SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of May 10, 2007,
by and among Swiss Medica, Inc., a Delaware corporation (the "Company"), and the
subscribers identified on the signature page hereto (each a "Subscriber" and
collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2) and/or Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to $2,240,000 (the "Aggregate Principal Amount") of principal amount
of promissory notes of the Company ("Note" or "Notes"), a form of which is
annexed hereto as Exhibit A, convertible into shares of the Company's common
stock, $0.01 par value (the "Common Stock"), at a per share conversion price set
forth in the Note ("Conversion Price"). The Notes, shares of Common Stock
issuable upon conversion of the Notes (the "Shares") are collectively referred
to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes contemplated
hereby may be held in escrow pursuant to the terms of a Funds Escrow Agreement
to be executed by the parties substantially in the form attached hereto as
Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Aggregate Purchase Price. The aggregate purchase price for the
Notes (the "Aggregate Purchase Price") shall equal the result of (x) divided by
(y), where (x) equals the Aggregate Principal Amount and (y) equals 1.12.
2. Conditions to Closing. Subject to the satisfaction or waiver of
the terms and conditions of this Agreement, on the Closing Date, each Subscriber
shall purchase and the Company shall sell to each Subscriber a Note in the
principal amount designated on the signature page hereto. The Aggregate Purchase
Amount of the Notes to be purchased by the Subscribers on the Closing Date shall
be $2,240,000 in exchange for $2,000,000 of Aggregate Purchase Price. The
Aggregate Purchase Price will be paid with a combination of cash, surrender of
certain outstanding promissory notes of the Company held by Subscribers and
waiver or deemed payment of interest, default interest and liquidated damages in
connection with such surrendered promissory notes as more fully described on the
signature pages hereto.
3. Closing. The "Closing Date" shall be the date that the Aggregate
Purchase Price is transmitted by wire transfer or otherwise credited to or for
the benefit of the Company. The consummation of the transactions contemplated
herein for all closings shall take place at the offices of Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the
satisfaction of all conditions to Closing set forth in this Agreement.
4. Subscriber's Representations and Warranties. Each Subscriber
hereby represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) Information on Company. The Subscriber has been furnished
with or has had access at the XXXXX Website of the Commission to the Company's
Form 10-KSB for the year ended December 31, 2005 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, and filings made with
the Commission available at the XXXXX website (hereinafter referred to
collectively as the "Reports"). In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "Other Written Information"), and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(b) Information on Subscriber. The Subscriber is, and will be
on the Closing Date, an "accredited investor", as such term is defined in
Regulation D promulgated by the Commission under the 1933 Act, is experienced in
investments and business matters, has made investments of a speculative nature
and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Notes. On the Closing Date, the Subscriber
will purchase the Notes as principal for its own account for investment only and
not with a view toward, or for resale in connection with, the public sale or any
distribution thereof, but Subscriber does not agree to hold the Notes for any
minimum amount of time.
(d) Compliance with Securities Act. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in part
on the accuracy of the representations and warranties of Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. Notwithstanding anything to the
contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an
"accredited investor" under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement. For the purposes of this
Agreement, an "Affiliate" of any person or entity means any other person or
entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. Affiliate when employed in
connection with the Company includes each Subsidiary as defined in Section 5(a)
of the Company. For purposes of this definition, "control" means the power to
direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
(e) Note Legend. The Note shall bear the following legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. 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 SWISS MEDICA, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
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(f) Communication of Offer. The offer to sell the Securities
was directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(g) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith have
been duly authorized, executed and delivered by the Subscriber and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and Subscriber has full corporate
power and authority necessary to enter into this Agreement and such other
agreements and to perform its obligations hereunder and under all other
agreements entered into by the Subscriber relating hereto.
(h) Restricted Securities. Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless (i) pursuant to an effective registration statement
under the 1933 Act, (ii) such Subscriber provides the Company with an opinion of
counsel, in a form reasonably acceptable to the Company, to the effect that a
sale, assignment or transfer of the Securities may be made without registration
under the 1933 Act, or (iii) Subscriber provides the Company with reasonable
assurances (in the form of seller and broker representation letters) that the
Shares may be sold pursuant to (A) Rule 144 promulgated under the 1933 Act, or
(B) Rule 144(k) promulgated under the 1933 Act, in each case following the
applicable holding period set forth therein. Notwithstanding anything to the
contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an
"accredited investor" under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement. All resales of the Securities
will be conducted in compliance with all applicable laws, including, without
limitation, laws relating to "short sales".
(i) No Governmental Review. Each Subscriber understands that
no United States federal or state agency or any other governmental or state
agency has passed on or made recommendations or endorsement of the Securities or
the suitability of the investment in the Securities nor have such authorities
passed upon or endorsed the merits of the offering of the Securities.
(j) Correctness of Representations. Each Subscriber represents
as to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Subscriber otherwise notifies
the Company prior to the Closing Date shall be true and correct as of the
Closing Date.
(k) Survival. The foregoing representations and warranties
shall survive the Closing Date for a period of three years after the Closing
Date.
5. Company Representations and Warranties. Except as set forth in
the Reports, the Company represents and warrants to and agrees with each
Subscriber that:
(a) Due Incorporation. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power to own
its properties and to carry on its business is disclosed in the Reports. 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. For purpose of this Agreement, a "Material Adverse Effect" shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken individually, or in the
aggregate, as a whole. For purposes of this Agreement, "Subsidiary" means, with
respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (i) the outstanding
capital stock having (in the absence of contingencies) ordinary voting power to
elect a majority of the board of directors or other managing body of such
entity, (ii) in the case of a partnership or limited liability company, the
interest in the capital or profits of such partnership or limited liability
company or (iii) in the case of a trust, estate, association, joint venture or
other entity, the beneficial interest in such trust, estate, association or
other entity business is, at the time of determination, owned or controlled
directly or indirectly through one or more intermediaries, by such entity. All
the Company's Subsidiaries as of the Closing Date are set forth on Schedule 5(a)
hereto.
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(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries have been duly
authorized and validly issued and are fully paid and nonassessable.
(c) Authority; Enforceability. This Agreement, the Note, the
Funds Escrow Agreement, and any other agreements delivered together with this
Agreement or in connection herewith (collectively "Transaction Documents") have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company
except as described on Schedule 5(d). The Common Stock and all other equity of
the Company and its Subsidiaries on a fully diluted basis outstanding as of the
last trading day preceding the Closing Date is set forth on Schedule 5(d).
(e) Consents. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its Affiliates, the OTC Bulletin Board (the "Bulletin
Board") nor the Company's shareholders is required for the execution by the
Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities. The Transaction Documents
and the Company's performance of its obligations thereunder has been approved
unanimously by the Company's directors.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the certificate of incorporation, or bylaws of the Company, (B) to the Company's
knowledge, any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its Affiliates or subsidiaries is a party, by which the Company or any of its
Affiliates or subsidiaries is bound, or to which any of the properties of the
Company or any of its Affiliates or subsidiaries is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its Affiliates or subsidiaries is a party except
the violation, conflict, breach, or default of which would not have a Material
Adverse Effect on the Company; or
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(ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company,
its subsidiaries or any of its Affiliates; or
(iii) result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any other
creditor or equity holder of the Company, nor result in the acceleration of the
due date of any obligation of the Company; or
(iv) result in the activation of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized,
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 Subscriber complies with the prospectus delivery
requirements of the 1933 Act;
(iii) will not have been issued or sold in violation of
any preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
(v) will have been issued in reliance upon an exemption
from the registration requirements of and will not result in a violation of
Section 5 under the 1933 Act.
(h) Litigation. There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its Affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under the Transaction
Documents. Except as disclosed in the Reports, there is no pending or, to the
best knowledge of the Company, basis for or threatened action, suit, proceeding
or investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect on the Company.
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(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and has a class of common
shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued or
resold.
(k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates and all the information required to be
disclosed therein. Since the last day of the fiscal year of the most recent
audited financial statements included in the Reports ("Latest Financial Date"),
and except as modified in the Other Written Information or in the Schedules
hereto, there has been no Material Adverse Event relating to the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports including the financial statements therein do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances when made.
(l) Stop Transfer. The Securities, when issued, will be
restricted securities. The Company will not issue any stop transfer order or
other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws and
unless contemporaneous notice of such instruction is given to the Subscriber.
(m) Defaults. The Company is not in violation of its
certificate of incorporation or bylaws. The Company is (i) not in default under
or in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a Material Adverse Effect on the Company, (ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to its knowledge, not in violation of
any statute, rule or regulation of any governmental authority which violation
would have a Material Adverse Effect on the Company.
(n) Not an Integrated Offering. Neither the Company, nor any
of its Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the OTC Bulletin Board ("Bulletin Board") which would impair the exemptions
relied upon in this Offering or the Company's ability to timely comply with its
obligations hereunder. Nor will the Company or any of its Affiliates take any
action or steps that would cause the offer or issuance of the Securities to be
integrated with other offerings which would impair the exemptions relied upon in
this Offering or the Company's ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities, which would impair the exemptions relied upon in this Offering or
the Company's ability to timely comply with its obligations hereunder.
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(o) No General Solicitation. Neither the Company, nor any of
its Affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the 0000 Xxx) in connection with the offer or
sale of the Securities.
(p) Listing. The Company's common stock is quoted on the
Bulletin Board under the symbol SWME.OB. The Company has not received any oral
or written notice that its common stock is not eligible nor will become
ineligible for quotation on the Bulletin Board nor that its common stock does
not meet all requirements for the continuation of such quotation. The Company
satisfies all the requirements for the continued quotation of its common stock
on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since the Latest
Financial Date and which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, except as disclosed on Schedule
5(q).
(r) No Undisclosed Events or Circumstances. Since the Latest
Financial Date, no event or circumstance has occurred or exists with respect to
the Company or its businesses, properties, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing Date (not
including the Securities) are set forth on Schedule 5(d). Except as set forth on
Schedule 5(d), there are no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable for or giving
any right to subscribe for any shares of capital stock of the Company or any of
its Subsidiaries. All of the outstanding shares of Common Stock of the Company
have been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company's equity or rights to receive equity of
the Company. The board of directors of the Company has concluded, in its good
faith business judgment that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Notes is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company or parties entitled to
receive equity of the Company.
(u) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers, nor
have there been any such disagreements during the two years prior to the Closing
Date.
(v) Transfer Agent/DTC Status. The Company's transfer agent is
a participant in and the Common Stock is eligible for transfer pursuant to the
Depository Trust Company Automated Securities Transfer Program. The name,
address, telephone number, fax number, contact person and email address of the
Company transfer agent is set forth on Schedule 5(v) hereto.
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(w) Investment Company. Neither the Company nor any Affiliate
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(x) Subsidiary Representations. The Company makes each of the
representations contained in Sections 5(a), (b), (d), (e), (f), (h), (k), (m),
(q), (r), (u) and (w) of this Agreement, as same relate to each Subsidiary of
the Company.
(y) Company Predecessor. All representations made by or
relating to the Company of a historical or prospective nature and all
undertakings described in Sections 9(g) through 9(l) shall relate, apply and
refer to the Company and its predecessors.
(z) Correctness of Representations. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof in all material respects, and, unless the Company otherwise notifies
the Subscribers prior to the Closing Date, shall be true and correct in all
material respects as of the Closing Date.
(AA) Survival. The foregoing representations and warranties
shall survive until three years after the Closing Date.
6. Regulation D Offering. The offer and issuance of the Securities
to the Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) of the 1933 Act and/or Rule
506 of Regulation D promulgated thereunder. On the Closing Date, the Company
will provide an opinion reasonably acceptable to Subscriber from the Company's
legal counsel opining on the availability of an exemption from registration
under the 1933 Act as it relates to the offer and issuance of the Securities and
other matters reasonably requested by Subscribers. A form of the legal opinion
is annexed hereto as Exhibit C. The Company will provide, at the Company's
expense, such other legal opinions in the future as are reasonably necessary for
the issuance and resale of the Notes.
7. Covenants of the Company. The Company covenants and agrees with
the Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers,
promptly after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) Listing. The Company will maintain the listing or
quotation of its Common Stock on the American Stock Exchange, Nasdaq Capital
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "Principal Market")), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.
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(c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscriber.
(d) Reporting Requirements. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitation and no sum remains outstanding under the Note, the Company will (v)
cause its Common Stock to continue to be registered under Section 12(b) or 12(g)
of the 1934 Act, (x) comply in all respects with its reporting and filing
obligations under the 1934 Act, (y) comply with all reporting requirements that
are applicable to an issuer with a class of shares registered pursuant to
Section 12(b) or 12(g) of the 1934 Act, as applicable, and (z) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will use its best efforts not to take any action or file
any document (whether or not permitted by the 1933 Act or the 1934 Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said acts until two (2) years
after the Closing Date. The Company will use its best efforts to continue the
listing or quotation of the Common Stock on the Principal Market or other market
with the reasonable consent of Subscribers holding a majority of the Common
Shares upon conversion of the Notes, and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market. The Company agrees to timely file a Form D with respect to
the Securities if required under Regulation D and to provide a copy thereof to
each Subscriber promptly after such filing.
(e) Use of Proceeds. Except as set forth on Schedule 7(e), the
Purchase Price may not and will not be used for accrued and unpaid officer and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company, litigation related expenses or
settlements, brokerage fees, nor non-trade obligations outstanding on a Closing
Date.
(f) Reservation. No later than fourteen (14) days after the
Closing Date, the Company undertakes to reserve, pro rata, on behalf of the
Subscribers from its authorized but unissued common stock, a number of common
shares equal to 150% of the amount of Common Stock necessary to allow each
Subscriber to be able to convert all Notes issuable pursuant to this Agreement
and interest thereon. Failure to have sufficient shares reserved pursuant to
this Section 7(f) for a period of more than three days shall be a material
default of the Company's obligations under this Agreement and an Event of
Default under the Note.
(g) Taxes. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
have been resold or transferred by all the Subscribers pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitation and no sum remains outstanding under the Note, the Company will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor.
(h) Insurance. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
have been resold or transferred by all the Subscribers pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitation and no sum remains outstanding under the Note, the Company will keep
its assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and not in
any event less than one hundred percent (100%) of the insurable value of the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated and to the extent available on
commercially reasonable terms.
9
(i) Books and Records. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares have been resold or transferred by all the Subscribers pursuant to
the Registration Statement or pursuant to Rule 144, without regard to volume
limitation and no sum remains outstanding under the Note, the Company will keep
true records and books of account in which full, true and correct entries will
be made of all dealings or transactions in relation to its business and affairs
in accordance with generally accepted accounting principles applied on a
consistent basis.
(j) Governmental Authorities. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitation and no sum remains outstanding under the Note, the Company shall duly
observe and conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to its
properties or assets.
(k) Intellectual Property. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares have been resold or transferred by all the Subscribers pursuant to
the Registration Statement or pursuant to Rule 144, without regard to volume
limitation and no sum remains outstanding under the Note, the Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business.
(l) Properties. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
have been resold or transferred by all the Subscribers pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitation and no sum remains outstanding under the Note, the Company will keep
its properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.
(m) Confidentiality/Public Announcement. From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitation and no sum remains outstanding under the Note, the Company
agrees that except in connection with a Form 8-K or the Registration Statement,
it will not disclose publicly or privately the identity of the Subscribers
unless expressly agreed to in writing by a Subscriber or only to the extent
required by law and then only upon five days prior notice to Subscriber. In any
event and subject to the foregoing, the Company undertakes to file a Form 8-K or
make a public announcement describing the Offering not later than the first
business day after the Closing Date. In the Form 8-K or public announcement, the
Company will specifically disclose the amount of common stock outstanding
immediately after the Closing.
10
(n) Non-Public Information. The Company covenants and agrees
that neither it nor any other Person acting on its behalf will provide any
Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
(o) Lock Up Agreement. The Company will deliver to the
Subscribers on or before the Closing Date and enforce the provisions of
irrevocable Lock Up Agreements ("Lock Up Agreements") in the form annexed hereto
as Exhibit D, with the parties identified on Schedule 7(o).
(p) Warrant and Stock Issuance. The Company granted Common
Stock Purchase Warrants B, C and D in March 2004 to investors ("Prior
Warrants"), many of whom are Subscribers. The Company agrees to modify the Prior
Warrants originally issued to Subscribers such that the expiration date of the
Prior Warrants is extended March 31, 2010 and the exercise price is lowered to
$0.02 per share. The Company agrees to issue additional shares ("Additional
Shares") of common stock to those Holders set forth in Schedule B who are
purchasing the Notes under the Subscription Agreement and have previously
exercised their B, C or D Warrants in cash prior to March 1, 2007, but did not
sell them in the open market or to a bona fide third party such that, after
accounting for the Additional Shares, the net effective exercise price of such
warrant was $0.01 per share. The Company agrees in their next filing with the
United States Securities and Exchange Commission of a registration statement in
such form that the Company is eligible to use to register the Additional Shares
for resale under the Securities Act of 1933 (the "Registration Statement") to
include the Additional Shares in such Registration Statement
8. Finder's Fee/Due Diligence Fee. The Company on the one hand, and
each Subscriber (for himself only) on the other hand, agrees to indemnify the
other against and hold the other harmless from any and all liabilities to any
persons claiming Finder's Fee/Due Diligence Fee other than the one or more
entities identified on Schedule 8 hereto, (each a "Finder") on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions. Anything in this Agreement to the contrary
notwithstanding, each Subscriber is providing indemnification only for such
Subscriber's own actions and not for any action of any other Subscriber. Each
Subscriber's liability hereunder is several and not joint. The Company agrees
that it will pay the Finder the fees set forth on Schedule 8 hereto ("Finder/Due
Diligence Fees"). The Company represents that there are no other parties
entitled to receive fees, commissions, or similar payments in connection with
the offering described in this Agreement except the Finder.
9. Legal Fees. The Company shall pay to Grushko & Xxxxxxx, P.C., a
cash fee of $20,000 ("Legal Fees") (of which $5,000 has been paid) as
reimbursement for services rendered to the Subscribers in connection with this
Agreement and the purchase and sale of the Notes (the "Offering"). Reimbursement
for estimated UCC searches and filing fees (less any amounts paid prior to a
Closing Date), and estimated printing and shipping costs for the closing
statements to be delivered to Subscribers, will be payable on the Closing Date
out of funds held pursuant to the Escrow Agreement.
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse
and defend the Subscribers, the Subscribers' officers, directors, agents,
Affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.
11
(b) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers, relating hereto.
(c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of Registrable
Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply to
the indemnification set forth in Sections 10(a) and 10(b) above.
11.1. Piggyback Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities. If the Company at
any time proposes to register any of its securities under the 1933 Act for sale
to the public, whether for its own account or for the account of other security
holders or both, except with respect to registration statements on Forms X-0,
X-0 or another form not available for registering the registrable securities
("Registrable Securities") for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscribers or Holder
pursuant to an effective registration statement, each such time it will give at
least fifteen (15) days' prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written request of
the holder, received by the Company within ten (10) days after the giving of any
such notice by the Company, to register any of the Registrable Securities not
previously registered, the Company will cause such Registrable Securities as to
which registration shall have been so requested to be included with the
securities to be covered by the registration statement proposed to be filed by
the Company, all to the extent required to permit the sale or other disposition
of the Registrable Securities so registered by the holder of such Registrable
Securities (the "Seller" or "Sellers"). Unless instructed in writing to the
contrary, the Subscribers hereby automatically exercise the registration rights
granted in this Section 11.1. The Seller is hereby given the same rights and
benefits as any other party identified in such registration. In the event that
any registration pursuant to this Section 11.1 shall be, in whole or in part, an
underwritten public offering of common stock of the Company, the number of
shares of Registrable Securities to be included in such an underwriting may be
reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1 without thereby incurring any
liability to the Seller due to such withdrawal or delay. The Company agrees and
acknowledges that despite the pendency of a not yet effective registration
statement which includes for registration the Registrable Securities, the
Subscriber is permitted to and the Company will issue to the Subscriber Shares
upon conversion of the Note. Such Shares will, if required by law, bear the
legends described in Section 4 above and if the requirements of Rule 144 under
the 1933 Act are satisfied be resalable thereunder.
12
11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1 to effect the registration of any
Registrable Securities under the 1933 Act, the Company will, as expeditiously as
possible:
(a) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 11, with respect to the Registrable Securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of the Registrable Securities copies of all
filings and Commission letters of comment and notify Subscribers and Grushko &
Xxxxxxx, P.C. (by telecopier and by email to Xxxxxxxxx@xxx.xxx) within one (1)
business day of (i) notice that the Commission has no comments or no further
comments on the Registration Statement, and (ii) the declaration of
effectiveness of the registration statement;
(b) furnish to the Sellers, at the Company's expense, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(c) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Sellers shall request
in writing, provided, however, that the Company shall not for any such purpose
be required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
(d) if applicable, list the Registrable Securities covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(e) immediately notify the Sellers when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and
(f) provided same would not be in violation of the provision
of Regulation FD under the 1934 Act, make available for inspection by the
Sellers, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each registration
described in this Section 11, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
13
11.4. Non-Registration Events. The Company and the Subscribers agree
that the Sellers will suffer damages if any registration statement required
under Section 11 is not filed and maintained in the manner and within the time
periods contemplated by Section 11 hereof, and it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if the
registration statement described in Section 11.1 is not filed as required by
Section 11.1 ("Non-Registration Event"), then the Company shall deliver to the
holder of Registrable Securities, as Liquidated Damages, an amount equal to two
percent (2%) for each thirty (30) days or part thereof of the Aggregate
Principal Amount of the Notes remaining unconverted and purchase price of Shares
previously issued upon conversion of the Notes and owned of record by such
holder which are subject to such Non-Registration Event. The Company must pay
the Liquidated Damages, at its option, in cash or Common Stock. The Liquidated
Damages must be paid within ten (10) days after the end of each thirty (30) day
period or shorter part thereof for which Liquidated Damages are payable. In the
event a registration statement is filed but is withdrawn prior to being declared
effective by the Commission, then such registration statement will be deemed to
have not been filed. All oral or written comments received from the Commission
relating to the registration statement must be satisfactorily responded to
within ten (10) business days after receipt of comments from the Commission.
Failure to timely respond to Commission comments is a Non-Registration Event for
which Liquidated Damages shall accrue and be payable by the Company to the
holders of Registrable Securities at the same rate set forth above.
Notwithstanding the foregoing, the Company shall not be liable to the Subscriber
under this Section 11.4 for any events or delays occurring as a consequence of
the acts or omissions of the Subscribers contrary to the obligations undertaken
by Subscribers in this Agreement. Liquidated Damages will not accrue nor be
payable pursuant to this Section 11.4 nor will a Non-Registration Event be
deemed to have occurred for times during which Registrable Securities are
transferable by the holder of Registrable Securities pursuant to Rule 144(k)
under the 1933 Act.
11.5. Expenses. All expenses incurred by the Company in complying
with Section 11, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including reasonable
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of insurance and
fee of one counsel for all Sellers are called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any additional
counsel to the Seller, are called "Selling Expenses." The Company will pay all
Registration Expenses in connection with the registration statement under
Section 11. Selling Expenses in connection with each registration statement
under Section 11 shall be borne by the Seller and may be apportioned among the
Sellers in proportion to the number of shares sold by the Seller relative to the
number of shares sold under such registration statement or as all Sellers
thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
14
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
15
(d) In order to provide for just and equitable contribution in
the event of joint liability under the 1933 Act in any case in which either (i)
a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 11.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
12. (a) Favored Nations Provision. Other than in connection with the
Excepted Issuances, if at any time while Notes are outstanding the Company shall
offer, issue or agree to issue any common stock or securities convertible into
or exercisable for shares of common stock (or modify any of the foregoing which
may be outstanding) to any person or entity at a price per share or conversion
per share which shall be less than the Conversion Price in respect of the
Shares, without the consent of each Subscriber holding Notes and/or Shares, then
the Company shall issue, for each such occasion, additional shares of Common
Stock to each Subscriber so that the average per share purchase price of the
shares of Common Stock issued to the Subscriber is equal to such other lower
price per share and the Conversion Price shall automatically be adjusted as
provided in the Notes. The delivery to the Subscriber of the additional shares
of Common Stock shall be not later than two (2) business days after the closing
date of the transaction giving rise to the requirement to issue additional
shares of Common Stock. The Subscriber is granted the registration rights
described in Section 11 hereof in relation to such additional shares of Common
Stock except that the Filing Date and Effective Date vis-a-vis such additional
common shares shall be, respectively, the thirtieth (30th) and sixtieth (60th)
date after the closing date giving rise to the requirement to issue the
additional shares of Common Stock. For purposes of the issuance and adjustment
described in this paragraph, the issuance of any security of the Company
carrying the right to convert such security into shares of Common Stock or of
any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the sooner of the
agreement to or actual issuance of such convertible security, warrant, right or
option and again at any time upon any subsequent issuances of shares of Common
Stock upon exercise of such conversion or purchase rights if such issuance is at
a price lower than the Conversion Price. The rights of the Subscriber set forth
in this Section 12 are in addition to any other rights the Subscriber has
pursuant to this Agreement, the Note, any Transaction Document, and any other
agreement referred to or entered into in connection herewith. The Subscriber is
also given the right to elect to substitute any term or terms of any other
offering in connection with which the Subscriber has rights as described in
Section 12(a), for any term or terms of the Offering in connection with
Securities owned by Subscriber as of the date the notice described in Section
12(a) is required to be given to Subscriber.
16
(b) Right of Participation. Until the Notes have been fully
paid, the Subscribers shall be given not less than seven (7) business days prior
written notice of any proposed sale by the Company of its common stock or other
securities or debt obligations, except in connection with (i) employee stock
options or compensation plans in effect on the Closing Date which have been
disclosed to the Subscribers in writing, (ii) as full or partial consideration
in connection with merger, consolidation or purchase of substantially all of the
securities or assets of any corporation or other entity, (iii) as has been
described in the Reports or Other Written Information filed with the Commission
or delivered to the Subscribers prior to the Closing Date, (iv) as a result of
the issuance of Warrants which are issued or modified pursuant to this
Agreement, (v) up to 10,000,000 restricted shares of the Company which have no
registration rights as full or partial consideration in connection with services
performed by attorneys, xxxxx filers, or product marketers or (vi) issuances of
common stock in connection with this Agreement (collectively "Excepted
Issuances"). The Subscribers who exercise their rights pursuant to this Section
12 shall have the right during the seven (7) business days following receipt of
the notice to participate in the offering of such offered common stock, debt or
other securities in accordance with the terms and conditions set forth in the
notice of sale up to the amount remaining outstanding on the Note at the time of
such offer. In the event such terms and conditions are modified during the
notice period, the Subscribers shall be given prompt notice of such modification
and shall have the right during the original notice period or for a period of
seven (7) business days following the notice of modification, whichever is
longer, to exercise such right. Payment for such purchase by the Subscribers may
be made by tender of the Note and all sums due under the Note. In such event,
the Subscriber will receive a credit against such other subscription purchase
price or payment equal to the amount of Note Principal applied to such payment
and a credit equal to the accrued interest and any other amount accrued or
payable to Subscriber pursuant to the Transaction Documents.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Swiss Medica, Inc., 000
Xxxxxxxxx Xxxx, Xxxx, Xxxx X, Xxxxxxxxxxx, Xxxxxxx, X0X 0X0, Attn: Xxxxx
Xxxxxxx, CEO, telecopier: (000) 000-0000, with a copy by telecopier only to:
Xxxxxxxxxx & Xxxxx LLP, 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxx Xxxxxxx, XX
00000, Attn: Xxxx Xxxx, Esq., telecopier: (000) 000-0000, and (ii) if to the
Subscribers, to: the one or more addresses and telecopier numbers indicated on
the signature pages hereto, with an additional copy by telecopier only to:
Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
telecopier: (000) 000-0000.
17
(b) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
the Company shall be assigned without prior notice to and the written consent of
the Subscribers.
(c) Counterparts/Execution. This Agreement may be executed in
any number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(d) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 13(d) hereof, each of the Company, Subscriber and any
signator hereto in his personal capacity hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction in New York of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.
(f) Independent Nature of Subscribers. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that the decision of each Subscriber to
purchase Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the Registration Statement and (ii) review by, and
consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
18
(g) Consent. As used in the Agreement, "consent of the
Subscribers" or similar language means the consent of holders of not less than
80% of the total of the Shares issued and issuable upon conversion of
outstanding Notes owned by Subscribers on the date consent is requested.
(h) Equal Treatment. No consideration shall be offered or paid
to any person to amend or consent to a waiver or modification of any provision
of the Transaction Documents unless the same consideration is also offered and
paid to all the Subscribers and their permitted successors and assigns.
(i) Maximum Payments. 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.
(j) Calendar Days. All references to "days" in the Transaction
Documents shall mean calendar days unless otherwise stated.
[THIS SPACE INTENTIONALLY LEFT BLANK]
19
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
SWISS MEDICA, INC.
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: May ____, 0000
XXXXXXXXX XXXXXXXXX
SUBSCRIBER PURCHASE PRICE PRINCIPAL AMOUNT
---------------------------------------- -------------- ----------------
Name of Subscriber:
--------------------
----------------------------------------
Address:
-------------------------------
-----------------------------------------
Fax No.:
-------------------------------
----------------------------------------
(Signature)
By:
20
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Note
Exhibit B Funds Escrow Agreement
Exhibit C Form of Legal Opinion
Exhibit D Form of Lock Up Agreement
Schedule 5(d) Additional Issuances/Capitalization
Schedule 5(q) Undisclosed Liabilities
Schedule 7(e) Use of Proceeds
Schedule 7(n) Lock Up Agreement Providers
Schedule 8 Finder/Due Diligence Fee
21
EXHIBIT D
LOCK UP AGREEMENT
This AGREEMENT (the "Agreement") is made as of the ___ day of May, 2007,
by the signatories hereto (each a "Holder"), in connection with his ownership of
shares of Swiss Medica, Inc., a Delaware corporation (the "Company").
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which consideration are hereby acknowledged, Holder agrees as
follows:
1. Background.
a. Holder is the actual and/or beneficial owner of the amount of
shares of the Common Stock, $0.01 par value, of the Company ("Common Stock") and
rights to purchase Common Stock designated on the signature page hereto.
x. Xxxxxx acknowledges that the Company has entered into or will
enter into an agreement with each subscriber ("Subscription Agreement") to the
Company's promissory notes (the "Subscribers"), for the sale to the Subscribers
of an aggregate of up to $2,240,000 of principal amount of promissory notes (the
"Offering"). Holder understands that, as a condition to proceeding with the
Offering, the Subscribers have required, and the Company has agreed to obtain an
agreement from the Holder to refrain from selling any securities of the Company
from the date of the Subscription Agreement until the Notes issued pursuant to
the Subscription Agreement are no longer outstanding (the "Restriction Period").
2. Share Restriction.
a. Holder hereby agrees that during the Restriction Period, the
Holder will not sell or otherwise dispose of any shares of Common Stock or any
options, warrants or other rights to purchase shares of Common Stock or any
other security of the Company which Holder owns or has a right to acquire as of
the date hereof or acquires hereafter during the Restriction Period, other than
in connection with an offer made to all shareholders of the Company in
connection with any merger, consolidation or similar transaction involving the
Company. Holder further agrees that the Company is authorized to and the Company
agrees to place "stop orders" on its books to prevent any transfer of shares of
Common Stock or other securities of the Company held by Holder in violation of
this Agreement.
b. Any subsequent issuance to and/or acquisition of shares or the
right to acquire shares by Holder will be subject to the provisions of this
Agreement.
c. Notwithstanding the foregoing restrictions on transfer, the
Holder may, at any time and from time to time during the Restriction Period,
transfer the Common Stock (i) as bona fide gifts or transfers by will or
intestacy, (ii) to any trust for the direct or indirect benefit of the
undersigned or the immediate family of the Holder, provided that any such
transfer shall not involve a disposition for value, (iii) to a partnership which
is the general partner of a partnership of which the Holder is a general
partner, provided, that, in the case of any gift or transfer described in
clauses (i), (ii) or (iii), each donee or transferee agrees in writing to be
bound by the terms and conditions contained herein in the same manner as such
terms and conditions apply to the undersigned. For purposes hereof, "immediate
family" means any relationship by blood, marriage or adoption, not more remote
than first cousin.
22
3. Miscellaneous.
a. At any time, and from time to time, after the signing of this
Agreement Holder will execute such additional instruments and take such action
as may be reasonably requested by the Subscribers to carry out the intent and
purposes of this Agreement.
b. This Agreement shall be governed, construed and enforced in
accordance with the laws of the State of New York without regard to conflicts of
laws principles that would result in the application of the substantive laws of
another jurisdiction, except to the extent that the securities laws of the state
in which Holder resides and federal securities laws may apply. Any proceeding
brought to enforce this Agreement may be brought exclusively in courts sitting
in New York County, New York.
c. This Agreement contains the entire agreement of the Holder with
respect to the subject matter hereof.
d. This Agreement shall be binding upon Holder, its legal
representatives, successors and assigns.
e. This Agreement may be signed and delivered by facsimile and such
facsimile signed and delivered shall be enforceable.
f. The Company agrees not to take any action or allow any act to be
taken which would be inconsistent with this Agreement nor to amend or terminate
this Agreement without the consent of the Subscribers.
g. The Subscribers are third party beneficiaries of this Agreement,
with right of enforcement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Holder
has executed this Agreement as of the day and year first above written.
HOLDER:
--------------------------------
(Signature of Holder)
---------------------------------
(Print Name of Holder)
---------------------------------
Number of Shares of Common Stock Owned
---------------------------------
Number of Shares of Common Stock
Beneficially Owned
COMPANY:
SWISS MEDICA, INC.
By:
------------------------------------
23
SCHEDULE 8
DUE DILIGENCE FEE
Due Diligence Fee Recipient:
INGLEWOOD HOLDINGS LTD.
00 Xxxxxxxxx Xxxxxx
Xxxxxxxxx 00000, Xxxxxx
Cash Fee. The Company agrees that it will pay the Due Diligence Fee
Recipient, on the Closing Date a fee of ten percent (10%) of the Aggregate
Purchase Price ("Due Diligence Fee"). The Company represents that there are no
other parties entitled to receive fees, commissions, or similar payments in
connection with the Offering except the Due Diligence Fee Recipient.
Due Diligence Warrants. On the Closing Date, the Company will issue
to the Due Diligence Fee Recipient, 10,000,000 Warrants ("Due Diligence
Warrants"). The Due Diligence Warrants will have an exercise price of $0.02 per
share.
All the representations, covenants, warranties, undertakings, remedies,
liquidated damages, indemnification, and other rights including but not limited
to reservation requirements and registration rights made or granted to or for
the benefit of the Subscribers are hereby also made and granted to and for the
benefit of the Due Diligence Fee Recipient in respect of the Due Diligence
Warrants and the Warrant Shares issuable upon exercise of the Due Diligence
Warrants.
24
SCHEDULE B
HOLDERS RECEIVING ADDITIONAL SHARES
25
