Exhibit 10.1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of June 6, 2004,
by and among Telecom Communications, Inc., an Indiana corporation (the
"Company"), and the subscribers identified on the signature page hereto (each a
"Subscriber" and collectively the "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
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"); and
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 One Million Dollars $1,000,000 (the "Purchase Price") of principal
amount of 6% promissory notes of the Company ("Note" or "Notes") convertible
into shares of the Company's common stock, $.001 par value (the "Common Stock")
at a per share conversion price equal to $0.20 as defined in Section 7.1(b) of
this Agreement ("Conversion Price"). Five Hundred Thousand Dollars ($500,000) of
the Purchase Price shall be payable on the Initial Closing Date, as defined in
Section 1 hereof ("Initial Closing Purchase Price"). Five Hundred Thousand
Dollars ($500,000) of the Purchase Price shall be payable within three (3)
business days after the actual effectiveness ("Actual Effective Date") of the
Registration Statement as defined in Section 10 (iv) of this Agreement ("Second
Closing Purchase Price"). The Notes and the shares of Common Stock issuable upon
conversion of the Notes (the "Shares") shall be referred to as the "Securities."
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree to be legally bound as follows:
1. Initial Closing. Subject to the satisfaction or waiver of the terms
and conditions of this Agreement, on the Initial 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 ("Initial Closing
Notes"). The aggregate amount of the Notes to be purchased by the Subscribers on
the Initial Closing Date shall, in the aggregate, be equal to the Initial
Closing Purchase Price. The Initial Closing Date shall be the date that
subscriber funds representing the net amount due the Company from the Initial
Closing Purchase Price of the Offering is transmitted by wire transfer or
otherwise, with the prior consent of the Company, to or for the benefit of the
Company.
2. Second Closing.
(a) Second Closing. The closing date in relation to the Second
Closing Purchase Price shall be the fifth (5th) business day after the Actual
Effective Date (the "Second Closing Date"). Subject to the satisfaction or
waiver of the terms and conditions of this Agreement on the Second 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 ("Second
Closing Notes"). The aggregate Purchase Price of the Second Closing Notes for
all Subscribers shall be equal to the Second Closing Purchase Price. The Second
Closing Note shall be identical to the Note issuable on the Initial Closing Date
except that the maturity date of such Notes shall be six (6) months after the
Second Closing Date. The Conversion Price shall be equitably adjusted in
accordance with Section 3.6 of the Note, to offset the effect of stock splits,
stock dividends, pro rata distributions of property or equity interests to the
Company's shareholders after the Initial Closing Date.
(b) Conditions to Second Closing. The occurrence of the Second
Closing is expressly contingent on (i) the truth and accuracy, on the Effective
Date, Actual Effective Date and the Second Closing Date of the representations
and warranties of the Company and Subscriber contained in this Agreement, (ii)
continued compliance with the covenants of the Company set forth in this
Agreement, (iii) the non-occurrence of any Event of Default (as defined in the
Note) or other default by the Company of its obligations and undertakings
contained in this Agreement, and (iv) the delivery on the Second Closing Date of
(i) the Second Closing Purchase Price by the Subscribers and (ii) Second Closing
Notes for which the Company Shares issuable upon conversion have been included
in the Registration Statement, which must be effective as of the Second Closing
Date.
(c) Second Closing Deliveries. On or before the Second Closing
Date, the Company will deliver the Second Closing Notes to Subscriber and each
Subscriber will deliver his portion of the Second Closing Purchase Price to the
Subscriber. On the Second Closing Date, the Company will deliver a certificate
("Second Closing Certificate") signed by its chief operating officer or chief
financial officer (i) representing the truth and accuracy of all the
representations and warranties made by the Company contained in this Agreement,
as of the Initial Closing Date, the Actual Effective Date, and the Second
Closing Date, as if such representations and warranties were made and given on
all such dates, (ii) adopting the covenants and conditions set forth in Sections
9, 10, 11, and 12 of this Agreement in relation to the Second Closing Notes,
(iii) representing the timely compliance by the Company with the Company's
registration obligations set forth in Section 11 of this Agreement, and (iv)
certifying that an Event of Default has not occurred. A legal opinion nearly
substantially in the form of the legal opinion referred to in Section 6 of this
Agreement shall be delivered to the Subscriber at the Second Closing in relation
to the Company and Second Closing Notes ("Second Closing Legal Opinion"). The
Second Closing Legal Opinion must also state that all of the Registrable
Securities have been included for registration in an effective registration
statement effective as of the Actual Effective Date and Second Closing Date.
(d) Second Closing Limitation. A Second Closing may not take place
in connection with that amount of Second Closing Notes which would be in excess
of the sum of (y) the number of shares of Common Stock beneficially owned by a
Subscriber on the Second Closing Date, and (z) the number of Company Shares
issuable upon the conversion of the Second Closing Note with respect to which
the determination of this proviso is being made on a Second Closing Date, which
would result in beneficial ownership by the Subscriber of more than 4.99% of the
outstanding shares of Common Stock of the Company on the Second Closing Date.
For the purposes of the proviso to the immediately preceding sentence,
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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.
3. Reserved.
4. Subscriber's Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company as to such Subscriber
that:
(a) Information on Company. The Subscriber has been furnished with
or has obtained from the ▇▇▇▇▇ Website of the Securities and Exchange Commission
(the "Commission") the Company's Form 10-K for the year ended September 30, 2003
as filed with the Commission, together with all subsequently filed Forms 10-Q,
8-K, and filings made with the Commission available at the ▇▇▇▇▇ website
(hereinafter referred to collectively as the "Reports"). In addition, the
Subscriber has received in writing from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested in writing (such other information is collectively, the
"Other Written Information"), and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities.
(b) Information on Subscriber. The Subscriber is, and will be at
the time of the conversion of the Notes, an "accredited investor", as such term
is defined in Regulation D promulgated by the Commission under the Securities
Act of 1933, as amended (the "1933 Act"), is experienced in investments and
business matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof. The information set forth on the
signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Notes. On each of the Initial Closing Date and the
Second Closing Date, respectively, the Subscriber will purchase the Notes as
principal for its own account and not with a view to any distribution thereof.
(d) Compliance with Securities Act. The Subscriber understands and
agrees that the Securities have not been registered under the 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 no event shall the Subscriber enter
into hedging transactions with third parties, including, but not limited to,
engaging in short sales of the Securities or entering into short positions.
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(e) Shares Legend. The 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 TELECOM COMMUNICATIONS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) 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 TELECOM
COMMUNICATIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) 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.
(h) 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.
(i) Correctness of Representations. Each Subscriber represents as
to such Subscriber that the foregoing representations and warranties are true
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and correct as of the date hereof and will be true and correct as of each
closing date and unless a Subscriber otherwise notifies the Company prior to any
closing date, shall be true and correct as of such closing dates. The foregoing
representations and warranties shall survive the Second Closing Date for a
period of three (3) years.
5. Company Representations and Warranties. The Company represents and
warrants to each of the Buyers that all of the representations and warranties of
the Company set forth below are true and correct except as specifically set
forth in the disclosure schedule attached hereto (the "Disclosure Schedule").
The Disclosure Schedule shall be arranged in paragraphs corresponding to the
lettered paragraphs contained in this Section. The disclosure in any paragraph
of the Disclosure Schedule shall be deemed to be disclosed and incorporated in
any other paragraph of the Disclosure Schedule when such disclosure would be
appropriate and the relevance of such disclosure is reasonably clear from the
context and content of the disclosure.
(a) Due Incorporation. The Company [and each of its subsidiaries]
is an entity duly organized, validly existing and in good standing under the
laws of the respective jurisdictions of their organization, and have the
requisite corporate power to own their properties and to carry on their business
as now being conducted. [The Company and each of its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction where the nature of the business conducted or property owned
by it makes such qualification necessary, other than those jurisdictions in
which the failure to so qualify would not have a material adverse effect on the
business, operations or financial condition of the Company.]
(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the Notes and any
other agreements delivered together with this Agreement or in connection
herewith have been duly authorized, executed and delivered by the Company and
are valid and binding agreements enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and the Company
has full corporate power and authority necessary to enter into this Agreement,
the Notes and such other agreements delivered together with this Agreement or in
connection herewith and to perform its obligations hereunder and under all other
agreements entered into by the Company relating hereto.
(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), or the Reports.
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(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its affiliates, the American Stock Exchange, the National
Association of Securities Dealers, Inc., Nasdaq, SmallCap Market, the OTC
Bulletin Board ("Bulletin Board") nor the Company's Shareholders is required for
the execution and compliance by the Company of its obligations under this
Agreement, and all other agreements entered into or to be entered into by the
Company relating hereto, including, without limitation, the issuance and sale of
the Securities, and the performance of the Company's obligations hereunder and
under all such other agreements.
(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 hereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles of incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any of its
affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its affiliates or subsidiaries is a party, by which the Company or any of its
affiliates or subsidiaries is bound, or to which any of the properties of the
Company or any of its affiliates or subsidiaries is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its affiliates or subsidiaries is a party except
the violation, conflict, breach, or default of which would not have a material
adverse effect on the Company; or
(ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company, its
subsidiaries or any of its affiliates.
(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 conversion of the Notes, the Shares respectively, will be duly and
validly issued, fully paid and nonassessable (and if registered pursuant to the
1933 Act, and resold pursuant to an effective registration statement will be
free trading and unrestricted, provided that each Subscriber complies with the
prospectus delivery requirements of the ▇▇▇▇ ▇▇▇);
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(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
(v) will not result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any other
debtor or equity holder of the Company.
(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 this Agreement, and
all other agreements entered into by the Company relating hereto. Except as
disclosed in the Reports, there is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates which litigation if adversely determined could have a
material adverse effect on the Company.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (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 except as set forth ON SCHEDULE 5(i) hereto.
(j) No Market Manipulation. The Company has not taken, and will
not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued or
resold.
(k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included in the
Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
(l) Stop Transfer. The Securities, when issued, will be restricted
securities. The Company will not issue any stop transfer order or other order
impeding the sale, resale or delivery of any of the Securities, except as may be
required by any applicable federal or state securities laws and unless
contemporaneous notice of such instruction is given to the Subscriber.
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(m) Defaults. The Company and each of its subsidiaries are not in
violation of its Articles of Incorporation or ByLaws. The Company and each of
its subsidiaries are (i) not in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of
its properties are bound or affected, which default or violation would have a
material adverse effect on the Company or a subsidiary of the Company, (ii) not
in default with respect to any order of any court, arbitrator or governmental
body or subject to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or other law
respecting antitrust, monopoly, restraint of trade, unfair competition or
similar matters, or (iii) to its knowledge in violation of any statute, rule or
regulation of any governmental authority which violation would have a material
adverse effect on the Company or a subsidiary of the Company.
(n) No Integrated Offering. Neither the Company, nor any of its
subsidiaries or 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 and/or
sale of the Securities pursuant to this Agreement to be integrated with prior
offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the Bulletin Board. Nor will the Company or any of its
affiliates or subsidiaries take any action or steps that would cause the offer
and/or sale of the Securities to be integrated with other offerings. The Company
will not conduct any offering other than the transactions contemplated hereby
that will be integrated with the offer or issuance of the Securities.
(o) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale
of the Securities.
(p) Listing. The Company's common stock is quoted on the Bulletin
Board. The Company has not received any oral or written notice that its common
stock will be delisted from the Bulletin Board nor that its common stock does
not meet all requirements for the continuation of such quotation and the Company
satisfies the requirements for the continued listing of its common stock on the
Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are not
disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since September 30,
2003 and which, individually or in the aggregate, would reasonably be expected
to have a material adverse effect on the Company's financial condition, other
than as set forth in SCHEDULE 5(q).
(r) No Undisclosed Events or Circumstances. Since September 30,
2003, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
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(s) Capitalization. The authorized and outstanding capital stock
of the Company as of the date of this Agreement and the Closing Date are set
forth on SCHEDULE 5(s). Except as set forth in the Reports and Other Written
Information and SCHEDULE 5(d), there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company. All of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable.
(t) Dilution. The Company's executive officers and directors have
studied and fully understand the nature of the Securities being sold hereby and
recognize that they 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 such issuance is in the best interests of the Company.
The Company specifically acknowledges that its obligation to issue the Shares
upon conversion of the Note is binding upon the Company and enforceable, except
as otherwise described in this Subscription Agreement or the Note, 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 accountants and lawyers formerly or presently
employed by the Company, including but not limited to disputes or conflicts over
payment owed to such accountants and lawyers.
(v) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the ▇▇▇▇ ▇▇▇) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(w) Correctness of Representations. The Company represents that
the foregoing representations and warranties are true and correct as of the date
hereof and will be true and correct as of each closing date, and unless the
Company otherwise notifies the Subscribers prior to any closing date, shall be
true and correct as of such closing dates. The foregoing representations and
warranties shall survive the Second Closing Date for a period of three (3)
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 each closing
date, the Company will provide an opinion reasonably acceptable to Subscriber
from the Company's legal counsel opining on the availability of an exemption
from registration under the 1933 Act as it relates to the offer and issuance of
the Securities. A form of the legal opinion is annexed hereto as EXHIBIT A. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the conversion of the Notes and resale of
the Shares.
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6.1 Conversion of Note.
(a) Upon the conversion of the 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
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, unless waived by the
Subscriber, the Shares will be free-trading, and freely transferable, and will
not contain a legend restricting the resale or transferability of the Shares
provided the Shares are being sold pursuant to an effective registration
statement covering the Shares or are otherwise exempt from registration.
(b) Subscriber will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying an executed and
completed Notice of Conversion 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 (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. 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 an original Note to
the Company. To the extent that a Subscriber elects not to surrender a Note for
reissuance upon partial payment or conversion, 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.
(c) The Company understands that a delay in the delivery of the
Shares in the form required pursuant to Section 7 hereof, or the Mandatory
Redemption Amount described in Section 7.2 hereof, beyond the Delivery Date or
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 to the Subscriber for late issuance of Shares in
the form required pursuant to Section 7 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 late payment charges described above shall
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be payable through the date notice of revocation or rescission is given to the
Company.
(d) 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.
6.2 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) or for any reason other than pursuant
to the limitations set forth in Section 6.3 hereof, then at the Subscriber's
election, the Company must pay to the Subscriber ten (10) business days after
request by the Subscriber or on the Delivery Date (if requested 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 130%, 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 average 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
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("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.
6.3 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 conversion by the Subscriber may exceed 4.99%. The
Subscriber may void the conversion limitation described in this Section 6.3 upon
and effective after (sixty-one) 61 days prior written notice to the Company.
6.4 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
11
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 said Note shall have been sought and
obtained and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 130% of the amount of the Note, which are 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.
6.5 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 ten (10) days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving
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 8% 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. The delivery date by which
Common Stock must be delivered pursuant to this Section 7.5 shall be tolled for
the amount of days that the Subscriber does not deliver information reasonably
requested by the Company's transfer agent.
6.6 Adjustments. The Conversion Price and amount of Shares issuable
upon conversion of the Notes shall be appropriately adjusted by the Board of
Directors of the Company to offset the effect of stock splits, stock dividends,
pro rata distributions of property or equity interests to the Company's
shareholders and similar events.
6.7 Redemption. The Company may not redeem or call the Note without the
consent of the holder of the Note.
7. Fees [RESERVED]
8. Covenants of the Company. The Company covenants and agrees with the
Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers, promptly
after it receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.
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(b) Listing. The Company shall promptly secure the listing of the
Shares upon each national securities exchange, or quotation system, if any, upon
which shares of common stock are then listed (subject to official notice of
issuance) and shall maintain such listing so long as any Securities are
outstanding. The Company will maintain the listing of its Common Stock on the
American Stock Exchange, Nasdaq SmallCap Market, Nasdaq National Market System,
OTC Bulletin Board, the "Bulletin Board", or New York Stock Exchange (whichever
of the foregoing is at the time the principal trading exchange or market for the
Common Stock [the "Principal Market"]), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market, as applicable. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market. As of the date
of this Agreement and the Initial 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) Reporting Requirements. From the date of this Agreement and
until at least two (2) years after the Actual Effective Date, the Company will
(i) comply in all respects with its reporting and filing obligations under the
1934 Act, (ii) comply with all reporting requirements that are applicable to an
issuer required to file reports pursuant to Section 13 and Section 15(d) of the
1934 Act, and (iii) 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 later of two (2) years after the Actual
Effective Date. Until the earlier of the resale of the Shares by each
Subscriber, the Company will use its best efforts to continue the listing or
quotation of the Common Stock on 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. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Subscriber promptly after such filing.
(e) Use of Proceeds. The Company undertakes to use the proceeds of
the Subscribers' funds for the purposes set forth on SCHEDULE 9(E) hereto. A
deviation from the use of proceeds set forth on SCHEDULE 9(E) of more than 15%
per item or more than 25% in the aggregate shall be deemed a material breach of
the Company's obligations hereunder. Except as set forth on SCHEDULE 9(E), the
Purchase Price may not and will not be used for accrued and unpaid officer and
director salaries, payment of financing related debt, redemption of outstanding
redeemable notes or equity instruments of the Company nor non-trade obligations
outstanding on the Initial Closing Date.
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(f) Reservation. The Company undertakes to reserve, pro rata on
behalf of each holder of a Note, from its authorized but unissued common stock,
at all times that Notes remain outstanding, a number of common shares equal to
not less than 125% of the amount of common shares necessary to allow each such
holder at all times to be able to convert all such outstanding Notes,. Failure
to have sufficient shares reserved pursuant to this Section 9(f) upon notice of
such failure for three (3) consecutive business days or ten (10) days in the
aggregate during any 365 day period shall be an Event of Default under the Note.
(g) Taxes. From the date of this Agreement until two (2) years
after the Closing Date (or Second Closing Date if the Second Closing Notes are
issued), 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) Books and Records. From the date of this Agreement until two
(2) years after the Closing Date (or Second Closing Date if the Second Closing
Notes are issued), 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.
(i) Governmental Authorities. From the date of this Agreement
until two (2) years after the Closing Date (or Second Closing Date if the Second
Closing Notes are issued), 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.
(j) Intellectual Property. From the date of this Agreement until
two (2) years after the Closing Date (or Second Closing Date if the Second
Closing Notes are issued), 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.
(k) Properties. From the date of this Agreement until two (2)
years after the Closing Date (or Second Closing Date if the Second Closing Notes
are issued), 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
needful 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.
(l) Confidentiality. From the date of this Agreement until two (2)
years after the Closing Date (or Second Closing Date if the Second Closing Notes
14
are issued), the Company agrees that it will not disclose publicly or privately
the identity of the Subscribers unless expressly agreed to in writing by a
Subscriber or only to the extent required by law or to its agents and
representatives.
9. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company and each of the Company's officers, directors, agents,
affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribes relating hereto.
(c) In no event shall the liability of any Subscriber or permitted
successor hereunder or under any other agreement delivered in connection
herewith be greater in amount than the dollar amount of the proceeds received by
such Subscriber upon the sale of Registrable Securities (as defined herein)
giving rise to such indemnification obligation.
(d) The procedures set forth in Section 12.3 shall apply to the
indemnifications set forth in Sections 9(a) and 9(b) above.
10. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing ninety-one (91) days
after the Initial Closing Date, but not later than two (2) years after the
Second Closing Date ("Request Date"), the Company, 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 Initial Closing Notes and the Second Closing
Notes, shall prepare and file with the Commission a registration statement under
the 1933 Act covering the Shares, (collectively "Registrable Securities") which
are the subject of such request. For purposes of Sections 10(i) and 10(ii),
Registrable Securities shall not include Securities which are registered for
15
resale in an effective registration statement or included for registration in a
pending registration statement, or which have been issued without further
transfer restrictions after a sale or transfer pursuant to Rule 144 under the
1933 Act. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within 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 10(i).
(ii) If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S 4, S 8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller"). In the event that any
registration pursuant to this Section 10(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 10.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 10(ii) without thereby incurring any
liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10(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 10(ii) rather than Section 10(i), and the rights
of the holders of Registrable Securities covered by such written request shall
be governed by Section 10(ii).
(iv) The Company shall file with the Commission not later than
thirty (30) days after the Initial Closing Date (the "Filing Date"), and cause
to be declared effective within (i) ninety (90) days after the Filing Date (the
"Effective Date") or (ii) one hundred and twenty (120) days in the case of a
review by the Securities and Exchange Commission, a Form SB-2 registration
statement (the "Registration Statement") (or such other form that it is eligible
16
to use) in order to register the Registrable Securities for resale and
distribution under the 1933 Act. The Company will register not less than a
number of shares of common stock in the aforedescribed registration statement
that is equal to two hundred percent (200%) of the Shares issuable upon
conversion of the Notes (using the Conversion Price on the Initial Closing Date
or the trading day immediately preceding the filing date of the Registration
Statement, or any amendment thereto; whichever results in the greatest number of
registrable Shares, such amount of Shares being included in the definition of
Registrable Securities). The Registrable Securities shall be reserved and set
aside exclusively for the benefit of each Subscriber, and not issued, employed
or reserved for anyone other than each Subscriber. Such 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. A registration that is filed
but withdrawn prior to being declared effective shall be deemed not to have been
filed for purposes of this Section 10.
11. Registration Procedures. If and whenever the Company is required by
the provisions of Section 10(i), 10(ii), or 10(iv) to effect the registration of
any shares of 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 10,
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities (the "Sellers") copies of all
filings and Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until such registration statement has been effective for a period of two (2)
years, and comply with the provisions of the 1933 Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Seller's intended method of disposition set
forth in such registration statement for such period;
(c) furnish to the Seller, at the Company's expense, such number
of copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller, 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;
17
(e) if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and
(g) provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the Seller,
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.
12. Provision of Documents. In connection with each registration
described in Section 10, the 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.
12.1 Non-Registration Events. The Company and the Subscribers agree
that the Seller will suffer damages if any registration statement required under
Section 10 (iv) above 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 10(i) or 10(ii) is not filed within ninety (90) days after written
request and declared effective by the Commission within one hundred and fifty
(150) days after such request, and maintained in the manner and within the time
periods contemplated by Section 10 hereof, and it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if (i) the
registration statement on Form SB-2 or such other form described in Section
10(iv) is not filed on or before the Filing Date or is not declared effective on
or before the sooner of the Effective Date, or within five (5) business days of
receipt by the Company of a written or oral communication from the Commission
that the registration statement described in Section 10(iv) will not be
reviewed, (ii) if the registration statement described in Sections 10(i) or
10(ii) is not filed within sixty (60) days after such written request, or is not
declared effective within one hundred and fifty (150) days after such written
request, or (iii) any registration statement described in Sections 10(i), 10(ii)
or 10(iv) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
thirty (30) days in the aggregate per year (defined as a period of three hundred
and sixty-five days commencing on the date the Registration Statement is
declared effective) or more than twenty (20) consecutive days (each such event
referred to in clauses (i), (ii) and (iii) of this Section 12.1 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 one
and one-half percent (1.5%) for each thirty (30) days or part thereof, of the
18
Purchase Price of the Notes remaining unconverted and purchase price of Shares
issued upon conversion of the Notes, for the Registrable Securities owned of
record by such holder as of and during the pendency of such Non-Registration
Event which are subject to such Non-Registration Event. Payments to be made
pursuant to this Section 12.1 shall be due and payable in cash within ten (10)
business days after the end of each thirty (30) day period or part thereof. It
shall be deemed a Non-Registration Event if at any time after the Effective Date
the Company has registered for unrestricted resale on behalf of each Subscriber
fewer than one hundred and fifty percent (150%) of the amount of Common Stock
issuable upon full conversion of all sums due under the Notes.
12.2 Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, costs of insurance and fee of one
counsel for all Sellers are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of any additional counsel to
the Seller, are called "Selling Expenses". The Company will pay all Registration
Expenses in connection with the registration statement under Section 10. Selling
Expenses in connection with each registration statement under Section 10 shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares sold by the Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may agree.
12.3 Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the 1933 Act pursuant to Section 10, 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 10, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 12.3(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.
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(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 10, 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 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the proceeds received by the Seller from the sale of Registrable Securities
covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is 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 12.3(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 12.3(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 12.3(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
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separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the 1933 Act in any case in which either (i) a
Seller, or any controlling person of a Seller, makes a claim for indemnification
pursuant to this Section 12.3 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 12.3 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 12.3; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the ▇▇▇▇
▇▇▇) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
12.4 Delivery of Unlegended Shares.
(a) Within three (3) business days (such third business day, the
"Unlegended Shares Delivery Date") after the business day on which the Company
has received (i) a notice that Registrable Securities have been sold either
pursuant to the Registration Statement or Rule 144 under the 1933 Act, (ii) a
representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable, have been satisfied, and (iii) the original share
certificates representing the shares of Common Stock that have been sold, 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, for the
delivery of shares of Common Stock without any legends including the legends set
forth in Sections 4(e) and 4(g) above, issuable pursuant to any effective and
current registration statement described in Section 11 of this Agreement or
pursuant to Rule 144 under the 1933 Act (the "Unlegended Shares"); and (z) cause
the transmission of the certificates representing the Unlegended Shares together
with a legended certificate representing the balance of the unsold shares of
Common Stock, if any, to the Subscriber at the address specified in the notice
of sale, via express courier, by electronic transfer or otherwise on or before
the Unlegended Shares Delivery Date.
(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 therefore do not bear
a legend and the Subscriber is not obligated to return such certificate for the
21
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 10 hereof beyond the Unlegended Shares
Delivery Date could result in economic loss to a Subscriber. As compensation to
a Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. If during any 360 day period, the Company fails to deliver
Unlegended Shares as required by this Section 12.4 for an aggregate of thirty
(30) days, then each Subscriber or assignee holding Securities subject to such
default may, at its option, require the Company to purchase all or any portion
of the Shares subject to such default at a price per share equal to 130% of the
Purchase Price of such Shares. The Company shall pay any payments incurred under
this Section in immediately available funds upon demand.
(d) In addition to any other rights available to a Subscriber, if
the Company fails to deliver to a Subscriber Unlegended Shares within ten (10)
calendar days after the Unlegended Shares Delivery Date and the Subscriber
purchases (in an open market transaction or otherwise) shares of common stock to
deliver in satisfaction of a sale by such Subscriber of the shares of Common
Stock which the Subscriber anticipated receiving from the Company (a "Buy-In"),
then the Company shall pay in cash to the Subscriber (in addition to any
remedies available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of common stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, together with interest thereon at a rate of 8% 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.
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
22
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: Telecom Communications,
Inc., ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Attn: ▇▇▇▇ ▇▇▇▇, Chief
Executive Officer, telecopier (▇▇) ▇▇ ▇▇▇▇ ▇▇▇▇ , with a copy by telecopier only
to (which shall not constitute notice): ▇▇▇▇▇▇ ▇▇▇▇ & Priest LLP, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., telecopier:
212.829.2202 (ii) if to the Subscribers, to: the address and telecopier number
indicated on the signature page hereto, with a copy by telecopier only to: ▇▇▇▇▇
▇▇ & Co telecopier number: (▇▇▇) ▇▇▇▇ ▇▇▇▇ .
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇ & Priest LLP ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ upon the satisfaction of all conditions to
Closing set forth in this Agreement.
(c) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
either party shall be assigned by that party without prior notice to and the
written consent of the other party.
(d) Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(e) Law Governing this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of New York without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
New York. The parties and the individuals executing this Agreement and other
agreements referred to herein or delivered in connection herewith on behalf of
the Company agree to submit to the jurisdiction of such courts and waive trial
by jury. The prevailing party shall be entitled to recover from the other party
its reasonable attorney's fees and costs. In the event that any provision of
this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of any
agreement.
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(f) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
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 of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Independent Nature of Subscribers' Obligations and Rights. The
obligations of each Subscriber hereunder are several and not joint with the
obligations of any other Subscriber hereunder, and no such Subscriber shall be
responsible in any way for the performance of the obligations of any other
hereunder.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
TELECOM COMMUNICATIONS, INC.
an Indiana Corporation
By:/s/ ▇▇▇▇ ▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇▇▇▇
Title: CEO
Dated: June 6, 2004
--------------------------------------------------------------------------------
INITIAL CLOSING NOTE SECOND CLOSING NOTE
(INITIAL CLOSING (SECOND CLOSING
SUBSCRIBER PURCHASE PRICE) PURCHASE PRICE)
--------------------------------------------------------------------------------
/s/ ▇▇▇▇ ▇▇▇ $500,000 $500,000
------------
(Signature)
TAIKANGCAPITAL MANAGEMENTS
CORP.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇, Chief
Financial Officer
Fax: (▇▇▇) ▇▇▇▇ ▇▇▇▇
--------------------------------------------------------------------------------
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LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Legal Opinion
Exhibit B Form of Collateral Agent Agreement
Schedule 5(d) Additional Issuances
Schedule 5(i) Report Filing Schedule
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 9(e) Use of Proceeds
Schedule 10(i) Other Securities to be Registered