SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of March ___,
2004, by and among Goldspring, Inc., a Florida corporation (the "Company"), and
the subscribers identified on the signature page hereto (each a "Subscriber" and
collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers shall purchase, in the
aggregate, up to $10,000,000 (the "Purchase Price") of the Company's common
stock, $.000666 par value (the "Common Stock" or "Shares"), and share purchase
warrants (the "Warrants"), in the forms attached hereto as Exhibit A and Exhibit
B, to purchase shares of Common Stock (the "Warrant Shares"). The per Share
Purchase Price ("Per Share Purchase Price") shall be the lesser of (i) $0.65, or
(ii) sixty percent (60%) of the average of the closing bid prices of the
Company's common stock as reported by Bloomberg L.P. for the OTC Bulletin Board
("Bulletin Board") for the five (5) trading days ending on the trading day
immediately preceding the Closing Date ("Lookback Period"). The Purchase Price
shall be payable to the Company on the Closing Date, as defined in Section 13(b)
hereof. The Common Stock, the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Common Stock and the
Warrants contemplated hereby shall be held in escrow pursuant to the terms of a
Funds Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit C (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. Purchase and Sale of Shares and Warrants. Subject to the
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satisfaction (or waiver) of the conditions to Closing set forth in this
Agreement and the Escrow Agreement, each Subscriber shall purchase the Shares
and Warrants for the portion of the Purchase Price indicated on the signature
page hereto, and the Company shall sell such Shares and Warrants to the
Subscriber. The Purchase Price for the Shares and Warrants shall be paid in
cash. The entire Purchase Price shall be allocated to the Shares.
2. Escrow Arrangements; Form of Payment. Upon execution hereof
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by the parties and pursuant to the terms of the Escrow Agreement, each
Subscriber agrees to make the deliveries required of such Subscriber as set
forth in the Escrow Agreement and the Company agrees to make the deliveries
required of the Company as set forth in the Escrow Agreement.
3. Warrants.
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(a) A Warrants. On the Closing Date the
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Company will issue A Warrants to the Subscribers. One (1) A Warrant will be
issued for each two (2) Shares issued on the Closing Date. The per Warrant Share
exercise price to acquire a Warrant Share upon exercise of an A Warrant shall be
equal to 110% of the average of the closing bid prices of the Company's common
stock as reported by Bloomberg L.P. for the Bulletin Board during the Lookback
Period. The A Warrants shall be exercisable for five (5) years after the Closing
Date.
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(b) Green Shoe Warrants. On the Closing Date,
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the Company will deliver to each Subscriber one (1) Warrant for each two (2)
Shares purchased by each such Subscriber on the Closing Date ("Green Shoe
Warrants"). The per Warrant Share exercise price to acquire a Warrant Share upon
exercise of a Green Shoe Warrant shall be equal to the Per Share Purchase Price.
The Green Shoe Warrants shall be exercisable for the first one hundred and
eighty (180) business days after the actual effective date of the Registration
Statement ("Actual Effective Date") during which such Registration Statement
shall be current and available for use in connection with the public resale and
delivery of Warrant Shares. Collectively, the A Warrants and Green Shoe Warrants
are referred to herein as Warrants, and the common stock issuable upon exercise
of the A Warrants and Green Shoe Warrants is referred to as "Warrant Shares".
4. Subscriber's Representations and Warranties. Each
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Subscriber hereby represents and warrants to and agrees with the Company only as
to such Subscriber that:
(a) Information on Company. The Subscriber has
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been furnished with or has had access at the ▇▇▇▇▇ Website of the Commission to
the Company's Form 10-KSB for the year ended December 31, 2002 as filed with the
Commission, together with all subsequently filed Forms 10-QSB, 8-K, and filings
made with the Commission available at the ▇▇▇▇▇ 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
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is, and will be at the time of the conversion of the Common Stock and exercise
of any of the Warrants, an "accredited investor", as such term is defined in
Regulation D promulgated by the Commission under the 1933 Act, is experienced in
investments and business matters, has made investments of a speculative nature
and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Common Stock and Warrants. On
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each closing date, the Subscriber will purchase the Common Stock and Warrants as
principal for its own account and not with a view to any distribution thereof.
(d) Compliance with Securities Act. The
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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.
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In any event, and subject to compliance with applicable securities laws, the
Subscriber may enter into hedging transactions with third parties, which may in
turn engage in short sales of the Securities in the course of hedging the
position they assume and the Subscriber may also enter into short positions or
other derivative transactions relating to the Securities, or interests in the
Securities, and deliver the Securities, or interests in the Securities, to close
out their short or other positions or otherwise settle short sales or other
transactions, or loan or pledge the Securities, or interests in the Securities,
to third parties that in turn may dispose of these Securities.
(e) Shares Legend. The Shares and the Warrant
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Shares shall bear the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GOLDSPRING, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(f) Warrants Legend. The Warrants shall bear the
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following
or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT OR ANY APPLICABLE STATE SECURITIES
LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
GOLDSPRING, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Communication of Offer. The offer to sell
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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.
(h) Authority; Enforceability. This Agreement
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and other agreements delivered together with this Agreement or in connection
herewith have been duly authorized, executed and delivered by the Subscriber and
are valid and binding agreements enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and Subscriber
has full corporate power and authority necessary to enter into this Agreement
and such other agreements and to perform its obligations hereunder and under all
other agreements entered into by the Subscriber relating hereto.
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(i) Correctness of Representations. Each
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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 (as
hereinafter defined), shall be true and correct as of the Closing Date.
(j) Restrictions on Short Sales. Subscriber
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represents, warrants and covenants that neither Subscriber nor any person or
entity, directly or indirectly controlling, controlled by or under direct or
indirect common control with such Subscriber ("Affiliate") which (x) has
knowledge of the transactions contemplated hereby, (y) has or shares discretion
relating to such Subscriber's investments or trading or information concerning
such Subscriber's investments, including in respect of the Securities, or (z) is
subject to such Subscriber's review or input concerning such Affiliate's
investments or trading, has or will, directly or indirectly, during the period
beginning on the date on which Subscriber was first contacted regarding the
transactions contemplated by this Agreement and ending on April 2, 2004, engage
in (i) any "short sales" (as such term is defined in Rule 3b-3 promulgated under
the ▇▇▇▇ ▇▇▇) of the Shares and/or the Warrant Shares, including, without
limitation, the maintaining of any short position with respect to, establishing
or maintaining a "put equivalent position" (within the meaning of Rule 16a-1(h)
under the ▇▇▇▇ ▇▇▇) with respect to, entering into any swap, derivative
transaction or other arrangement (whether any such transaction is to be settled
by delivery of Shares, other securities, cash or other consideration) that
transfers to another, in whole or in part, any economic consequences or
ownership, or otherwise dispose of, any of the Securities by such Subscriber or
(ii) any hedging transaction which establishes a net short position with respect
to the Securities (clauses (i) and (ii) together, a "Short Sale"); except for
(A) Short Sales by such Subscriber or an Affiliate of such Subscriber which was,
prior to the date on which such Subscriber was first contacted regarding the
transactions contemplated by this Agreement, a market maker for the Shares,
provided that such Short Sales are in the ordinary course of business of such
Subscriber or Affiliate of such Subscriber and are in compliance with the 1933
Act, the rules and regulations of the 1933 Act and such other securities laws as
may be applicable, (B) Short Sales by such Subscriber or an Affiliate of such
Subscriber which by virtue of the procedures of such Subscriber or an Affiliate
of such Subscriber are made without knowledge of the transactions contemplated
by this Agreement or (C) Short Sales by such Subscriber or an Affiliate of such
Subscriber to the extent that such Subscriber or Affiliate of such Subscriber is
acting in the capacity of a broker-dealer executing unsolicited third-party
transactions.
(k) Survival. The foregoing representations and
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warranties shall survive the Closing Date for a period of two years.
5. Company Representations and Warranties. The Company
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represents and warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company and each of
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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 financial condition of the
Company.
(b) Outstanding Stock. All issued and
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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.
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(c) Authority; Enforceability. This Agreement,
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the Common Stock, the Warrants, the Escrow Agreement and any other agreements
delivered together with this Agreement or in connection herewith (collectively
"Transaction Documents") have been duly authorized, executed and delivered by
the Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform its obligations.
(d) Additional Issuances. There are no
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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), or the
Reports.
(e) Consents. No consent, approval,
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authorization or order of any court, governmental agency or body or arbitrator
having jurisdiction over the Company, or any of its affiliates, the American
Stock Exchange, the National Association of Securities Dealers, Inc., Nasdaq,
SmallCap Market, the Bulletin Board nor the Company's shareholders is required
for the execution by the Company of the Transaction Documents and compliance by
the Company of its obligations under the Transaction Documents, including,
without limitation, the issuance and sale of the Securities, and the performance
of the Company's obligations under the Transaction Documents.
(f) No Violation or Conflict. Assuming the
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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 articles or certificate of incorporation, charter or bylaws of the
Company, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company of any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company or 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
(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
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(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
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issuance:
(i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance of the Shares and upon exercise of the
Warrants, the Shares and Warrant Shares will be duly and validly issued, fully
paid and nonassessable (and if registered pursuant to the 1933 Act, and resold
pursuant to an effective registration statement will be free trading and
unrestricted, provided that each Subscriber complies with the prospectus
delivery requirements of the 1933 Act);
(iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company; and
(iv) will not subject the holders thereof to
personal liability by reason of being such holders.
(h) Litigation. There is no pending or, to the
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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 this Agreement, and all other agreements entered into by the
Company relating hereto. 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 could have a material adverse effect on the
Company.
(i) Reporting Company. The Company is a
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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
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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
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contain all material information relating to the Company and its operations and
financial condition as of their respective dates which information is required
to be disclosed therein. Since the date of the financial statements included in
the Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports.
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The Reports do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
(l) Stop Transfer. The Securities, when issued,
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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
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its articles of incorporation or bylaws. The Company is (i) not in default under
or in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a material adverse effect 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) No Integrated Offering. Neither the Company,
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nor any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offer of the
Securities to be integrated with other offerings. 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.
(o) No General Solicitation. Neither the
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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 ▇▇▇▇ ▇▇▇) in
connection with the offer or sale of the Securities.
(p) Listing. The Company's common stock is
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quoted on the Bulletin Board. The Company has not received any oral or written
notice that its common stock is not eligible nor will become ineligible for
quotation on the Bulletin Board nor that its common stock does not meet all
requirements for the continuation of such quotation and the Company satisfies
and as of the Closing Date, the Company will satisfy all the requirements for
the continued quotation of its common stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has
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no liabilities or obligations which are material, individually or in the
aggregate, which are not disclosed in the Reports and Other Written Information,
other than those incurred in the ordinary course of the Company's businesses
since December 31, 2003 and which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the Company's
financial condition, other than as set forth in Schedule 5(q).
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(r) No Undisclosed Events or Circumstances.
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Since December 31, 2003, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and
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outstanding capital stock of the Company as of the date of this Agreement and
the Initial Closing Date are set forth on Schedule 5(s). Except as set forth in
the Reports and Other Written Information and 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. 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
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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 Securities 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
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Lawyers. There are no disagreements of any kind presently existing, or
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reasonably anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company, including
but not limited to disputes or conflicts over payment owed to such accountants
and lawyers.
(v) Investment Company. The Company is not,
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and is not an Affiliate (as defined in Rule 405 under the ▇▇▇▇ ▇▇▇) of, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(w) Correctness of Representations. The Company
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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.
(x) Survival. The foregoing representations and
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warranties shall survive the Closing Date for a period of two years.
6. Regulation D Offering. The offer and issuance of the
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Securities to the Subscribers is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested by
Subscribers. A form of the legal opinion is annexed hereto as Exhibit D. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the resale of the Common Stock and
exercise of the Warrants and resale of the Warrant Shares.
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7. Legal Fees. The Company shall pay to Grushko & ▇▇▇▇▇▇▇,
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P.C., a fee of $50,000 ("Legal Fees") as reimbursement for services rendered to
the Subscribers in connection with this Agreement and the purchase and sale of
the Shares and Warrants (the "Offering") and acting as Escrow Agent for the
Offering. The Legal Fees will be payable out of funds held pursuant to the
Escrow Agreement. If this transaction does not close due to the fault of the
Company, the Company shall only be responsible to pay legal fees to Grushko &
▇▇▇▇▇▇▇, P.C. in the amount of $25,000. If the transaction does not close due to
the fault of the Subscriber then the Company shall not be responsible for any
legal fees to Grushko & ▇▇▇▇▇▇▇, P.C.
8. Placement Agent. The Company on the one hand, and each
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Subscriber (for itself 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 brokerage commissions or finder's fees (each a "Placement Agent") other
than an set forth above 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 to the contrary in this Agreement 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 represents that there are no parties entitled to
receive fees, commissions, or similar payments in connection with the Offering
except ▇▇▇▇▇▇▇▇ Curhan Ford & Co., P.C. in the amount designated on Schedule 8
("Placement Agent's Fee"). The cash portion of the Placement Agent's Fee will be
disbursed pursuant to the Escrow Agreement on the Closing Date.
9. Covenants of the Company. The Company covenants and agrees
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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 shall promptly secure
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the listing of the shares of Common Stock and the Warrant Shares upon each
national securities exchange, or automated quotation system upon which they are
or become eligible for listing (subject to official notice of issuance) and
shall maintain such listing so long as any Warrants are outstanding. The Company
will maintain the listing of its Common Stock on the American Stock Exchange,
Nasdaq SmallCap Market, Nasdaq National Market System, Bulletin Board, or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock (the "Principal Market")), and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.
(c) Market Regulations. The Company shall notify
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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.
9
(d) Reporting Requirements. From the date of
----------------------
this Agreement and until the sooner of (i) two (2) years after the Closing Date,
or (ii) until all the Shares and Warrant Shares have been resold or transferred
by all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitation, the Company will (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. Until the earlier of the resale of the Common Stock and
the Warrant Shares by each Subscriber or at least two (2) years after the
Warrants have been exercised, the Company will use its best efforts to continue
the listing or quotation of the Common Stock on the Principal Market or other
market with the reasonable consent of Subscribers holding a majority of the
Shares and Warrant Shares, 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 file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Subscriber promptly after such filing.
(e) Use of Proceeds. The Company undertakes to
---------------
use the proceeds of the Subscribers' funds for the purposes set forth on
Schedule 9(e) hereto. A deviation from the use of proceeds set forth on Schedule
9(e) of more than 15% per item or more than 25% in the aggregate shall be deemed
a material breach of the Company's obligations hereunder. Notwithstanding same,
the company shall be entitled to deviate from the use of proceeds set forth in
Schedule 9(e) with the prior written consent of Subscribers holding a majority
of the Shares issued in the Offering. Except as set forth on Schedule 9(e), the
Purchase Price may not and will not be used for accrued and unpaid officer and
director salaries, payment of financing related debt, redemption of outstanding
redeemable notes or equity instruments of the Company nor non-trade obligations
outstanding on the Closing Date.
(f) Reservation. The Company undertakes to
-----------
reserve, pro rata on behalf of each Subscriber and holder of a Warrant, from its
authorized but unissued common stock, a number of common shares equal to the
amount of Warrant Shares issuable upon exercise of the Warrants. Failure to have
sufficient shares reserved pursuant to this Section 9(f) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company's obligations under this Agreement.
(g) Taxes. From the date of this Agreement and
-----
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.
10
(h) Insurance. From the date of this Agreement
---------
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep its assets which are
of an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in the Company's line of business, in amounts sufficient to
prevent the Company from becoming a co-insurer and not in any event less than
100% of the insurable value of the property insured; and the Company will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated and to
the extent available on commercially reasonable terms.
(i) Books and Records. From the date of this
-----------------
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company will keep true records
and books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date
------------------------
of this Agreement and until the sooner of (i) two (2) years after the Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company shall
duly observe and conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to its
properties or assets.
(k) Intellectual Property. From the date of
---------------------
this Agreement and until the sooner of (i) two (2) years after the Closing Date,
or (ii) until all the Shares and Warrant Shares have been resold or transferred
by all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company shall maintain in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights to use intellectual property owned or possessed by it
and reasonably deemed to be necessary to the conduct of its business.
(l) Properties. From the date of this Agreement
----------
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, 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 and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company agrees
that 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 ten 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 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.
11
(n) Blackout. The Company undertakes and
--------
covenants that until the first to occur of (i) the registration statement
described in Section 11.1(iv) having been effective for one hundred and eighty
(180) business days, or (ii) until all the Shares and Warrant Shares have been
resold pursuant to said registration statement, the Company will not enter into
any acquisition, merger, exchange or sale or other transaction, except for those
specific acquisitions for which the Company has entered into letters of intent
as set forth in the Use of Proceeds on Schedule 9(e), that could have the effect
of delaying the effectiveness of any pending registration statement or causing
an already effective registration statement to no longer be effective or
current.
(o) Further Registration Statements. Except for
-------------------------------
a registration statement filed on behalf of the Subscribers pursuant to Section
11 of this Agreement, the Company will not file any registration statements,
including but not limited to Form S-8, with the Commission or with state
regulatory authorities without the consent of the Subscriber until one hundred
and eighty (180) days after the Actual Effective Date during which such
Registration Statement shall be current and available for use in connection with
the public resale of the Shares and Warrant Shares. Notwithstanding same, the
Subscribers acknowledge that the Company will be registering additional shares
in the Registration Statement underlying outstanding Company warrants as set
forth on Schedule 11.1.
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.
(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
Subscribes 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 indemnifications set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the
-------------------
following registration rights to holders of the Securities.
12
(i) On one occasion, for a period commencing
ninety-one (91) days after the Closing Date, but not later than two (2) years
after the Closing Date ("Request Date"), upon a written request therefor from
any record holder or holders of more than 50% of the Shares and Warrant Shares
actually issued upon exercise of the Warrants, the Company shall prepare and
file with the Commission a registration statement under the 1933 Act registering
the Shares and Warrant Shares (collectively "Registrable Securities") which are
the subject of such request for unrestricted public resale by the holder
thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities
shall not include Securities which are registered for resale in an effective
registration statement or included for registration in a pending registration
statement, or which have been issued without further transfer restrictions after
a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon the receipt of
such request, the Company shall promptly give written notice to all other record
holders of the Registrable Securities that such registration statement is to be
filed and shall include in such registration statement Registrable Securities
for which it has received written requests within ten (10) days after the
Company gives such written notice. Such other requesting record holders shall be
deemed to have exercised their demand registration right under this Section
11.1(i).
(ii) If the Company at any time proposes to
register any of its securities under the 1933 Act for sale to the public,
whether for its own account or for the account of other security holders or
both, except with respect to registration statements on Forms ▇-▇, ▇-▇ or
another form not available for registering the Registrable Securities for sale
to the public, provided the Registrable Securities are not otherwise registered
for resale by the Subscribers or Holder pursuant to an effective registration
statement, each such time it will give at least fifteen (15) days' prior written
notice to the record holder of the Registrable Securities of its intention so to
do. Upon the written request of the holder, received by the Company within ten
(10) days after the giving of any such notice by the Company, to register any of
the Registrable Securities not previously registered, the Company will cause
such Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so registered
by the holder of such Registrable Securities (the "Seller" or "Sellers"). In the
event that any registration pursuant to this Section 11.1(ii) shall be, in whole
or in part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for
registration is received by the Company pursuant to Section 11.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account and the
Company actually does file such other registration statement, such written
request shall be deemed to have been given pursuant to Section 11.1(ii) rather
than Section 11.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission
not later than fifteen (15) days after the Closing Date (the "Filing Date"), and
cause to be declared effective within ninety (90) days after the Closing Date
(the "Effective Date"), a Form SB-2 registration statement (the "Registration
Statement") (or such other form that it is eligible to use) in order to register
the Registrable Securities for resale and distribution under the 1933 Act.
13
The Company will register not less than a number of shares of common stock in
the aforedescribed registration statement that is equal to all of the Shares and
Warrant Shares issuable pursuant to this Agreement. The Registrable Securities
shall be reserved and set aside exclusively for the benefit of each Subscriber,
pro rata, and not issued, employed or reserved for anyone other than each such
Subscriber. The Registration Statement will immediately be amended or additional
registration statements will be immediately filed by the Company as necessary to
register additional shares of Common Stock to allow the public resale of all
Common Stock included in and issuable by virtue of the Registrable Securities.
Without the written consent of the Subscriber, no securities of the Company
other than the Registrable Securities will be included in the Registration
Statement except as disclosed on Schedule 11.1.
11.2. Registration Procedures. If and whenever the Company is
-----------------------
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:
(a) subject to the timelines provided in this
Agreement, prepare and file with the Commission a registration statement
required by Section 11, with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of Registrable Securities copies of all
filings and Commission letters of comment;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective until such registration statement has been effective for a
period of two (2) years, and comply with the provisions of the 1933 Act with
respect to the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the Sellers' intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's
expense, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best efforts to register or qualify
the Sellers' Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of such jurisdictions as the Sellers shall
request in writing, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) if applicable, list the Registrable
Securities covered by such registration statement with any securities exchange
on which the Common Stock of the Company is then listed;
(f) immediately notify the Sellers when a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing; and
14
(g) provided same would not be in violation of
the provision of Regulation FD under the 1934 Act, make available for inspection
by the Sellers, and any attorney, accountant or other agent retained by the
Seller or underwriter, all publicly available, non-confidential financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each
----------------------
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company and the Subscribers
-----------------------
agree that the Sellers will suffer damages if the Registration Statement is not
filed by the Filing Date and not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (i) the Registration Statement is not filed on or before the
Filing Date or is not declared effective on or before the sooner of the
Effective Date, or within three (3) business days of receipt by the Company of a
written or oral communication from the Commission that the Registration
Statement will not be reviewed, (ii) if the registration statement described in
Sections 11.1(i) or 11.1(ii) is not filed within 60 days after such written
request, or is not declared effective within 120 days after such written
request, or (iii) any registration statement described in Sections 11.1(i),
11.1(ii) or 11.1(iv) is filed and declared effective but shall thereafter cease
to be effective (without being succeeded within ten (10) business days by an
effective replacement or amended registration statement) for a period of time
which shall exceed 30 days in the aggregate per year (defined as a period of 365
days commencing on the date the Registration Statement is declared effective) or
more than 20 consecutive days (each such event referred to in clauses (i), (ii)
and (iii) of this Section 11.4 is referred to herein as a "Non-Registration
Event"), then the Company shall deliver to the holder of Registrable Securities,
as Liquidated Damages, an amount equal to two percent (2%) for each thirty days
or part thereof of the Purchase Price of the Shares and actually paid "Purchase
Price" (as defined in the Warrants) of Warrant Shares issued or issuable upon
actual exercise of the Warrants, for the Registrable Securities owned of record
by such holder as of and during the pendency of such Non-Registration Event
which are subject to such Non-Registration Event. The Company must pay the
Liquidated Damages in cash within ten (10) days after the end of each thirty
(30) day period or shorter part thereof for which Liquidated Damages are
payable. In the event a Registration Statement is filed by the Filing Date but
is withdrawn prior to being declared effective by the Commission, then such
Registration Statement will be deemed to have not been filed.
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 (in an amount not to exceed
$5,000) 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.
15
11.6. Indemnification and Contribution.
--------------------------------
(a) In the event of a registration of any
Registrable Securities under the 1933 Act pursuant to Section 11, the Company
will, to the extent permitted by law, indemnify and hold harmless the Seller,
each officer of the Seller, each director of the Seller, each underwriter of
such Registrable Securities thereunder and each other person, if any, who
controls such Seller or underwriter within the meaning of the 1933 Act, against
any losses, claims, damages or liabilities, joint or several, to which the
Seller, or such underwriter or controlling person may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such Registrable Securities was registered
under the 1933 Act pursuant to Section 11, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances when made, and will subject
to the provisions of Section 11.6(c) reimburse the Seller, each such underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable to the Seller to the extent that any such damages arise out of or
are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Seller failed to send or deliver a copy of the final
prospectus delivered by the Company to the Seller with or prior to the delivery
of written confirmation of the sale by the Seller to the person asserting the
claim from which such damages arise, (ii) the final prospectus would have
corrected such untrue statement or alleged untrue statement or such omission or
alleged omission, or (iii) to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such Seller, or any such controlling person in writing
specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of th
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.
16
(c) Promptly after receipt by an indemnified
party hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than under this
Section 11.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 11.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 11.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties, as a group, shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the 1933 Act in any case in
which either (i) a Seller, or any controlling person of a Seller, makes a claim
for indemnification pursuant to this Section 11.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 11.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of the Seller or controlling person of the Seller in circumstances for which
indemnification is not provided under this Section 11.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (z) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the ▇▇▇▇ ▇▇▇) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery of Unlegended Shares.
-----------------------------
(a) Within three (3) business days (such third
business day, the "Unlegended Shares Delivery Date") after the business day on
which the Company has received (i) a notice that Registrable Securities have
been sold either pursuant to the Registration Statement or Rule 144 under the
1933 Act, (ii) a representation that the prospectus delivery requirements, or
the requirements of Rule 144, as applicable, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144 customary representation
letters of the Subscriber and Subscriber's Placement Agent regarding compliance
with the requirements of Rule 144, the Company at its expense, (y) shall
deliver, and shall cause legal counsel selected by the Company to deliver, to
its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legends set forth in Sections 4(e) and 4(f)
above, issuable pursuant to any effective and current registration statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the 1933
Act (the "Unlegended Shares"); and (z) cause the transmission of the
certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the unsold shares of Common Stock, if
any, to the Subscriber at the address specified in the notice of sale, via
express courier, by electronic transfer or otherwise on or before the Unlegended
Shares Delivery Date. Transfer fees shall be the responsibility of the Seller.
17
(b) In lieu of delivering physical certificates
representing the Unlegended Shares, if the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of a Subscriber, so long as the certificates
therefor do not bear a legend and the Subscriber is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber's prime Placement Agent with DTC through its Deposit
Withdrawal Agent Commission system. Such delivery must be made on or before the
Unlegended Shares Delivery Date.
(c) The Company understands that a delay in the
delivery of the Unlegended Shares pursuant to Section 11 hereof beyond the
Unlegended Shares Delivery Date could result in economic loss to a Subscriber.
As compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company fails
to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities subject
to such default may, at its option, require the Company to purchase all or any
portion of the Shares and Warrant Shares subject to such default at a price per
share equal to 130% of the Purchase Price of such Common Stock and Warrant
Shares. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand.
(d) In addition to any other rights available to
a Subscriber, if the Company fails to deliver to a Subscriber Unlegended Shares
as required pursuant to this Agreement, within ten (10) calendar days after the
Unlegended Shares Delivery Date and the Subscriber purchases (in an open market
transaction or otherwise) shares of common stock to deliver in satisfaction of a
sale by such Subscriber of the shares of Common Stock which the Subscriber
anticipated receiving from the Company (a "Buy-In"), then the Company shall pay
in cash to the Subscriber (in addition to any remedies available to or elected
by the Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
18
(e) In the event a Subscriber shall request
delivery of Unlegended Shares as described in Section 11.7(a), the Company may
not refuse to deliver Unlegended Shares based on any claim that such Subscriber
or any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or enjoining delivery
of such Unlegended Shares or exercise of all or part of said Warrant shall have
been sought and obtained and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 130% of the amount of the aggregate
purchase price of the Common Stock and Warrant Shares which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber's favor.
12. (a) Right of First Refusal. Until one year after
----------------------
the Actual Effective Date of the Registration Statement (the "Exclusion
Period"), the Subscribers shall be given not less than ten (10) business days
prior written notice of any proposed sale by the Company of its common stock or
other securities or debt obligations, except in connection with (i) employee
stock options or compensation plans, (ii) as full or partial consideration in
connection with any merger, consolidation or purchase of substantially all of
the securities or assets of any corporation or other entity, or (iii) as has
been described in the Reports or Other Written Information filed or delivered
prior to the Initial Closing Date (collectively "Excepted Issuances"). The
Subscribers who exercise their rights pursuant to this Section 12(a) shall have
the right during the ten (10) business days following receipt of the notice to
purchase all of such offered common stock, debt or other securities in
accordance with the terms and conditions set forth in the notice of sale in the
same proportion to each other as their purchase of Common Stock in the Offering.
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 ten (10) business
days following the notice of modification, whichever is longer, to exercise such
right.
(b) Offering Restrictions. From the date of
---------------------
this Agreement until one hundred and eighty (180) days after the Actual
Effective Date except in connection with the Excepted Issuances or the Offering,
the Company will not enter into any agreement to, nor issue any equity,
convertible debt or other securities convertible into common stock without the
prior written consent of the Subscribers, which consent may be withheld for any
reason.
(c) Maximum Exercise of Rights. In the event
--------------------------
the exercise of the rights described in Section 12(a) would result in the
issuance of an amount of common stock of the Company that would exceed the
maximum amount that may be issued to a Subscriber calculated in the manner
described in Section 10 of the Warrant, then the issuance of such additional
shares of common stock of the Company to such Subscriber will be deferred in
whole or in part until such time as such Subscriber is able to beneficially own
such common stock without exceeding the maximum amount set forth calculated in
the manner described in Section 10 of the Warrant. The determination of when
such common stock may be issued shall be made by each Subscriber as to only such
Subscriber.
13. Miscellaneous.
-------------
(a) Notices. All notices, demands, requests,
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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.
19
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: Goldspring, Inc., ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Director and CFO, telecopier: (480)
505-4044, with a copy by telecopier only to: ▇▇▇▇▇▇ & Jaclin, LLP, ▇▇▇▇ ▇▇▇▇▇ ▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.,
telecopier: (▇▇▇) ▇▇▇-▇▇▇▇, (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 & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇,
and (iii) if to the Placement Agent, to: ▇▇▇▇▇▇▇▇ Curhan Ford & Co., ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, telecopier: (415)
248-5692.
(b) Closing. The consummation of the
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transactions contemplated herein shall take place at the offices of Grushko &
▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, upon the
satisfaction of all conditions to Closing set forth in this Agreement. Each of
the Initial Closing Date and Second Closing Date is referred to herein as
"Closing Date."
(c) 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 either party shall be assigned by that party without prior notice
to and the written consent of the other party.
(d) 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.
(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. 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.
20
(f) Specific Enforcement, Consent to
--------------------------------
Jurisdiction. The Company and Subscriber acknowledge and agree that irreparable
------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity. Subject to Section 13(e) hereof, each of the Company, 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.
(g) Independent Nature of Subscribers'
---------------------------------
Obligations and Rights. The obligations of each Subscriber hereunder are several
and not joint with the obligations of any other Subscriber hereunder, and no
such Subscriber shall be responsible in any way for the performance of the
obligations of any other hereunder.
(h) Equitable Adjustment. The Securities and the
--------------------
purchase prices of Securities shall be equitably adjusted to offset the effect
of stock splits, stock dividends, and distributions of property or equity
interests of the Company to its shareholders.
[THIS SPACE INTENTIONALLY LEFT BLANK]
21
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.
GOLDSPRING, INC.
a Florida corporation
By: /s/
Name:
Title:
Dated: March , 2004