EXH. 10.1 FORM OF SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT
EXH.
10.1
FORM
OF SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
dated
as of February 12, 2007, by and among Lotus Pharmaceuticals, Inc. (formerly
known as S.E. Asia Trading Company, Inc.), 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 up to Three Million
Dollars ($3,000,000) (the "Purchase
Price")
of
principal amount of promissory notes of the Company (“Note”
or
“Notes”)
which
Notes are convertible into shares of the Company's common stock, $.001 par
value
(the "Common
Stock")
at a
per share conversion price set forth in the Note; and share purchase warrants
(the “Warrants”)
in the
form attached hereto as Exhibit
A, to
purchase shares of Common Stock (the “Warrant
Shares”).
The
Notes, shares of Common Stock issuable upon conversion of the Notes (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 Notes and the Warrants contemplated hereby
shall be held in escrow pursuant to the terms of a Funds Escrow Agreement to
be
executed by the parties substantially in the form attached hereto as
Exhibit
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
“Closing
Date”
shall
be the date that the Purchase Price is transmitted by wire transfer or otherwise
credited to or for the benefit of the Company. The consummation of the
transactions contemplated herein shall take place at the offices of Grushko
& ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
upon the satisfaction or waiver of all conditions to closing set forth in this
Agreement. Subject to the satisfaction or waiver of the terms and conditions
of
this Agreement, on the Closing Date, each Subscriber shall purchase and the
Company shall sell to each Subscriber a Note in the principal amount designated
on the signature page hereto and Warrants as described in Section 2 of this
Agreement.
2. Warrants.
On the
Closing Date, the Company will issue and deliver Class A Warrants to the
Subscribers. One Class A Warrant will be issued for each two Shares which would
be issued on the Closing Date assuming the complete conversion of the Note
on
the Closing Date at the Conversion Price. The exercise price to acquire a
Warrant Share upon exercise of a Class A Warrant shall be $1.50, subject to
reduction as described in the Class A Warrant. The Class A Warrants shall be
exercisable until five years after the issue date of the Warrants.
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3. Security
Interest.
Subject
to security interests granted by the Company as of the Closing Date, the
Subscribers will be granted a first priority perfected security interest in
all
the assets of the Company, including ownership of Subsidiaries, as defined
in
Section 5(a) of this Agreement, and in the assets of the Subsidiaries to be
memorialized in a “Security
Agreement”,
a form
of which is annexed hereto as Exhibit
C.
Each
Subsidiary will execute and deliver to the Subscribers a form of “Guaranty”
annexed
hereto as Exhibit
D.
The
Company will execute such other agreements, documents and financing statements
reasonably requested by Subscribers, which will be filed at the Company’s
expense with the jurisdictions, states and counties designated by the
Subscribers. The Company will also execute all such documents reasonably
necessary in the opinion of Subscriber to memorialize and further protect the
security interest described herein. The Subscribers will appoint a Collateral
Agent to represent them collectively in connection with the security interest
to
be granted to the Subscribers. The appointment will be pursuant to a
“Collateral
Agent Agreement”,
a form
of which is annexed hereto as Exhibit
E.
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.
(b) Authorization
and Power.
Each
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and to purchase the Notes 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 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 December 31, 2005
as
filed with the Commission, together with all subsequently filed Forms 10-QSB,
8-K, and filings made with the Commission available at the ▇▇▇▇▇ website
(hereinafter referred to collectively as the "Reports").
The
Subscriber has had an opportunity to ask questions and receive answers from
representatives of the Company. 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.
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(e) Information
on Subscriber.
The
Subscriber is, and will be at the time of the conversion of the Notes and
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.
(f) Purchase
of Notes and Warrants.
On the
Closing Date, the Subscriber will purchase the Notes, 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 LOTUS PHARMACEUTICALS, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
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(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 LOTUS
PHARMACEUTICALS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(j) Note
Legend.
The
Note shall bear the following legend:
"THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO LOTUS PHARMACEUTICALS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(k) Communication
of Offer.
The
offer to sell the Securities was directly communicated to the Subscriber by
the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(l) 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.
(m) 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, or unless an exemption
from
registration is available. Notwithstanding anything to the contrary contained
in
this Agreement, such Subscriber may transfer (without restriction and without
the need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an “accredited investor” under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an “Affiliate”
of
any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with
such
person or entity. Affiliate includes each subsidiary of the Company. For
purposes of this definition, “control”
means
the power to direct the management and policies of such person or firm, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
4
(n) 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.
(o) 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.
(p) Survival.
The
foregoing representations and warranties shall survive the Closing Date for
a
period of three years.
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 Note, the Warrants, Security Agreement, Guaranty, 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/or Subsidiaries
and are valid and binding agreements of the Company and Subsidiaries 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.
5
(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).
(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 Principal Market (as defined in Section 9(b) 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 the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
or
(ii) result
in
the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except
as described herein; 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 triggering 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.
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(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 upon conversion of the Notes and the Warrant Shares and upon exercise
of
the Warrants, the Shares and Warrant Shares will be duly and validly issued,
fully paid and nonassessable and if registered pursuant to the 1933 Act and
resold pursuant to an effective registration statement will be free trading
and
unrestricted);
(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) assuming
the representations warranties of the Subscribers as set forth in Section 4
hereof are true and correct, will not result in a violation of Section 5 under
the 1933 Act.
(h) Litigation.
There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or the performance by the Company
of
its obligations under the Transaction Documents. Except as disclosed in the
Reports or in the schedules hereto, 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 reporting obligations pursuant
to
Section 13 of the 1934
Act
and has
a class of common shares registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, the Company has timely filed all
reports and other materials required to be filed thereunder with the Commission
during the preceding twelve months.
(j) No
Market Manipulation.
The
Company 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 and Other Written Information contain all material information relating
to the Company and its operations and financial condition as of their respective
dates which information is required to be disclosed therein. Since the date
of
the financial statements included in the Reports, and except as modified in
the
Other Written Information 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 and Other Written Information do
not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein,
taken
as a whole, not misleading in light of the circumstances when made.
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(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. Except
as described on Schedule
5(q),
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) No
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the OTC Bulletin Board (“Bulletin
Board”)
which
would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder. Nor will the Company
or
any of its Affiliates take any action or steps that would cause the offer or
issuance of the Securities to be integrated with other offerings which would
impair the exemptions relied upon in this Offering or the Company’s ability to
timely comply with its obligations hereunder. The Company will not conduct
any
offering other than the transactions contemplated hereby that will be integrated
with the offer or issuance of the Securities, which would impair the exemptions
relied upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder.
(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 LTUS.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 December 31, 2005 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
December 31, 2005, 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.
8
(s) Capitalization.
The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and the Closing Date (not including the Securities) are set forth
on
Schedule
5(d).
Except
as set forth on Schedule
5(d),
there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company or any of its
Subsidiaries. All of the outstanding shares of Common Stock of the Company
have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(t) Dilution.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment
that
the issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Notes, and 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 disagreements during the two years prior to the 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) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(y) Solvency.
Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such amounts
are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).
9
(z) Subsidiary
Representations.
The
Company makes each of the representations contained in Sections 5(a), (b),
(d),
(f), (h), (k), (m), (q), (r), (s), (u), (w), (x) and (y) of this Agreement,
as
same relate to each Subsidiary of the Company.
(AA) Company
Predecessor.
All
representations made by or relating to the Company of a historical or
prospective nature and all undertaking described in Sections 9(g) through 9(l)
shall relate and refer to the Company, its predecessors, and the
Subsidiaries.
(BB) Correctness
of Representations.
The
Company represents that the foregoing representations and warranties are true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to the Closing Date, shall
be
true and correct in all material respects as of the Closing Date.
(CC) Survival.
The
foregoing representations and warranties shall survive the Closing Date for
a
period of three years.
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 the Closing Date, the Company will provide an opinion
reasonably acceptable to Subscriber from the Company's legal counsel opining
on
the availability of an exemption from registration under the 1933 Act as it
relates to the offer and issuance of the Securities and other matters reasonably
requested by Subscribers. A form of the legal opinion is annexed hereto as
Exhibit
F.
The
Company will provide, at the Company's expense, such other legal opinions in
the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes pursuant to an effective
registration statement, Rule 144 under the 1933 Act or an exemption from
registration.
7.1. Conversion
of Note.
(a) Upon
the
conversion of a Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue
stock
certificates in the name of Subscriber (or its permitted nominee) or such other
persons as designated by Subscriber and in such denominations to be specified
at
conversion representing the number of shares of Common Stock issuable upon
such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company's
Common Stock and that the certificates representing such shares shall contain
no
legend other than the usual 1933 Act restriction from transfer legend. If and
when the Subscriber sells the Shares, assuming (i) the Registration Statement
(as defined below) is effective and the prospectus, as supplemented or amended,
contained therein is current and (ii) the Subscriber or its agent confirms
in
writing to the transfer agent that the Subscriber has complied with the
prospectus delivery requirements, the restrictive legend can be removed and
the
Shares will be free-trading, and freely transferable. In the event that the
Shares are sold in a manner that complies with an exemption from registration,
the Company will promptly instruct its counsel to issue to the transfer agent
an
opinion permitting removal of the legend (indefinitely, if pursuant to Rule
144(k) of the 1933 Act, or for 90 days if pursuant to the other provisions
of
Rule 144 of the 1933 Act).
10
(b) Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, any sum due to the Subscriber under the Transaction Documents
including Liquidated Damages, or part thereof by telecopying an executed and
completed Notice of Conversion (a form of which is annexed as Exhibit
A
to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement. The Subscriber will not be
required to surrender the Note
until
the Note has been fully converted or satisfied. Each date on which a Notice
of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion
Date.
The
Company will itself or cause the Company’s transfer agent to transmit the
Company's Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt by
such
Subscriber within three (3) business days after receipt by the Company of the
Notice of Conversion (such fifth day being the "Delivery
Date").
In
the event the Shares are electronically transferable, then delivery of the
Shares must
be made
by electronic transfer provided request for such electronic transfer has been
made by the Subscriber
and the Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation,
the
prospectus delivery requirements. A Note representing the balance of the Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided the Subscriber delivers the
original Note to the Company. In the event that a Subscriber elects not to
surrender a Note for reissuance upon partial payment or conversion of a Note,
the Subscriber hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note. As employed in the Transaction Documents “business day”
and “trading day” is a day that the New York Stock Exchange is open for trading
for three or more hours.
(c) The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
described in Section 7.2 hereof, respectively after the Delivery Date or the
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty)
to
the Subscriber for late issuance of Shares in the form required pursuant to
Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
business day after the Delivery Date for each $10,000 of Note principal amount
being converted of the corresponding Shares which are not timely delivered.
The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Subscriber, in the event that the Company fails
for any reason to effect delivery of the Shares by the Delivery Date or make
payment by the Mandatory Redemption Payment Date, the Subscriber will be
entitled to revoke all or part of the relevant Notice of Conversion or rescind
all or part of the notice of Mandatory Redemption by delivery of a notice to
such effect to the Company whereupon the Company and the Subscriber shall each
be restored to their respective positions immediately prior to the delivery
of
such notice, except that the liquidated damages described above shall be payable
through the date notice of revocation or rescission is given to the
Company.
(d) The
Company agrees and acknowledges that despite the pendency of a not yet effective
Registration Statement which includes for registration the Registrable
Securities [as defined in Section 11.1(iv)], the Subscriber is permitted to
and
the Company will issue to the Subscriber Shares upon conversion of the Note
and
Warrant Shares upon exercise of the Warrants. Such Shares will, if required
by
law, bear the legends described in Section 4 above and if the requirements
of
Rule 144 under the 1933 Act are satisfied be resalable thereunder.
11
7.2. Mandatory
Redemption at Subscriber’s Election.
In the
event the Company is prohibited from issuing Shares, or fails to timely deliver
Shares on a Delivery Date, or upon the occurrence of any other Event of Default
(as defined in the Note or in this Agreement), each of which that is not cured
during any applicable cure period and an additional twenty (20) days thereafter,
then at the Subscriber's election, the Company must pay to the Subscriber ten
(10) business days after request by the Subscriber, at the Subscriber’s
election, a sum of money determined by (i) multiplying up to the outstanding
principal amount of the Note designated by the Subscriber by 120%, or (ii)
multiplying the number of Shares otherwise deliverable upon conversion of an
amount of Note principal and/or interest designated by the Subscriber (with
the
date of giving of such designation being a “Deemed
Conversion Date”)
at the
then Conversion Price that would be in effect on the Deemed Conversion Date
by
the highest closing price of the Common Stock on the principal market for the
period commencing on the Deemed Conversion Date until the day prior to the
receipt of the Mandatory Redemption Payment, whichever is greater, together
with
accrued but unpaid interest thereon and any other sums arising and outstanding
under the Transaction Documents ("Mandatory
Redemption Payment").
The
Mandatory Redemption Payment must be received by the Subscriber within ten
(10)
business days after request ("Mandatory
Redemption Payment Date").
Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
for
the twenty day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment calculated pursuant to subsections (i) and (ii) above of this Section
7.2. In the event of a “Change
in Control”
(as
defined below), the Subscriber may demand, and the Company shall pay, a
Mandatory Redemption Payment equal to 120% of the outstanding principal amount
of the Note designated by the Subscriber together with accrued but unpaid
interest thereon and any other sums arising and outstanding under the
Transaction Documents. For purposes of this Section 7.2, “Change
in Control”
shall
mean (i) the Company no longer having a class of shares publicly traded or
listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
entity or merging into or with another entity, (iii) if the holders of
restricted shares of the Company’s Common Stock as of immediately prior to the
Closing beneficially own at any time after the Closing Date less than
thirty-five percent of the Company’s Common stock, or (iv) the sale, lease,
license or transfer of substantially all the assets of the Company and its
Subsidiaries.
7.3. Maximum
Conversion.
The
Subscriber shall not be entitled to convert on a Conversion Date that amount
of
the Note in connection with that number of shares of Common Stock which would
be
in excess of the sum of (i) the number of shares of common stock beneficially
owned by the Subscriber and its Affiliates on a Conversion Date, and (ii) the
number of shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Subscriber
and its Affiliates of more than 4.99% of the outstanding shares of common stock
of the Company on such Conversion Date. For the purposes of the provision to
the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 4.99% and
aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber may
increase the permitted beneficial ownership amount up to 9.99% upon and
effective after 61 days prior written notice to the Company. The Subscriber
may
allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 4.99% amount described above and which
shall
be allocated to the excess above 4.99%.
7.4. Injunction
Posting of Bond.
In the
event a Subscriber shall elect to convert a Note or part thereof, the Company
may not refuse conversion or exercise based on any claim that such Subscriber
or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction from a court,
on notice, restraining and or enjoining conversion of all or part of such Note
shall have been sought and obtained by the Company or at the Company’s request
or with the Company’s assistance, and
the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the outstanding principal and interest of the Note, or
aggregate purchase price of the Shares which are sought to be subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor.
12
7.5. Buy-In.
In
addition to any other rights available to the Subscriber, if the Company fails
to deliver to the Subscriber such shares issuable upon conversion of a Note
by
the Delivery Date and if after seven (7) business days after the Delivery Date
the Subscriber or a broker on the Subscriber’s behalf, purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "Buy-In"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall
be
paid as liquidated damages and not as a penalty). For
example, if the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of note principal and/or interest, the Company shall
be
required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
7.6 Adjustments.
The
Conversion Price, Warrant exercise price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be equitably adjusted
and as otherwise described in this Agreement, the Notes and
Warrants.
7.7. Redemption.
The
Note shall not be redeemable or callable except as described in the Note. The
Warrants shall not be callable or redeemable.
8. Broker/Legal
Fees.
(a) Broker’s
Fee.
The
Company on the one hand, and each Subscriber (for himself only) on the other
hand, agree to indemnify the other against and hold the other harmless from
any
and all liabilities to any persons claiming brokerage commissions or finder’s
fees 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 or in connection with any investment in the Company at
any
time, whether or not such investment was consummated and arising out of such
party’s actions. The Company represents that there are no other parties entitled
to receive fees, commissions, or similar payments in connection with the
Offering except as described in Section 8(b) below.
(b) Due
Diligence Fee.
The
Company will pay a “Due
Diligence Fee”
of
$50,000 to the party designated on Schedule
8
hereto
(“Due
Diligence Fee Recipient”).
The
Due Diligence Fee will be payable out of funds held pursuant to the Escrow
Agreement.
(c) Subscriber’s
Legal Fees.
The
Company shall pay to Grushko & ▇▇▇▇▇▇▇, P.C., a fee of $25,000
(“Subscriber’s
Legal Fees”)
as
reimbursement for services rendered to the Subscribers in connection with this
Agreement and the purchase and sale of the Notes and Warrants (the “Offering”)
and
acting as Escrow Agent for the Offering. The Subscriber’s Legal Fees will be
payable out of funds held pursuant to the Escrow Agreement. Grushko &
▇▇▇▇▇▇▇, P.C. will be reimbursed at Closing for all UCC search and filing
fees.
13
(d) Retention
of Company Attorney.
As of
the Closing Date, the Company will have retained the law firm of ▇▇▇▇▇▇
Alliance, LLP (“Company
Counsel”)
to
provide the legal opinion referred to in Section 6 above and prepare, file
and
obtain the effectiveness of the Registration Statement and any amendments
thereto. The Company agrees not to engage any other attorney in connection
with
the Registration Statement nor the provision of any of the legal opinions
referred to in Section 6 above without the approval of the Subscribers, which
approval will not be unreasonably withheld. Company Counsel will be paid the
balance of any prior unpaid legal fees and costs, if any, in connection with
the
Registration Statement (“Company’s
Legal Fees”)
upon
the Closing Date directly from the funds held pursuant to the Escrow
Agreement.
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 Notes or Warrants are outstanding. The Company
will
maintain the listing of its Common Stock on the American Stock Exchange, Nasdaq
Capital Market, Nasdaq National Market System, Bulletin Board, Pink Sheets,
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 accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to Subscriber.
(d) Filing
Requirements.
From
the
date of this Agreement and until the later to occur of (i) two (2) years after
the Closing Date, (ii) until all the Shares have been resold or transferred
by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations or (iii) the Notes are no longer
outstanding (the date of occurrence of the first such event being the “End
Date”), the Company will (A) cause its Common Stock to continue to be registered
under Section 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) voluntarily comply
with all reporting requirements that are applicable to an issuer with a class
of
shares registered pursuant to Section 12(g) of the 1934 Act, if Company is
not
subject to such reporting requirements, 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 until the End Date. Until
the End Date, 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.
14
(e) Use
of
Proceeds.
The
proceeds of the Offering must 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. For so long as any Notes are outstanding, the Company will
not prepay any financing related debt obligations nor redeem any equity
instruments of the Company.
(f) Reservation.
Prior
to the Closing, the Company undertakes to reserve, pro rata,
on
behalf of each holder of a Note or Warrant, from its authorized but unissued
common stock, a number of common shares equal to 150%
of
the amount of Common Stock necessary to allow each holder of a Note to be able
to convert all such outstanding Notes and interest and reserve the amount of
Warrant Shares issuable upon exercise of the Warrants. Failure to have
sufficient shares reserved pursuant to this Section 9(f) at any time shall
be a
material default of the Company’s obligations under this Agreement and an Event
of Default under the Note.
(g) Taxes.
From
the date of this Agreement and until the End Date, 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 End Date, 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 less reasonable deductible amounts; 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 End Date, 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.
15
(j) Governmental
Authorities.
From the
date of this Agreement and until the End Date, 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 End Date, 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, unless
it
is sold for value.
(l) Properties.
From the
date of this Agreement and until the End Date, 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 End Date, the Company agrees that except
in
connection with a Form 8-K or the Registration Statement or as otherwise
required in any other Commission filing, it will not disclose publicly or
privately the identity of the Subscribers unless expressly agreed to in writing
by a Subscriber, only to the extent required by law and then only upon three
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 fourth business day after the Closing Date. In
the
Form 8-K or public announcement, the Company will specifically disclose the
amount of common stock outstanding immediately after the Closing. A form of
the
proposed Form 8-K or public announcement to be employed in connection with
the
Closing is annexed hereto as Exhibit
G.
(n) Non-Public
Information.
The
Company covenants and agrees that except for schedules and exhibits to this
Agreement which information thereon will be publicly disclosed within four
business days after the Closing Date, neither it nor any other person acting
on
its behalf will at any time provide any Subscriber or its agents or counsel
with
any information that the Company believes constitutes material non-public
information, unless prior thereto such Subscriber shall have agreed in writing
to receive such information. The Company understands and confirms that each
Subscriber shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
(o) Additional
Negative Covenants.
So long
as the Notes are outstanding, 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 (A)
the
Excepted Issuances, (B) (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”)
(C)
indebtedness for borrowed money which is not senior or pari passu in right
of
payment to the payment of the Notes;
16
(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 $40,000
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.
(p) 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, without the consent of the Subscribers, file with the
Commission or with state regulatory authorities 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 (except for Forms
S-8
registration statements relating to, in the aggregate, for each 365 days, not
more than $100,000 of shares of Common Stock valued on the date of issue at
not
less than the highest Conversion Price in effect on such date pursuant to
Section 2.1(b) of the Note), until the expiration of the “Exclusion
Period”,
which
shall be defined as the sooner of (i) the Registration Statement having been
current and available for use in connection with the resale of all of the
Registrable Securities (as defined in Section 11.1(i) for a period of 365 days,
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 defined in the Note.
(q) 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 of twenty (20)
or
more days in the aggregate.
17
(r) Offering
Restrictions.
Until
the expiration of the Exclusion Period and during the pendency of an Event
of
Default, except for 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. For so long
as
the Notes are outstanding, except for the Excepted Issuances, the Company will
not enter into any equity line of credit or similar agreement, nor issue nor
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 is described on Schedule
5(d).
No
other plan will be adopted nor may any options or equity not included in such
plan be issued for so long as any sum is outstanding under the
Note.
(s) Limited
Standstill.
The
Company will deliver to the Subscribers on or before the Closing Date and
enforce the provisions of irrevocable lockup agreements (“Lockup
Agreements”)
in the
forms annexed hereto as Exhibit
H,
with
the parties identified on Schedule
9.1(s).
(t) Board
Representation or Attendance by Observer.
The
Company agrees that until such time as the Notes shall have been fully paid
or
converted that the Due Diligence Fee Recipient shall have the right,
but
not
the obligation,
from
time to time to designate in writing a nominee to serve as a member of the
Board
of Directors of the Company. The Company will expeditiously secure the
appointment of such designee as
Director of the Company not later than the Closing Date. During such time as
the
Due Diligence Fee Recipient has not exercised such rights, the Due Diligence
Fee
Recipient shall have the right to designate an observer, who shall be entitled
to attend and participate (but not vote) in all meetings of the Board of
Directors of the Company and to receive all notices, reports, information,
correspondence and communications sent by the Company to members of the Board
of
Directors. From and after the occurrence of an Event of Default that is not
cured during any applicable cure period, the Due Diligence Fee Recipient shall
be entitled to appoint a majority of the board of directors of the Company
to
serve during the pendency of such Event of Default. All reasonable costs and
expenses incurred in connection therewith by any such designated Director or
observer, or by the Lead Investor on behalf of such Director or observer, shall
be reimbursed by the Company to the extent that the Company reimburses such
expenses incurred by any directors of the Company. It
is
provided and agreed that the actions and advice of any person while serving
pursuant to this section as a Director or an observer at meetings of the Board
of Directors shall be construed to be the actions and advice of that person
alone and not be construed as actions of any Subscriber as to any notice,
requirements or rights of any Subscriber under the Transaction Documents, nor
as
the action of any Subscriber to approve modifications, consents, amendments
or
waivers thereof; and all such actions or notices shall be deemed actions or
notices to the Subscribers only when duly provided in writing and given in
accordance with the provisions of the Transaction Documents.
The
relationship between the Company and the Subscribers is, and shall at all times
remain, solely that of the Company with a purchaser of its securities. The
Subscribers neither undertake nor assume any responsibility or duty to the
Company to review, inspect, supervise, pass judgment upon, or inform the Company
of any matter in connection with any phase of the Company’s business,
operations, or condition, financial or otherwise. The Company shall rely
entirely upon its own judgment with respect to such matters, and any review,
inspection, supervision, exercise of judgment, or information supplied to the
Company by the Subscribers, or any representative or agent of the Subscribers,
in connection with any such matter is for the protection of the Subscribers,
and
neither the Company nor any third party is entitled to rely thereon. It shall
be
deemed a default of a material obligation under the Notes if Company does not
comply with the requirements of this section.
18
10. Covenants
of the Company and Subscriber Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation
by
Company or breach of any warranty by Company in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into by
the
Company and Subscriber relating hereto.
(b) Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, Affiliates, control
persons against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the
Company or any such person which results, arises out of or is based upon (i)
any
material misrepresentation by such Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by such Subscriber of any covenant or undertaking to
be
performed by such Subscriber hereunder, or any other agreement entered into
by
the Company and 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 fifty-one (151) days after
the
Closing Date, but not later than two (2) years after the Closing Date, upon
a
written request therefor from any record holder or holders of more than 50%
of
the Shares issued and issuable upon conversion of the outstanding Notes and
outstanding Warrant Shares, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the
Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall
not
include Securities which are (A) 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).
19
(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 five
(5)
days' prior written notice to the record holder of the Registrable Securities
of
its intention so to do. Upon the written request of the holder, received by
the
Company within ten (10) days after the giving of any such notice by the Company,
to register any of the Registrable Securities not previously registered, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by
the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the “Seller”
or
“Sellers”).
In
the event that any registration pursuant to this Section 11.1(ii) shall be,
in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.
(iii) If,
at
the time any written request for registration is received by the Company
pursuant to Section 11.1(i), the Company has determined to proceed with the
actual preparation and filing of a registration statement under the 1933 Act
in
connection with the proposed offer and sale for cash of any of its securities
for the Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of
the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv) The
Company shall file with the Commission 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 forty-five
(45)
calendar days after the Closing 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 Closing Date
(the
“Effective
Date”).
The
Company will register not less than a number of shares of common stock in the
aforedescribed registration statement that is equal to 100%
of
the Shares issued and issuable upon conversion of all of the Notes (collectively
the “Registrable
Securities”).
The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, pro rata,
and not
issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder. 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 Subscriber, no securities
of
the Company other than the Registrable Securities will be included in the
Registration Statement. 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 amount of Common Shares issuable upon full conversion of all sums due under
the Notes. Except for securities described on Schedule
11.1,
no
other securities of the Company will be included in the Registration Statement
other than the Registrable Securities.
20
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 11.1(i) or
11.1(ii) 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 the first business day thereafter that 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 an Event of Default as defined
in the Notes
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 or make them electronically available;
(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 Registrable
Securities;
21
(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; and
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto
five
business days prior to the filing thereof with the Commission.
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) due to the action or inaction
of
the Company the Registration Statement is not declared effective within three
(3) 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 without being succeeded within fifteen
(15) business days by an effective replacement or amended registration statement
or for a period of time which shall exceed thirty (30) days in the aggregate
per
year (defined as every rolling period of 365 consecutive days commencing on
the
Actual Effective Date (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 the first day of such Non-Registration
Event and two percent (2%) for each thirty (30) days (or such lesser pro-rata
amount for any period of less than thirty (30) days) of the Purchase Price
of
the outstanding Notes. 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 and Liquidated
Damages will be calculated accordingly. All
oral
or written comments received from the Commission relating to the Registration
Statement must be satisfactorily responded to within
twenty (20) 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 and amounts set forth above calculated
from the date the response was required to have been made. 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.
The foregoing notwithstanding, in the event Liquidated Damages would accrue
under this Section 11.4 exclusively and as a direct result of the Company’s
withdrawal from a timely filed Registration Statement of up to one-half of
the
Registrable Securities as a result of or pursuant to the application by the
Commission of Rule 415 under the 1933 Act, then the Liquidated Damages on such
withdrawn Registrable Securities (“Withdrawn
Registrable Securities”)
shall
accrue at one-half of the rate set forth above and such Non-Registration Event
in relation to such Withdrawn Registrable Securities shall not be an Event
of
Default under the Note (“Rule
415 Waiver”).
Nevertheless, the registration of the Withdrawn Registrable Securities shall
take precedence over the registration of any other securities of the Company
including the Common Stock described on Schedule
11.1.
The
Company must use its best efforts to obtain the registration of the Withdrawn
Registrable Securities as soon as permitted by the Commission. Failure to do
so
shall be a Non-Registration Event for which Liquidated Damages will accrue
at
the higher rate set forth above.
22
11.5. Expenses.
All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses (if
required), 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, and fees
of transfer agents and registrars, are called “Registration
Expenses.”
All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities 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.
23
(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.
24
(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 or any other Common Stock held by a Subscriber 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(i)
above
(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 Shares certificate, 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.
(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 two business days after 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.
25
(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 or a broker on the Subscriber’s behalf, 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 Warrant Shares upon exercise of Warrants and the Company is
required to deliver such Unlegended Shares pursuant to Section 11.7 or the
Warrant Shares pursuant to the Warrants, 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 by the Company or at the Company’s request or with the
Company’s assistance,
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
the expiration of the Exclusion period, 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 equity linked 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 greater of the Conversion Price
or
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 Notes which are
granted or issued pursuant to this Agreement (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 Notes 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.
26
(b) Favored
Nations Provision.
Other
than in connection with the Excepted Issuances, if at any time the Notes or
Warrants are outstanding, the Company shall offer, issue or agree to issue
any
common stock or securities convertible into or exercisable for shares of common
stock (or modify any of the foregoing which may be outstanding) to any person
or
entity at a price per share or conversion or exercise price per share which
shall be less than the Conversion 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, 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 Conversion
Price and Warrant exercise price shall automatically be reduced to such other
lower price. 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 foregoing calculation and issuance shall be made
separately for Shares received upon conversion of the Notes and separately
for
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-à-vis such additional common shares shall be,
respectively, the thirtieth (30th)
and
sixtieth (60th)
date
after the closing date giving rise to the requirement to issue the additional
shares of Common Stock. For purposes of the issuance and adjustment described
in
this paragraph, the issuance of any security of the Company carrying the right
to convert such security into shares of Common Stock or of any warrant, right
or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the sooner of the agreement to or actual issuance
of
such convertible security, warrant, right or option and again at any time upon
any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price 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, the Note, any
Transaction Document, and any other agreement referred to or entered into in
connection herewith. The Subscriber is also given the right to elect to
substitute any term or terms of any other offering in connection with which
the
Subscriber has rights as described in Section 12(a), for any term or terms
of
the Offering in connection with Securities owned by Subscriber as of the date
the notice described in Section 12(a) is required to be given to
Subscriber.
(c) Maximum
Exercise of Rights.
In the
event the exercise of the rights described in Sections 12(a) or 12(b)
would
or
could 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 7.3 of this Agreement, 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 applicable maximum
amount set forth calculated in the manner described in Section 7.3 of this
Agreement. The determination of when such common stock may be issued shall
be
made by each Subscriber as to only such Subscriber.
27
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: Lotus Pharmaceuticals,
Inc.,
Boca Corporate Plaza, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn:
▇▇. ▇▇▇▇▇▇▇ ▇▇▇,
CEO,
telecopier: (▇▇▇) ▇▇▇-▇▇▇▇, with a copy by telecopier only to: ▇▇▇▇▇▇ Alliance,
LLP, ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇, and (ii)
if to the Subscriber, 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: (▇▇▇) ▇▇▇-▇▇▇▇.
(b) Entire
Agreement; Assignment.
This
Agreement and other documents delivered in connection herewith represent the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No right
or obligation of the Company shall be assigned without prior notice to and
the
written consent of the Subscribers.
(c) Counterparts/Execution.
This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d) Law
Governing this Agreement.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to 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
civil or state courts of New York or in the federal courts located in New York
County. 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.
28
(e) Specific
Enforcement, Consent to Jurisdiction.
To the
extent permitted by law, 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(d) hereof, each
of
the Company, Subscriber and any signator hereto in his personal capacity hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction in New York of
such
court, that the suit, action or proceeding is brought in an inconvenient forum
or that the venue of the suit, action or proceeding is improper. Nothing in
this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
(f) Independent
Nature of Subscribers.
The
Company acknowledges that the obligations of each Subscriber under the
Transaction Documents are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The
Company acknowledges that 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.
29
(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 80% of the total of the Shares issued and
issuable upon conversion of outstanding Notes owned by Subscribers on the date
consent is requested.
(h) Equal
Treatment.
No
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of the Transaction Documents unless
the
same consideration is also offered and paid to all the Subscribers and their
permitted successors and assigns.
(i) Maximum
Payments. Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed by
the
Company to the Subscriber and thus refunded to the Company.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
30
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (A)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
a
Nevada corporation
|
||
| |
|
|
| By: | ||
|
Name: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇ |
||
| Title: CEO | ||
| Dated: February __, 2007 | ||
|
SUBSCRIBER
|
PURCHASE
PRICE AND NOTE PRINCIPAL
|
CLASS
A WARRANTS
|
|
___________________________________________
(Signature)
By:
|
$
|
31
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (B)
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.
|
a
Nevada corporation
|
||
| |
|
|
| By: | ||
|
Name: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇ |
||
| Title: CEO | ||
| Dated: February __, 2007 | ||
|
SUBSCRIBER
|
PURCHASE
PRICE AND NOTE PRINCIPAL
|
CLASS
A WARRANTS
|
|
___________________________________________
(Signature)
By:
|
$
|
32
LIST
OF EXHIBITS AND SCHEDULES
| Exhibit A | Form of Class A Warrant | |
| Exhibit B | Escrow Agreement | |
| Exhibit C | Security Agreement | |
| Exhibit D | Guaranty | |
| Exhibit E | Collateral Agent Agreement | |
| Exhibit F | Form of Legal Opinion | |
| Exhibit G | Form 8-K or Public Announcement | |
| Exhibit H | Form of Lockup Agreement | |
| Schedule 5(a) | Subsidiaries | |
| Schedule 5(d) | Additional Issuances / Capitalization | |
| Schedule 5(q) | Undisclosed Liabilities | |
| Schedule 5(v) | Transfer Agent | |
| Schedule 8 | Lead Investor Fee | |
| Schedule 9(e) | Use of Proceeds | |
| Schedule 9(s) | Lockup Agreement Providers | |
| Schedule 11.1 | Other Registrable Securities | |
| Schedule 12(a) | Excepted Issuances | |
33
EXHIBIT
H
LOCKUP
AGREEMENT
This
LOCKUP AGREEMENT (the "Agreement") is made as of the ____ day of February,
2007,
by the signators hereto (each a "Holder"), in connection with his ownership
of
shares of Lotus Pharmaceuticals, Inc., 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 beneficial owner of the amount of shares of the Common Stock, $.001 par
value, of the Company (“Common Stock”) designated on the signature page
hereto.
▇. ▇▇▇▇▇▇
acknowledges that the Company has entered into or will enter into at or about
the date hereof agreements with subscribers to the Company’s Notes, some of
which are convertible into Common Stock (“Notes”) and Warrants (the
“Subscribers”). Holder understands that, as a condition to proceeding with the
Offering, the Subscribers have required, and the Company has agreed to obtain
on
behalf of the Subscribers an agreement from the Holder to refrain from selling
any securities of the Company from the date of the Subscription Agreement until
the end of the Exclusion Period as defined in the Subscription Agreement (the
"Restriction Period"), except as described below.
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,
other
than in connection with an offer made to all shareholders of the Company in
connection with 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. The Company agrees not to allow to occur any transaction
inconsistent with this Agreement.
b. Any
subsequent issuance to and/or acquisition by Holder of Common Stock or options
or instruments convertible into Common Stock will be subject to the provisions
of this Agreement.
c. Notwithstanding
the foregoing restriction on transfer, the Holder may sell annually during
the
Restriction Period up to five percent (5%) of the amount of shares of Common
Stock actually owned by the Holder on the Closing Date (as defined in the
Subscription Agreement). However, an amount not greater than one percent (1%)
of
the outstanding Common Stock of the Company actually owned by the Holder on
the
Closing Date may be sold during any single calendar month.
d.
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.
34
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. The
restrictions on transfer described in this Agreement are in addition to and
cumulative with any other restrictions on transfer otherwise agreed to by the
Holder or to which the Holder is subject to by applicable law.
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.
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
Beneficially
Owned
|
|
| COMPANY: | |
| LOTUS PHARMACEUTICALS, INC. | |
| By:______________________________ |
35
SCHEDULE
8
DUE
DILIGENCE FEE
The
Recipient of the Due Diligence Fee is:
The
▇▇▇▇▇▇▇▇▇ Financial Group, Inc.
▇▇▇
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
36