH 8022
Fax: 000-000-000-0000
By: /s/ [Signature Illegible]
---------------------------
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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.
THE RECOVERY NETWORK, INC.
By: /s/ [Signature Illegible]
----------------------------
Dated: June 10, 1999
Purchase Price: $50,000.00
Issue Price (per share): $1.00
Common Shares Purchased (aggregate): 50,000
Maximum Common Stock Purchase Warrants: 30,000
(Maximum) Put Consideration: $150,000.00
ACCEPTED: Dated as of June __, 1999
NESHER, INC. -- Subscriber
x/x Xxxxxxx Xxxxx
00 Xxxx Xxxx
Xxxxxxx, Isle of Man
1M1 4L2, United Kingdom
Fax: 000-000-00000000
By:
---------------------------
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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.
THE RECOVERY NETWORK, INC.
By:
----------------------------
Dated: June __, 1999
Purchase Price: $50,000.00
Issue Price (per share): $1.00
Common Shares Purchased (aggregate): 50,000
Maximum Common Stock Purchase Warrants: 30,000
(Maximum) Put Consideration: $150,000.00
ACCEPTED: Dated as of June 10, 1999
NESHER, INC. -- Subscriber
x/x Xxxxxxx Xxxxx
00 Xxxx Xxxx
Xxxxxxx, Isle of Man
1M1 4L2, United Kingdom
Fax: 000-000-00000000
By: /s/ [Signature Illegible]
---------------------------
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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.
THE RECOVERY NETWORK, INC.
By: /s/ [Signature Illegible]
-----------------------------------
Dated: June 10, 1999
Purchase Price: $50,000.00
Issue Price (per share): $1.00
Common Shares Purchased (aggregate): 50,000
Maximum Common Stock Purchase Warrants: 30,000
(Maximum) Put Consideration: $150,000.00
ACCEPTED: Dated as of June 10, 1999
GUARANTEE & FINANCE CORP. - Subscriber
Vallarino X.X.
Xxxxx 00, Xxxxxx
Fax: 000-0000000000
By: /s/ [Signature Illegible]
-----------------------------------
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SCHEDULE A TO SUBSCRIPTION AGREEMENT
PLACEMENT COMMISSIONS
PLACEMENT
PLACEMENT AGENT COMMISSION SHARES WARRANTS
LIBRA FINANCE S.A. 20,000 100,000
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
AMRO INTERNATIONAL S.A. 10,000 50,000
c/o Ultra Finanz
Grossmuenster Xxxxx 00
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx CH 8022
Fax: 000-000-000-0000
TALBIYA B. INVESTMENTS LTD. 10,000 50,000
x/x Xxxxxxx Xxxxx
00 Xxxx Xxxx
Xxxxxxx, Isle of Man
1M1 4L2, United Kingdom
Fax: 000-000-00000000
TO BE IDENTIFIED 10,000 50,000
TOTALS 50,000 250,000 (ON $500,000)
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