Exhibit 10.2
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of January
____, 2007, by and among Dragon International Group Corp., a Nevada corporation
(the "Company"), and the subscribers identified on the signature page hereto
(each a "Subscriber" and collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase for up to One Million Five Hundred Thousand Dollars ($1,500,000) (the
"Purchase Price") of shares of the Company's common stock, $.001 par value (the
"Common Stock") at a per share price of $0.09, and share purchase warrants (the
"Warrants") in the form attached hereto as Exhibit A, to purchase shares of
Common Stock (the "Warrant Shares"). The shares of Common Stock (the "Shares"),
the Warrants and the Warrant Shares are collectively referred to herein as the
"Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Shares and the
Warrants contemplated hereby, and the other documents, instruments and payments
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Closing Date. The "Initial Closing Date" shall be the date
that the Initial Closing Purchase Price is transmitted by wire transfer or
otherwise 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 & ▇▇▇▇▇▇▇, 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 (as defined
in Section 1(c) below) is referred to herein as a "Closing Date".
2. (a) Initial Closing. Subject to the satisfaction or waiver
of the terms and conditions of this Agreement, on the Initial Closing Date, each
Subscriber in the amounts set forth on the signature page hereto, shall purchase
and the Company shall sell to each Subscriber in the amount set forth on the
signature page hereto, the Shares ("Initial Closing Shares") and Warrants as
described in Section 3 of this Agreement ("Initial Closing Warrants"). The
Principal Amount to be paid by the Subscribers on the Initial Closing Date shall
be up to Seven Hundred and Fifty Thousand Dollars ($750,000) (the "Initial
Closing Purchase Price").
(b) Second Closing. The closing date in relation to
up to Seven Hundred and Fifty Thousand Dollars ($750,000) (the "Second
Closing Purchase Price") shall be on or before the seventh business day after
the Second Closing Condition Satisfaction Date (as defined in Section 2 (c)
below) (the "Second Closing Date"). Subject to the satisfaction or waiver of the
conditions to Closing, on the Second Closing Date, each Subscriber shall
purchase and the Company shall sell to each Subscriber the amount of Shares
designated on the signature page hereto ("Second Closing Shares") for such
Subscriber's portion of the Second Closing Purchase Price designated thereon.
The per Share Purchase Price shall be adjusted pursuant to Section 11 (c) below
and equitably to offset stock splits, stock dividends and other similar
adjustments designated and Warrants as described in Section 3 of this Agreement
("Second Closing Warrants").
(c) Conditions to Second Closing. The occurrence of
the Second Closing is expressly contingent on (i) the truth and accuracy,
on Initial Closing Date and the Second Closing Date of the representations and
warranties of the Company and Subscriber contained in this Agreement, (ii)
continued compliance with the covenants of the Company set forth in this
Agreement, (iii) the non-occurrence of any Event of Default (as hereinafter
defined in Section 10(a)) or event that with the passage of time or the giving
of notice could become an Event of Default, as defined in section 10(a) hereof
or other default by the Company of its obligations and undertakings contained in
this Agreement, and (iv) the satisfaction of the Second Closing Condition.
"Second Closing Condition" shall mean the acceptance for filing by the
Commission from the Company of a Form 8-K which discloses the execution of a
binding irrevocable agreement for the acquisition by the Company of an entity
which will become a subsidiary of the Company ("Acquisition"). The filing date
of the Form 8-K is the Second Closing Condition Satisfaction Date. The Second
Closing Condition must be satisfied on or before March 31, 2007 [sixty (60) days
after Initial Closing Date] ("Final Condition Date") otherwise the Second
Closing will not occur.
(d) Second Closing Deliveries. On the Second Closing
Date, the Company will deliver the Second Closing Shares and Second Closing
Warrants to the Escrow Agent and each Subscriber will deliver such Subscriber's
portion of the Second Closing Purchase Price to the Escrow Agent. On the Second
Closing Date, the Company will then deliver a certificate ("Second Closing
Certificate") signed by its chief executive officer or chief financial officer
(i) representing the truth and accuracy of all the representations and
warranties made by the Company contained in this Agreement, as of the Initial
Closing Date, the Second Closing Condition Satisfaction Date and the Second
Closing Date, as if such representations and warranties were made and given on
all such dates, except for changes that will not have alone on or in the
aggregate a material adverse effect (as defined in section 5 (a) below) (ii)
certifying that the information contained in the schedules and exhibits hereto
is substantially accurate as of the Second Closing Date, except for changes that
do not constitute a Material Adverse Effect [as defined in Section 5(a)], (iii)
adopting and renewing the covenants and representations set forth in Sections 5,
8, 9, 10, 11, and 12 of this Agreement in relation to the Second Closing Date,
Second Closing Shares and Second Closing Warrants, (iv) representing the timely
occurrence of the Second Closing Condition, and (vi) certifying that an Event of
Default has not occurred. A legal opinion nearly identical to the legal opinion
referred to in Section 6 of this Agreement shall be delivered to each Subscriber
at the Second Closing in relation to the Company, Second Closing Shares, and
Second Closing Warrants ("Second Closing Legal Opinion").
3. Warrants. On each Closing Date, the Company will issue and
deliver Warrants to the Subscribers. Two Class A Warrants and one Class B
Warrant will be issued for each two Shares issued on each Closing Date. The per
Warrant Share exercise price to acquire a Warrant Share upon exercise of a Class
A Warrant shall be equal to $0.125. The per Warrant Share exercise price to
acquire a Warrant Share upon exercise of a Class B Warrant shall be equal to
$0.15. The Class A and Class B Warrants shall be exercisable until five (5)
years after the relevant Closing Date.
4. Subscriber's Representations and Warranties. Each
Subscriber hereby represents and warrants to and agrees with the Company only as
to such Subscriber that:
(a) Organization and Standing of the Subscribers. If
the Subscriber is an entity, such Subscriber is a corporation, partnership or
other entity duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has the requisite corporate power to own its assets and to carry on its
business.
(b) Authorization and Power. Each Subscriber has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Shares and Warrants being sold to it hereunder. The execution,
delivery and performance of this Agreement by such Subscriber and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or its Board of Directors,
stockholders, partners, members, as the case may be, is required. This Agreement
has been duly authorized, executed and delivered by such Subscriber and
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Subscriber enforceable against the Subscriber in
accordance with the terms thereof.
(c) No Conflicts. The execution, delivery and
performance of this Agreement and the consummation by such Subscriber of
the transactions contemplated hereby or relating hereto do not and will not (i)
result in a violation of such Subscriber's charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber). Such Subscriber is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Securities in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, such Subscriber is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Information on Company. The Subscriber has been
furnished with or has had access at the ▇▇▇▇▇ Website of the Commission to
the Company's Form 10-KSB for the year ended June 30, 2006 as filed with the
Commission and all periodic reports with the Commission thereafter, but not
later than five business days before the Closing Date (hereinafter referred to
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.
(e) Information on Subscriber. The Subscriber will
be, on each Closing Date and upon exercise of the Warrants, an "accredited
investor", as such term is defined in Regulation D promulgated by the Commission
under the 1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities. The Subscriber is
able to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate. The Subscriber is not required to be
registered as a broker-dealer under Section 15 of the Securities Exchange Act of
1934, as amended (the "1934 Act") and the Subscriber is not a broker-dealer.
(f) Purchase of Shares and Warrants. On each Closing
Date, the Subscriber will purchase the Shares and Warrants as principal for its
own account for investment only and not with a view toward, or for resale in
connection with, the public sale or any distribution thereof.
(g) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under
the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933 Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration. In any
event, and subject to compliance with applicable securities laws, the Subscriber
may enter into lawful hedging transactions with third parties, which may in turn
engage in short sales of the Securities in the course of hedging the position
they assume and the Subscriber may also enter into short positions or other
derivative transactions relating to the Securities, or interests in the
Securities, and deliver the Securities, or interests in the Securities, to close
out their short or other positions or otherwise settle short sales or other
transactions, or loan or pledge the Securities, or interests in the Securities,
to third parties that in turn may dispose of these Securities.
(h) Shares Legend. The Shares and the Warrant 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 DRAGON INTERNATIONAL GROUP CORP. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(i) Warrants Legend. The Warrants shall bear the
following or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. 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 DRAGON INTERNATIONAL GROUP
CORP. THAT SUCH REGISTRATION IS NOT REQUIRED."
(j) 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.
(k) 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.
(l) Restricted Securities. Subscriber understands
that the Securities have not been registered under the 1933 Act and such
Subscriber will not sell, offer to sell, assign, pledge, hypothecate or
otherwise transfer any of the Securities unless pursuant to an effective
registration statement under the 1933 Act. Notwithstanding anything to the
contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an
"accredited investor" under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement. For the purposes of this
Agreement, an "Affiliate" of any person or entity means any other person or
entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. 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.
(m) 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.
(n) 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.
(o) Survival. The foregoing representations and
warranties shall survive the Closing Date for a period of three years after the
Second Closing Date.
5. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company and each of its
Subsidiaries is a corporation or other entity duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the requisite
corporate power to own its properties and to carry on its business as presently
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. For purposes of this
Agreement, a "Material Adverse Effect" shall mean a material adverse effect on
the financial condition, results of operations, properties or business of the
Company and its Subsidiaries taken 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.
(b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company has been duly authorized and validly
issued and are fully paid and nonassessable.
(c) Authority; Enforceability. This Agreement, the
Shares, the Warrants, the Escrow Agreement, and any other agreements
delivered together with this Agreement or in connection herewith (collectively
"Transaction Documents") have been duly authorized, executed and delivered by
the Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common
stock or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described on Schedule 5(d). Schedule 5(d)
includes a full description of all outstanding rights to purchase Common Stock
including the identities of the holders thereof, the issue and expiration dated
of such rights, and the issue and exercise prices of such rights. Schedule 5(d)
also includes a complete description of all outstanding restricted Common Stock
including the identities of the holders thereof, the issue date, the purchase
price or attributed value thereof, and whether such person is a "control person"
of the Company.
(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 Bulletin Board nor
the Company's shareholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.
(f) No Violation or Conflict. Assuming the
representations and warranties of the Subscribers in Section 4 are true and
correct, neither the issuance and sale of the Securities nor the performance of
the Company's obligations under 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 over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its Affiliates is a party, by which the Company or any of its Affiliates is
bound, or to which any of the properties of the Company or any of its Affiliates
is subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company, or any of its Affiliates
is a party except, in each case, the violation, conflict, breach, or default of
which would not have a Material Adverse Effect; or
(ii) except as contemplated hereby, result
in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates; or
(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 and on the date of issuance of the Shares and upon exercise of the
Warrants, the Shares and Warrant Shares will be duly and validly issued, fully
paid and nonassessable or if registered pursuant to the 1933 Act, and resold
pursuant to an effective registration statement will be free trading and
unrestricted);
(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 not result in a violation of
Section 5 under the 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 on the Disclosure Schedule or in the
Reports, there is no pending or, to the best knowledge of the Company, basis for
or threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have a
Material Adverse Effect.
(i) Reporting Company. The Company is a publicly-held
company, subject to the reporting obligation pursuant to Section 13 and/or
15(d) of the Securities Exchange Act of 1934 (the "1934 Act") and has a class of
common shares reported 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 thirty-six (36) months.
(j) No Market Manipulation. The Company and its
Affiliates have not taken, and will not take, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued or resold.
(k) Information Concerning Company. The Reports
contain all material information relating to the Company and its operations
and financial condition as of their respective dates which information is
required to be disclosed therein. Since the date of the financial statements
included in the Reports ("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
contained 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 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
articles of incorporation or bylaws. The Company is (i) not in default
under or in violation of any other material agreement or instrument to which it
is a party or by which it or any of its properties are bound or affected, which
default or violation would have a Material Adverse Effect, (ii) not in default
with respect to any order of any court, arbitrator or governmental body or
subject to or party to any order of any court or governmental authority arising
out of any action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar matters,
or (iii) to the Company's knowledge not in violation of any statute, rule or
regulation of any governmental authority which violation would have a Material
Adverse Effect.
(n) Not 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") or any Principal Market [as defined in
Section 9(b)] 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.
(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 ▇▇▇▇ ▇▇▇) in connection with the
offer or sale of the Securities.
(p) Listing. The Common Stock is quoted on the
Bulletin Board under the symbol: DRGG.OB. The Company has not received any
oral or written notice that the Common Stock is not eligible nor will become
ineligible for quotation on the Bulletin Board nor that the Common Stock does
not meet all requirements for the continuation of such quotation and the Company
satisfies all the requirements for the continued quotation of the 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 Warrant Shares upon exercise of
the Warrants is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company or parties entitled to receive equity of the Company. (u) No
Disagreements with Accountants and Lawyers. There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants and lawyers formerly or presently
employed by the Company, including but not limited to disputes or conflicts over
payment owed to such accountants and lawyers, nor have there been any such
agreements during the two years prior to the Initial Closing Date.
(v) 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.
(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), (f), (h), (k),
(m), (q) through (s), (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
undertaking described in Sections 9.1(g) through 9.1(l) shall relate and refer
to the Company, its predecessors, and the Subsidiaries.
(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 each Closing Date, shall be true
and correct in all material respects as of each Closing Date.
(AA) Survival. The foregoing representations and
warranties shall survive the Closing Date for a period of three years after the
Second 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) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On each
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/or resale of the Shares
and Warrant Shares pursuant to an effective registration statement, Rule 144
under the 1933 Act, or an exemption from registration.
7. Legal Fees. On the Initial Closing Date, the Company shall
pay to Grushko & ▇▇▇▇▇▇▇, P.C., a fee of $15,000 ("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.
8. Broker/Due Diligence Fee.
(a) Broker's Commission. 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 brokerage commissions or similar fees other
than the party identified on Schedule 8 hereto (the "Broker") on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions. Anything in this Agreement to the contrary
notwithstanding, each Subscriber is providing indemnification only for such
Subscriber's own actions and not for any action of any other Subscriber. Each
Subscriber's liability hereunder is several and not joint. The Company agrees
that it will pay the Broker an aggregate cash fee equal to ___% of the Purchase
Price on the Closing Date directly out of the funds held pursuant to the Escrow
Agreement ("Broker's Fees"). The Company represents that there are no other
parties entitled to receive fees, commissions, or similar payments in connection
with the Offering.
(b) Due Diligence Fee. The Company will pay a due
diligence fee ("Due Diligence Fee") described on Schedule 8 hereto to the
parties identified on Schedule 8 hereto ("Due Diligence Fee Recipient").
9. Covenants of the Company. The Company covenants and agrees
with the Subscribers as follows:
(a) Stop Orders. The Company will advise the
Subscribers within two hours 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 the
listing of the Shares and the Warrant Shares upon each national securities
exchange, or electronic or automated quotation system upon which they are or
become eligible for listing and shall maintain such listing so long as any
Shares or Warrants are outstanding. The Company will maintain the listing of its
Common Stock on the American Stock Exchange, Nasdaq SmallCap Market, Nasdaq
National Market System, Bulletin Board, or New York Stock Exchange (whichever of
the foregoing is at the time the principal trading exchange or market for the
Common Stock (the "Principal Market")), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market, as applicable. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market. As of the date
of this Agreement and the Closing Date, the Bulletin Board is and will be the
Principal Market.
(c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accor
dance 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) Filing Requirements. From the date of this
Agreement and until the sooner of (i) three (3) years after the Second
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, the Company will (A) cause its Common Stock to continue to
be subject to the reporting obligations of Section 15(d), 12(b) or 12(g) of the
1934 Act, (B) comply in all respects with its reporting and filing obligations
under the 1934 Act, (C) comply with all reporting requirements that are
applicable to an issuer subject to Section 15(d) of the 1934 Act, or, if a class
of its securities is registered under Section 12(b) or 12(g) of the 1934 Act, to
all reporting requirements that are applicable to an issuer with a class of
shares registered pursuant to Section 12(b) or 12(g) of the 1934 Act, as
applicable, and (D) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will use its best
efforts not to take any action or file any document (whether or not permitted by
the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said acts or until three (3) years after the Second Closing
Date. Until the earlier of the resale of the Common Stock and the Warrant Shares
by each Subscriber or three (3) years after the Warrants have been exercised,
the Company will use its best efforts to continue the listing or quotation of
the Common Stock on a Principal Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market. The Company agrees to timely file a Form D with respect to
the Securities if required under Regulation D and to provide a copy thereof to
each Subscriber promptly after such filing.
(e) Use of Proceeds. The proceeds of the Offering
will be employed by the Company for the purposes set forth on Schedule 9(e)
hereto. Except as set forth on Schedule 9(e), the Purchase Price may not and
will not be used for accrued and unpaid officer and director salaries, payment
of financing related debt, redemption of outstanding notes or equity instruments
of the Company nor non-trade obligations outstanding on a Closing Date.
(f) Reservation. Prior to the Closing Date, the
Company undertakes to reserve, pro rata, on behalf of each holder of Shares
or Warrants, from its authorized but unissued common stock, a number of common
shares equal to the Shares and 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) three (3) years after the Second Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144 without regard to volume limitations, the Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.
(h) Insurance. From the date of this Agreement and
until the sooner of (i) three (3) years after the Second Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144 without regard to volume limitations, the Company will keep its assets which
are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company's line of business, in amounts
sufficient to prevent the Company from becoming a co-insurer and not in any
event less than one hundred percent (100%) of the insurable value of the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated and to the extent available on
commercially reasonable terms.
(i) Books and Records. From the date of this
Agreement and until the sooner of (i) three (3) years after the Second
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) three (3) years after the Second 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) three (3) years after the Second
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) three (3) years after the Second Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement (as defined in
Section 11.1(iv) hereof) or pursuant to Rule 144 without regard to volume
limitations, the Company will keep its properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a Material Adverse
Effect.
(m) Confidentiality/Public Announcement. From the
date of this Agreement and until the sooner of (i) three (3) years after
the Second Closing Date, or (ii) until all the Shares and Warrant Shares have
been resold or transferred by all the Subscribers pursuant to the Registration
Statement or pursuant to Rule 144 without regard to volume limitations, the
Company agrees that except in connection with a Form 8-K or the Registration
Statement, it will not disclose publicly or privately the identity of the
Subscribers unless expressly agreed to in writing by a Subscriber or only to the
extent required by law and then only upon five days prior notice to Subscriber.
In any event and subject to the foregoing, the Company shall file a Form 8-K or
make a public announcement describing the Offering not later than the first
business day after each Closing Date. In the Form 8-K or public announcement,
the Company will specifically disclose the amount of common stock outstanding
immediately after the Closing. A form of the proposed Form 8-K or public
announcement to be employed in connection with the Offering is annexed hereto as
Exhibit D.
(n) Further Registration Statements. Except for a
registration statement filed on behalf of the Subscribers pursuant to
Section 11 of this Agreement, and as set forth on Schedule 11.1 hereto, the
Company will not file any registration statements or amend any already filed
registration statement to increase the amount of Common Stock registered
therein, or reduce the price of which such Common Stock is registered therein,
including but not limited to Forms S-8 for the registration of not more than an
aggregate of 5,000,000 shares of Common Stock with the Commission or with state
regulatory authorities without the consent of the Subscriber until the
expiration of the "Exclusion Period", which shall be defined as the sooner of
(i) two years after the Second Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by the Subscribers pursuant to
the Registration Statement or Rule 144, without regard to volume limitations.
The Exclusion Period will be tolled during the pendency of an Event of Default
[as hereinafter defined in Section 10(a)].
(o) 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. The Company will offer to the Subscriber an opportunity to
review and comment on the Registration Statement thereto between three and five
business days prior to the proposed filing date thereof.
(p) Blackout. The Company undertakes and covenants
that until the end of the Exclusion Period, the Company will not enter into
any acquisition, merger, exchange or sale or other transaction that could have
the effect of delaying the effectiveness of any pending registration statement
or causing an already effective registration statement to no longer be effective
or current for a period twenty (20) or more days in the aggregate.
(q) Limited Standstill. The Company will deliver to
the Subscribers on or before the Initial Closing Date and enforce the
provisions of irrevocable standstill agreements ("Limited Standstill
Agreements") in the form annexed hereto as Exhibit E, with the parties
identified on Schedule 9(q) hereto.
(r) Offering Restrictions. Until the end of the
Exclusion Period, or during the pendency of a Non-Registration Event, or
when any compensation or liquidated damages are accruing or are outstanding
other than the Excepted Issuances, the Company will not enter into an agreement
to nor issue any equity, convertible debt or other securities convertible into
common stock or equity of the Company nor modify any of the foregoing which may
be outstanding at anytime, without the prior written consent of the Subscriber,
which consent may be withheld for any reason. Until one year after the Second
Closing Date, the Company will not enter into any equity line of credit or
similar agreement, nor issue or agree to issue any floating or variable priced
equity linked instruments nor any of the foregoing or equity with price reset
rights. The only officer, director, employee and consultant stock option or
stock incentive plan currently in effect or contemplated by the Company has been
submitted to the Subscribers. No other plan will be adopted nor may any options
or equity not included in such plan be issued until the end of the Exclusion
Period.
(s) Additional Negative Covenants. From the date of
this Agreement and until the sooner of (i) two (2) years after the Second
Closing Date, or (ii) until all the Shares and Warrants 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, without the consent
of the Subscribers, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:
(i) create, incur, assume or suffer to exist
any pledge, hypothecation, assignment, deposit arrangement, lien, charge,
claim, security interest, security title, mortgage, security deed or deed of
trust, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Uniform Commercial Code or comparable law of any jurisdiction) (each,
a "Lien") upon any of its property, whether now owned or hereafter acquired
except for (i) the Excepted Issuances (as defined in Section 12(a) hereof), (ii)
(a) Liens imposed by law for taxes that are not yet due or are being contested
in good faith and for which adequate reserves have been established in
accordance with generally accepted accounting principles; (b) carriers',
warehousemen's, mechanics', material men's, repairmen's and other like Liens
imposed by law, arising in the ordinary course of business and securing
obligations that are not overdue by more than 30 days or that are being
contested in good faith and by appropriate proceedings; (c) pledges and deposits
made in the ordinary course of business in compliance with workers'
compensation, unemployment insurance and other social security laws or
regulations; (d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; (e) Liens created with respect to the financing of the purchase of new
property in the ordinary course of the Company's business up to the amount of
the purchase price of such property, or (f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property (each of (a) through (f), a "Permitted Lien");
(ii) amend its certificate of
incorporation, bylaws or its charter documents so as to adversely affect any
rights of the Subscriber;
(iii) repay, repurchase or offer to repay,
repurchase or otherwise acquire or make any dividend or distribution in respect
of any of its Common Stock, preferred stock, or other equity securities other
than to the extent permitted or required under the Transaction Documents;
(iv) prepay any financing related or other
outstanding debt obligations; or
(v) engage in any transactions with any
officer, director, employee or any Affiliate of the Company, including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $50,000 other than (i)
for payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company and (iii) for other
employee benefits, including stock option agreements under any stock option plan
of the Company.
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend the Subscribers, the Subscribers' officers, directors,
agents, Affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber
or any such person which results, arises out of or is based upon (i) any
material misrepresentation by Company or breach of any warranty by Company in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Company of any
material covenant or undertaking to be performed by the Company hereunder, or
any other agreement entered into by the Company and Subscriber relating hereto.
Any or all of the foregoing are deemed Events of Default.
(b) Each Subscriber agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, Affiliates, control persons against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company or any such person
which results, arises out of or is based upon (i) any material misrepresentation
by such Subscriber in this Agreement or in any Exhibits or Schedules attached
hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
such Subscriber of any covenant or undertaking to be performed by such
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers, relating hereto.
(c) In no event shall the liability of any Subscriber
or permitted successor hereunder or under any Transaction Document or other
agreement delivered in connection herewith be greater in amount than the dollar
amount of the net proceeds actually received by such Subscriber upon the sale of
Registrable Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall
apply to the indemnification set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing one
hundred and twenty-one (121) days after the Initial 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, the Company shall prepare and file with the Commission a registration
statement under the 1933 Act registering the Shares, including but not limited
to the 2,000,000 Pledged Shares, more fully described in Section 13(i) herein
(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 (A)
which are registered for resale in an effective registration statement, (B)
included for registration in a pending registration statement, or (C) which have
been issued without further transfer restrictions after a sale or transfer
pursuant to Rule 144 under the 1933 Act. Upon the receipt of such request, the
Company shall promptly give written notice to all other record holders of the
Registrable Securities that such registration statement is to be filed and shall
include in such registration statement Registrable Securities for which it has
received written requests within ten (10) days after the Company gives such
written notice. Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section 11.1(i).
(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) If the Company timely complies with the Second
Closing Condition, the Company shall file with the Commission a Form SB-2
registration statement (the "Registration Statement") (or such other form that
it is eligible to use) in order to register the Registrable Securities for
resale and distribution under the 1933 Act within seventy-five (75) calendar
days after the Second Closing Condition Satisfaction Date (the "Filing Date"),
and cause the Registration Statement to be declared effective not later than one
hundred and fifty (150) calendar days after the Second Closing Condition
Satisfaction Date (the "Effective Date"). If the Second Closing Condition is not
timely accomplished, then the Filing Date and Effective Date shall be,
respectively, sixty (60) days and one hundred and thirty-five (135) days after
the Initial Closing Date. The Company will register not less than a number of
shares of common stock in the aforedescribed registration statement that is
equal to the Shares and Warrant Shares issuable pursuant to this Agreement upon
exercise of the Warrants (collectively the "Registrable Securities"). The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of the Subscribers and Warrant holders and not issued, employed or
reserved for anyone other than such Subscribers and Warrant holders. 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. Except with
the written consent of the Subscribers, no securities of the Company other than
the Registrable Securities will be included in the Registration Statement except
as described on Schedule 11.1 hereto. It shall be deemed a Non-Registration
Event if at any time after the date the Registration Statement is declared
effective by the Commission ("Actual Effective Date") the Company has registered
for unrestricted resale on behalf of the Subscribers fewer than 100% of the
Shares and Warrant Shares issuable upon exercise of the Warrants.
11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:
(a) subject to the timelines provided in this
Agreement, prepare and file with the Commission a registration statement
required by Section 11, with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
promptly provide to the holders of the Registrable Securities copies of all
filings and Commission letters of comment and notify Subscribers (by telecopier
and by e-mail addresses provided by Subscribers) and Grushko & ▇▇▇▇▇▇▇, P.C. (by
telecopier and by email to ▇▇▇▇▇▇▇▇▇@▇▇▇.▇▇▇) on or before 3:00 PM EST on the
first business day following the day the Company receives notice that (i) the
Commission has no comments or no further comments on the Registration Statement,
and (ii) the registration statement has been declared effective (failure to
timely provide notice as required by this Section 11.2(a) shall be a material
breach of the Company's obligation and a Non-Registration Event as defined in
Section 11.4 of this Agreement);
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective until such registration statement has been
effective for a period of two (2) years, and comply with the provisions of the
1933 Act with respect to the disposition of all of the Registrable Securities
covered by such registration statement in accordance with the Sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's expense,
such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its commercially reasonable best efforts to
register or qualify the Registrable Securities covered by such registration
statement under the securities or "blue sky" laws of New York and 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) notify the Subscribers within two hours of the
Company's becoming aware that 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 or which becomes subject to a Commission, state or
other governmental order suspending the effectiveness of the registration
statement covering any of the Shares; and
(g) provided same would not be in violation of the
provision of Regulation FD under the 1934 Act, make available for
inspection by the Sellers, and any attorney, accountant or other agent retained
by the Seller or underwriter, all publicly available, non-confidential financial
and other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company and the Subscribers
agree that the Sellers will suffer damages if the Registration Statement is not
filed by the Filing Date and not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or before the
Filing Date, (B) is not declared effective on or before the Effective Date, (C)
the Registration Statement is not declared effective within two (2) business
days after receipt by the Company or its attorneys of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (D) if the registration
statement described in Sections 11.1(i) or 11.1(ii) is not filed within 60 days
after such written request, or is not declared effective within 120 days after
such written request, or (E) any registration statement described in Sections
11.1(i), 11.1(ii) or 11.1(iv) is filed and declared effective but shall
thereafter cease to be effective 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 A through E of this
Section 11.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to two percent (2%) for each thirty (30) days (or such
lessor pro-rata amount for any period of less than thirty days) of the Purchase
Price of the Shares owned of record by such holder which are subject to such
Non-Registration Event but in no event shall Liquidated Damages exceed the
greater of $180,000 or an aggregate of six months of Liquidated Damages
payments. The Company must pay the Liquidated Damages in cash. The Liquidated
Damages must be paid within ten (10) days after the end of each thirty (30) day
period or shorter part thereof for which Liquidated Damages are payable. In the
event a Registration Statement is filed by the Filing Date but is withdrawn
prior to being declared effective by the Commission, then such Registration
Statement will be deemed to have not been filed. All oral or written 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 one
counsel to the Seller, are called "Selling Expenses." The Company will pay all
Registration Expenses in connection with the registration statement under
Section 11. Selling Expenses in connection with each registration statement
under Section 11 shall be borne by the Seller and may be apportioned among the
Sellers in proportion to the number of shares sold by the Seller relative to the
number of shares sold under such registration statement or as all Sellers
thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to
the extent permitted by law, indemnify and hold harmless the Seller, each
officer of the Seller, each director of the Seller, each underwriter of such
Registrable Securities thereunder and each other person, if any, who controls
such Seller or underwriter within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several, to which the Seller,
or such underwriter or controlling person may become subject under the 1933 Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the 1933
Act pursuant to Section 11, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made, and will subject to the
provisions of Section 11.6(c) reimburse the Seller, each such underwriter and
each such controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable to the Seller to the extent that any such damages arise out of or are
based upon an untrue statement or omission made in any preliminary prospectus if
(i) the Seller failed to send or deliver a copy of the final prospectus
delivered by the Company to the Seller with or prior to the delivery of written
confirmation of the sale by the Seller to the person asserting the claim from
which such damages arise, (ii) the final prospectus would have corrected such
untrue statement or alleged untrue statement or such omission or alleged
omission, or (iii) to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished
by any such Seller, or any such controlling person in writing specifically for
use in such registration statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the 1933 Act pursuant to Section 11, each
Seller severally but not jointly will, to the extent permitted by law, indemnify
and hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the 1933 Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than under this
Section 11.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 11.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 11.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties, as a group, shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the 1933 Act in any case
in which either (i) a Seller, or any controlling person of a Seller, makes a
claim for indemnification pursuant to this Section 11.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 11.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of the Seller or controlling person of the Seller in circumstances for which
indemnification is not provided under this Section 11.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities sold by it pursuant to such registration statement; and (z) no person
or entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the ▇▇▇▇ ▇▇▇) 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 being the "Unlegended Shares Delivery Date") after the
business day on which the Company has received (i) a notice that Shares or
Warrant Shares have been sold pursuant to the Registration Statement or Rule 144
under the 1933 Act, (ii) a representation that the prospectus delivery
requirements, or the requirements of Rule 144, as applicable and if required,
have been satisfied, and (iii) the original share certificates representing the
shares of Common Stock that have been sold, and (iv) in the case of sales under
Rule 144, customary representation letters of the Subscriber and/or Subscriber's
broker regarding compliance with the requirements of Rule 144, the Company at
its expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery of
shares of Common Stock without any legends including the legend set forth in
Section 4(h) above, reissuable 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 submitted
certificates, if any, to the Subscriber at the address specified in the notice
of sale, via express courier, by electronic transfer or otherwise on or before
the Unlegended Shares Delivery Date. Transfer fees shall be the responsibility
of the Seller.
(b) In lieu of delivering physical certificates
representing the Unlegended Shares, if the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of a Subscriber, so long as the certificates
therefor do not bear a legend and the Subscriber is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber's prime Broker with DTC through its Deposit Withdrawal
Agent Commission system. Such delivery must be made on or before the Unlegended
Shares Delivery Date.
(c) The Company understands that a delay in the
delivery of the Unlegended Shares pursuant to Section 11 hereof later than
the Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the Company agrees to
pay late payment fees (as liquidated damages and not as a penalty) to the
Subscriber for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to the greater of (i) 120%, or (ii) a
fraction in which the numerator is the highest closing price of the Common Stock
during the aforedescribed thirty day period and the denominator of which is the
lowest conversion price during such thirty day period multiplied by the Purchase
Price of such Common Stock and exercise price of such Warrant Shares
("Unlegended Redemption Amount"). The Company shall pay any payments incurred
under this Section in immediately available funds upon demand.
(d) In addition to any other rights available to a
Subscriber, if the Company fails to deliver to a Subscriber Unlegended
Shares as required pursuant to this Agreement, within seven (7) business days
after the Unlegended Shares Delivery Date and the Subscriber purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of common stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery
of Unlegended Shares as described in Section 11.7 or the Subscriber has
exercised the Warrant and the Company is required to deliver such Unlegended
Shares pursuant to Section 11.7 or Warrant Shares pursuant to the Warrant, the
Company may not refuse to deliver Unlegended Shares or Warrant 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
120% of the amount of the aggregate purchase price of the Common Stock and
Warrant Shares which are subject to the injunction or temporary restraining
order, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber's
favor.
12. (a) Right of First Refusal. Until two years after the
Second Closing Date , 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) full or partial consideration in connection with a strategic merger,
acquisition, consolidation or purchase of substantially all of the securities or
assets of corporation or other entity which holders of such securities or debt
are not at any time granted registration rights, (ii) the Company's issuance of
securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital and which holders of such securities or debt are not at any time granted
registration rights, (iii) the Company's issuance of Common Stock or the
issuances or grants of options to purchase Common Stock pursuant to stock option
plans and employee stock purchase plans described on Schedule 5(d) hereto at
prices equal to or higher than the closing price of the Common Stock on the
issue date of any of the foregoing, and (iv) as a result of the exercise of
Warrants or conversion of which are granted or issued pursuant to this Agreement
or that have been issued prior to the Closing Date all on the original terms
thereof, the issuance of which has been disclosed in a Report filed not less
than five (5) days prior to the Closing Date (collectively the foregoing are
"Excepted Issuances"). The Subscribers who exercise their rights pursuant to
this Section 12(a) shall have the right during the seven (7) business days
following receipt of the notice to purchase such offered common stock, debt or
other securities in accordance with the terms and conditions set forth in the
notice of sale in the same proportion to each other as their purchase of 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 seven (7) business days following the notice of
modification to exercise such right.
(b) Favored Nations Provision. Other than in
connection with the Excepted Issuances, if at any time until twenty-four
(24) months after the Actual Effective Date of the Registration Statement in
respect of the Shares, or until the Warrants are no longer outstanding with
respect to the Warrants, 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 common share or exercise price per common share which
shall be less than the per Share Purchase Price in respect of the Shares, or if
less than the Warrant exercise price in respect of the Warrant Shares, without
the consent of each Subscriber holding Shares, Warrants, or Warrant Shares, then
the Company shall issue, for each such occasion, additional shares of Common
Stock to each Subscriber so that the average per share purchase price of the
shares of Common Stock issued to the Subscriber (of only the Common Stock or
Warrant Shares still owned by the Subscriber) is equal to such other lower price
per share and the Warrant Exercise Price of the Warrants shall automatically
reduced to such other lower price per share. The average Purchase Price of the
Shares and average exercise price in relation to the Warrant Shares shall be
calculated separately for the Shares and Warrant Shares. The delivery to the
Subscriber of the additional shares of Common Stock shall be not later than the
closing date of the transaction giving rise to the requirement to issue
additional shares of Common Stock. The Subscriber is granted the registration
rights described in Section 11 hereof in relation to such additional shares of
Common Stock except that the Filing Date and Effective Date vis-a-vis such
additional common shares shall be, respectively, the 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 per Share Purchase Price or Warrant exercise price in
effect upon such issuance. The rights of the Subscriber set forth in this
Section 12 are in addition to any other rights the Subscriber has pursuant to
this Agreement, any Transaction Document, and any other agreement referred to or
entered into in connection herewith.
(c) Option Plan Restrictions. The only officer,
director, employee and consultant stock option or stock incentive plan
currently in effect or contemplated by the Company has been submitted to the
Subscribers or filed with the Reports. No other plan will be adopted nor may any
options or equity not included in such plan be issued until the end of the
Exclusion Period.
(d) Maximum Exercise of Rights. In the event the
exercise of the rights described in Sections 12(a) and 12(b) 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 Warrants, 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 Warrants. 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,
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: Dragon International Group Corp., Building 14, Suite A09,
International Trading Center, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, Attn: ▇▇▇▇▇
▇▇, Chief Executive Officer, , with a copy by telecopier only to: ▇▇▇▇▇ I,
▇▇▇▇▇▇▇▇, Esq., Ellenoff ▇▇▇▇▇▇▇▇ & Schhole LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇, telecopier: (▇▇▇) ▇▇▇-▇▇▇▇, 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 & ▇▇▇▇▇▇▇, P.C.,
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier number: (212)
697-3575.
(b) 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.
(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 the Company shall be assigned without prior notice to and the
written consent of the Subscribers.
(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 conflicts of laws principles that would result in
the application of the substantive laws of another jurisdiction. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state of New York. The parties and
the individuals executing this Agreement and other agreements referred to herein
or delivered in connection herewith on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(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 one or more
preliminary and final injunctions to prevent or cure breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be entitled
by law or equity. Subject to Section 13(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. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that each Subscriber has represented that
the decision of each Subscriber to purchase Securities has been made by such
Subscriber independently of any other Subscriber and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or
given by any other Subscriber or by any agent or employee of any other
Subscriber, and no Subscriber or any of its agents or employees shall have any
liability to any Subscriber (or any other person) relating to or arising from
any such information, materials, statements or opinions. The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto (including, but not limited
to, the (i) inclusion of a Subscriber in the Registration Statement and (ii)
review by, and consent to, such Registration Statement by a Subscriber) shall be
deemed to constitute the Subscribers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. The
Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that it has elected to provide all Subscribers
with the same terms and Transaction Documents for the convenience of the Company
and not because Company was required or requested to do so by the Subscribers.
The Company acknowledges that such procedure with respect to the Transaction
Documents in no way creates a presumption that the Subscribers are in any way
acting in concert or as a group with respect to the Transaction Documents or the
transactions contemplated thereby.
(f) Damages. In the event the Subscriber is entitled
to receive any liquidated damages pursuant to the Transactions, the Subscriber
may elect to receive the greater of actual damages or such liquidated damages.
(g) Consent. As used in the Agreement, "consent of
the Subscribers" or similar language means the consent of holders of not less
than 75% of the total of the Shares issued 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) Stock Pledge. ▇▇▇▇▇ ▇▇, the Chief Executive
Officer and President of the Company ("Pledgor") will pledge 2,000,000 Shares
(subject to increase) of the Company's $.001 par value Common Stock ("Common
Stock" and "Pledged Shares") as security for the Company's obligations to the
Subscriber. The pledge will be memorialized in a Stock Pledge Agreement, a form
of which is annexed hereto as Exhibit F.
[THIS SPACE INTENTIONALLY LEFT BLANK]
{00034875.DOC.1}
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
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.
DRAGON INTERNATIONAL GROUP CORP.
a Nevada corporation
By:__________________________
▇▇▇▇▇ ▇▇:
Title: CEO
Dated: January ____, 2007
SUBSCRIBER PURCHASE PRICE SHARES OF CLASS A WARRANTS CLASS B WARRANTS
COMMON STOCK
------------ ---------------- --------------- ------------------ -------------------
Name of Subscriber:
--------------------------------
Address: ________________________________
--------------------------------
Tax I.D..: ________________________________
Phone No.: ________________________________
Fax No.: ________________________________
--------------------------------
(Signature)
--------------------------------
(Print Name)
--------------------- ----------------- ------------------- -------------------
LIST OF EXHIBITS AND SCHEDULES
Attachment 1 Disclosure Schedule
Exhibit A Form of Class A and B Warrants
Exhibit B Escrow Agreement
Exhibit C Form of Legal Opinion
Exhibit D Form of Public Announcement or Form 8-K
Exhibit E Form of Limited Standstill Agreement
Exhibit F Form of Stock Pledge Agreement
Schedule 5(a) Subsidiaries
Schedule 5(d) Additional Issuances / Capitalization
Schedule 5(q) Undisclosed Liabilities
Schedule 5(v) Transfer Agent
Schedule 9(e) Use of Proceeds
Schedule 9(q) Providers of Limited Standstill Agreements
Schedule 11.1 Other Securities to be Registered
EXHIBIT E
LOCK UP AGREEMENT
This AGREEMENT (the "Agreement") is made as of the ___ day of January,
2007, by the signatories hereto (each a "Holder"), in connection with his
ownership of shares of Dragon International Group Corp., a Nevada 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, $0.001 par value, of the Company ("Common Stock")
and rights to purchase Common Stock designated on the signature page hereto.
▇. ▇▇▇▇▇▇ acknowledges that the Company has entered into or
will enter into an agreement with each subscriber ("Subscription Agreement") to
the Company's common stock and warrants (the "Subscribers"), for the sale to the
Subscribers of an aggregate of up to $1,500,000 of shares of the Company's
Common Stock and warrants (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 one year after the Closing Date, as defined in the Subscription
Agreement (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.
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:
DRAGON INTERNATIONAL GROUP CORP.
By:______________________________