EXHIBIT 10.2
SUBSCRIPTION AGREEMENT
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THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of April 27, 2005,
by and among Mobile Reach International, Inc., a Delaware corporation (the
"Company"), and the subscribers identified on the signature pages hereto (each a
"Subscriber" and collectively "Subscribers" if more than one).
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").
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 $500,000 (the "Purchase Price") of principal amount of 8%
promissory notes of the Company ("Note" or "Notes") convertible into shares of
the Company's common stock, $.0001 par value (the "Common Stock") at a per share
conversion price equal to the lesser of (i) 70% of the average of the closing
bid prices of the Common Stock as reported by Bloomberg, L.P. for the OTC
Bulletin Board ("Bulletin Board") for the three trading days immediately
preceding the Closing Date (as defined in Section 1 below) (the "Closing Date
Conversion Price"), or (ii) the average of the three lowest closing bid prices
for the ten trading days preceding the Conversion Date (as defined in Section
7(b) below) ("Conversion Price"); and share purchase warrants (the "Warrants"),
in the form attached hereto as Exhibit A, to purchase shares of Common Stock
(the "Warrant Shares"). The Conversion Price is subject to adjustment as
described in the Note and this Agreement. 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. Conditions to Closing. Subject to the satisfaction or waiver of the
terms and conditions of this Agreement, on the "Closing Date" (as defined in
Section 2 below), 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 the amount of Warrants determined pursuant to Section 3 below. The
aggregate principal amount of the Notes to be purchased by the Subscribers on
the Closing Date shall, in the aggregate, be equal to the Purchase Price.
2. Closing. The consummation of the transactions contemplated herein
shall take place at the offices of Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, upon the satisfaction of all conditions to
Closing set forth in this Agreement ("Closing Date").
3. Warrants. On the Closing Date, the Company will issue Warrants to
the Subscribers. One Warrant will be issued for each Share which would be issued
on the Closing Date assuming the complete conversion of the Notes issued on the
Closing Date at the Closing Date Conversion Price in effect on the Closing Date.
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The per Warrant Share exercise price to acquire a Warrant Share upon exercise of
a Warrant shall be equal to seventy percent (70%) of the closing bid price of
the Common stock as reported by Bloomberg LP for the Principal Market (as
hereinafter defined) for the last trading day preceding the Closing Date. The
Warrants will be exercisable for five (5) years after the Closing Date.
4. Subscriber's Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) 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 July 31, 2004 as filed with the Commission, together
with all subsequently filed Forms 10-QSB, 8-K, and filings made with the
Commission available at the ▇▇▇▇▇ website (hereinafter referred to collectively
as the "Reports"). In addition, the Subscriber has received in writing from the
Company such other information concerning its operations, financial condition
and other matters as the Subscriber has requested in writing and as described on
Schedule 4(a) hereto (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 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.
(c) Purchase of Note 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.
(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 any event, and subject to
compliance with applicable securities laws, the Subscriber may enter into lawful
transactions with third parties, or loan or pledge the Securities, or interests
in the Securities, to third parties that in turn may dispose of these
Securities.
(e) Shares Legend. The Shares and the Warrant 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
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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 MOBILE REACH INTERNATIONAL, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) 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
MOBILE REACH INTERNATIONAL, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(g) 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
MOBILE REACH INTERNATIONAL, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(h) 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.
(i) 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.
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(j) Restricted Securities. Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act. Notwithstanding anything to the contrary contained in this
Agreement, such Subscriber may transfer (without restriction and without the
need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an "accredited investor" under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement.
For the purposes of this Agreement, an "Affiliate" of any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with such
person or entity. 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.
(k) 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.
(l) 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 each Closing Date shall be true and correct as of each
Closing Date.
(m) 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
identified in the Disclosure Schedule (individually a "Subsidiary" and
collectively "Subsidiaries") is a corporation duly organized, validly existing
and in good standing under the laws of the respective jurisdictions of their
incorporation and have the requisite corporate power to own their properties and
to carry on their business as now being conducted. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in each jurisdiction where the nature of the business conducted or
property owned by them makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a "Material Adverse Effect" shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company and its Subsidiaries taken as
a whole.
(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company and each of its Subsidiaries have been duly authorized and
validly issued and are fully paid and nonassessable.
(c) Authority; Enforceability. This Agreement, the Note, the
Warrants, the Escrow Agreement, and any other agreements delivered together with
this Agreement or in connection herewith (collectively "Transaction Documents")
have been duly authorized, executed and delivered by the Company and are valid
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and binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
(d) Additional Issuances. Except as disclosed on the Reports or the
Other Written Information, 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.
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its Affiliates, the Bulletin Board nor the Company's
shareholders is required for the execution by the Company of the Transaction
Documents and compliance and performance by the Company of its obligations under
the Transaction Documents, including, without limitation, the issuance and sale
of the Securities.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or any of its
Subsidiaries or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its Affiliates or Subsidiaries is a party, by which the Company or any of its
Affiliates or Subsidiaries is bound, or to which any of the properties of the
Company or any of its Affiliates or Subsidiaries is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its Affiliates or Subsidiaries is a party except
the violation, conflict, breach, or default of which would not have a Material
Adverse Effect on the Company; or
(ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company, its
Subsidiaries or any of its Affiliates; or
(iii) result in the activation of any anti-dilution rights or a
reset or repricing of any debt or security instrument of any other creditor or
equity holder of the Company, nor result in the acceleration of the due date of
any obligation of the Company; or
(iv) result in the activation of any piggy-back registration
rights of any person or entity holding securities of the Company or having the
right to receive securities of the Company.
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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 conversion of the Notes and upon exercise of the Warrants, the
Shares and Warrant Shares will be duly and validly issued, fully paid and
nonassessable or if registered pursuant to the 1933 Act, and resold pursuant to
an effective registration statement will be free trading and unrestricted);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its Affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under the Transaction
Documents. Except as disclosed in the Reports, there is no pending or, to the
best knowledge of the Company, basis for or threatened action, suit, proceeding
or investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect on the Company.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and has a class of common
shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to the
provisions of the 1934 Act, the Company has filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of the
Securities or affect the price at which the Securities may be issued or resold.
(k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates 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 its Subsidiaries are not in violation
of its articles of incorporation or bylaws. The Company and 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, (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 on
the Company or its Subsidiaries.
(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 Bulletin Board. Nor will the Company or any of its Affiliates or
Subsidiaries take any action or steps that would cause the offer or issuance 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 OTC
Bulletin Board ("Bulletin Board"). The Company has not received any oral or
written notice that its common stock is not eligible nor will become ineligible
for quotation on the Bulletin Board nor that its common stock does not meet all
requirements for the continuation of such quotation and the Company satisfies
all the requirements for the continued quotation of its common stock on the
Bulletin Board.
(q) No Undisclosed Liabilities. The Company and its Subsidiaries
have 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 July 31, 2004 and which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
(r) No Undisclosed Events or Circumstances. Since July 31, 2004, no
event or circumstance has occurred or exists with respect to the Company or its
Subsidiaries, businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding capital stock of
the Company as of the date of this Agreement and the Closing Date are set forth
on the Reports or the Other Written Information. Except as set forth on the
Reports or the Other Written Information , 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
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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.
(v) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to each Closing Date, shall be true and correct in all
material respects as of each Closing Date.
(w) 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.
(x) Investment Company. The Company is not an Affiliate of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(y) 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 C. The Company will provide, at the
Company's expense, such other legal opinions in the future as are reasonably
necessary for the resale of the Common Stock and exercise of the Warrants and
resale of the Warrant Shares.
7.1. 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
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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 (a form of which is annexed to 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
(each third 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. 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 7.1 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 (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) 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.
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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) or for any reason other than pursuant
to the limitations set forth in Section 7.3 hereof, 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
("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. 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.
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 void the conversion limitation described in this
Section 7.3 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 or exercise the Warrant in whole or in
part, 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 said Note or exercise of all or part of said Warrant shall have
been sought and obtained by the Company 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, or aggregate purchase price of the Warrant Shares 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.
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 seven (7)
business days after the Delivery Date the Subscriber purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
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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 adjusted as described in this Agreement, the Notes and
Warrants.
7.7. Optional Redemption. Provided an Event of Default (as defined in
this Agreement and the Note) has not occurred, whether or not such Event of
Default has been cured, the Company will have the option of prepaying the
outstanding principal amount of the Note ("Optional Redemption"), in whole or in
part, together with the interest accrued thereon, by paying to the Subscriber a
sum of money equal to one hundred twenty percent (120%) of the Principal Amount
to be redeemed, together with accrued but unpaid interest thereon and interest
that will accrue until the actual repayment date and any and all other sums due,
accrued or payable to the Subscriber arising under the Note, the Subscription
Agreement or any Transaction Document (the "Redemption Amount") on the day
written notice of redemption (the "Notice of Redemption") is given to the
Subscriber. The Notice of Redemption shall specify the date for such Optional
Redemption (the "Redemption Payment Date"), which date shall be not less than
ten (10) business days after the date of the Notice of Redemption (the
"Redemption Period"). A Notice of Redemption shall not be effective with respect
to any portion of the Note for which the Subscriber has a pending election to
convert, or for Conversion notices given by the Subscriber prior to the
Redemption Payment Date. On the Redemption Payment Date, the Redemption Amount
shall be paid in good funds to the Subscriber. In the event the Company fails to
pay the Redemption Amount on the Redemption Payment Date as set forth herein,
then (i) such Notice of Redemption will be null and void, (ii) Company will have
no further right to deliver another Notice of Redemption, and (iii) Company's
failure may be deemed by Subscriber to be a non-curable Event of Default.
7.8. Shareholder Approval. The Company and Subscribers agree that
until the Company obtains shareholder approval of an increase in the authorized
Common Stock of the Company up to 500,000,000 Shares of Common Stock (the
"Approval"), each Subscriber may not convert a Note. The Company further
covenants to file an information statement with the Commission on or before May
16, 2005 ("Information Statement Filing Date"). The Company further covenants to
use its reasonable best efforts to obtain the Approval not later than 90 days
from the earlier of the Information Statement Filing Date or the date the
information statement is actually filed ("Approval Date"). The Company's failure
to (i) file the information statement on or before the Information Statement
Filing Date; or (ii) the Company's failure to obtain the Approval on or before
the Approval Date (any of the preceding being an "Approval Default") shall be
deemed an Event of Default under the Note.
8. Legal Fees. The Company shall pay to Grushko & ▇▇▇▇▇▇▇, P.C., a fee
of $10,000 ("Legal Fees") as reimbursement for services rendered to the
Subscribers in connection with this Agreement and the purchase and sale of the
Shares and Warrants (the "Offering") and acting as Escrow Agent for the
Offering. The Legal Fees will be payable on the Closing Date out of funds held
pursuant to the Escrow Agreement.
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9.1 Covenants of the Company. The Company covenants and agrees with
the Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers, promptly
after it receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.
(b) Listing. The Company shall promptly secure the listing of the
shares of Common Stock and the Warrant Shares upon each national securities
exchange, or automated quotation system upon which they are or become eligible
for listing (subject to official notice of issuance) and shall maintain such
listing so long as any Warrants are outstanding. The Company will maintain the
listing of its Common Stock on the American Stock Exchange, Nasdaq SmallCap
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "Principal Market")), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is 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 the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, the Company will (v) cause its Common Stock
to continue to be registered under Section 12(b) or 12(g) of the 1934 Act, (x)
comply in all respects with its reporting and filing obligations under the 1934
Act, (y) comply with all reporting requirements that are applicable to an issuer
with a class of shares registered pursuant to Section 12(b) or 12(g) of the 1934
Act, as applicable, and (z) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the Closing Date. Until
the earlier of the resale of the Common Stock and the Warrant Shares by each
Subscriber or at least two (2) years after the Warrants have been exercised, the
Company will use its best efforts to continue the listing or quotation of the
Common Stock on the Principal Market or other market with the reasonable consent
of Subscribers holding a majority of the Shares and Warrant Shares, and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing.
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(e) Use of Proceeds. The Company undertakes to use the proceeds of
the Subscribers' funds for working capital.
(f) Reservation. From and after July 14, 2005, 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 9.1(f) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company's obligations under this Agreement.
(g) Taxes. From the date of this Agreement and until the sooner of
(i) three (3) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
(h) Insurance. From the date of this Agreement and until the
sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement and until
the sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will keep true records and books of account
in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date of this Agreement and
until the sooner of (i) three (3) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and conform
in all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets.
13
(k) Intellectual Property. From the date of this Agreement and
until the sooner of (i) three (3) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
(l) Properties. From the date of this Agreement and until the
sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement (as defined in Section 11.1(iv) hereof)
or pursuant to Rule 144, without regard to volume limitations, the Company will
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.
(m) Confidentiality/Public Announcement. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company agrees that except in
connection with a Form 8-K or the Registration Statement, it will not disclose
publicly or privately the identity of the Subscribers unless expressly agreed to
in writing by a Subscriber or only to the extent required by law and then only
upon five days prior notice to Subscriber. In any event and subject to the
foregoing, the Company undertakes to 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 Offering is annexed hereto as Exhibit D.
(n) Further Registration Statements. Except for a registration
statement filed on behalf of the Subscribers pursuant to Section 11 of this
Agreement or in connection with the securities identified in the Reports or
Other Written Information, the Company will not file any registration statements
or amend any already filed registration statement, including but not limited to
Form S-8, with the Commission or with state regulatory authorities without the
consent of the Subscriber until the sooner of (i) the Registration Statement
shall have been current and available for use in connection with the public
resale of the Shares and Warrant Shares for 365 days, (ii) until all the Shares
have been resold or transferred by the Subscribers pursuant to the Registration
Statement or Rule 144, without regard to volume limitations, or (iii) the date
the Note has been fully paid ("Exclusion Period").
(o) Blackout. The Company undertakes and covenants that until the
first to occur of (i) the end of the Exclusion Period, or (ii) until all the
Shares and Warrant Shares have been resold pursuant to a registration statement
or Rule 144, 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 fifteen (15) or more days.
(p) Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Subscriber
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such
14
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.
10. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' officers, directors, agents,
Affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company and each of the Company's officers, directors, agents,
Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribes relating hereto.
(c) In no event shall the liability of any Subscriber or permitted
successor hereunder or under any Transaction Document or other agreement
delivered in connection herewith be greater in amount than the dollar amount of
the net proceeds received by such Subscriber upon the sale of Registrable
Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply to the
indemnifications set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing one hundred and
twenty-one (121) days after the Closing Date, but not later than two (2) years
after the Closing Date ("Request Date"), upon a written request therefor from
any record holder or holders of more than 50% of the Shares issued and issuable
upon conversion of the Notes and Warrant Shares actually issued upon exercise of
the Warrants, the Company shall prepare and file with the Commission a
registration statement under the 1933 Act registering the Shares, Warrant Shares
issuable upon exercise of the Warrants (collectively "Registrable Securities")
which are the subject of such request for unrestricted public resale by the
holder thereof. For purposes of Section 11.1(i), Registrable Securities shall
not include (A) Securities which are registered for resale in an effective
registration statement, or (B) 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
15
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
(10) days after the Company gives such written notice. Such other requesting
record holders shall be deemed to have exercised their demand registration right
under this Section 11.1(i).
(ii) If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms ▇-▇, ▇-▇ or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller" or "Sellers"). In the event
that any registration pursuant to this Section 11.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the number
of shares of Registrable Securities to be included in such an underwriting may
be reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 11.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account and the Company actually
does file such other registration statement, such written request shall be
deemed to have been given pursuant to Section 11.1(ii) rather than Section
11.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission 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 not later than ninety (90) days after
the Closing Date (the "Filing Date"), and cause to be declared effective not
later than one hundred and twenty (120) 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 200%
of the Shares issuable upon conversion of all of the Notes issuable to the
Subscribers, and 100% of the Warrant Shares issuable pursuant to this Agreement
upon exercise of the Warrants and Broker's Warrants (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. Without the written consent of the Subscriber, no
securities of the Company other than the Registrable Securities will be included
16
in the Registration Statement except as disclosed on the Reports or Other
Written Information. 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 Subscriber fewer than 150% of the amount of Common
Shares issuable upon full conversion of all sums due under the Notes and 100% of
the Warrant Shares issuable upon exercise of the Warrants.
11.2. Registration Procedures. If and whenever the Company is required
by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any 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 11,
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings and
Commission letters of comment including a notification by confirmed telecopier
and overnight express delivery of the declaration of effectiveness of any
Registration Statement within twenty-four (24) hours of such effectiveness;
(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;
(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
17
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each registration
described in this Section 11, 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.
11.4. Non-Registration Events. The Company and the Subscribers agree
that the Sellers will suffer damages if the Registration Statement is not filed
by the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 11.1(i) or 11.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 11 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(A) the Registration Statement is not filed on or before the Filing Date, (B) is
not declared effective on or before the Effective Date, (C) the Registration
Statement is not declared effective within 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) for a period of time
which shall exceed 30 days in the aggregate per year (defined as a period of 365
days commencing on the date the Registration Statement is declared effective) or
more than 20 consecutive days (each such event referred to in clauses A through
E of this Section 11.4 is referred to herein as a "Non-Registration Event"),
then until the Effective Date, the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to one percent
(1%) for each thirty (30) days or part thereof, and thereafter an amount equal
to two percent (2%) for each thirty (30) days or part thereof thereafter of the
Purchase Price of the Notes remaining unconverted and purchase price of Shares
issued upon conversion of the Notes owned of record by such holder which are
subject to such Non-Registration Event. The Company must pay the Liquidated
Damages in cash or an amount equal to two hundred percent of such cash
Liquidated Damages if paid in additional shares of registered unlegended
free-trading shares of Common Stock. Such Common Stock shall be valued at a per
share value equal to the Conversion Price then in effect and in the same manner
as the Note. The Liquidated Damages must be paid within ten (10) days after the
end of each thirty (30) day period or shorter part thereof for which Liquidated
Damages are payable. In the event a Registration Statement is filed by the
Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed. All oral or written and accounting comments received from the Commission
relating to the Registration Statement must be responded to within ten (10)
business days. Failure to timely respond is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders of
Registrable Securities at the same rate set forth above. Notwithstanding the
foregoing, the Company shall not be liable to the Subscriber under this Section
11.4 for any events or delays occurring as a consequence of the acts or
omissions of the Subscribers contrary to the obligations undertaken by
Subscribers in this Agreement. Liquidated Damages will not accrue or be payable
pursuant to this Section 11.4 nor will a Non-Registration Event be deemed to
have occurred for times during which Registrable Securities are transferable by
the holder of Registrable Securities pursuant to Rule 144(k) under the 1933 Act.
11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
18
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, costs of insurance and fee of one
counsel for all Sellers are called "Registration Expenses." All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of any additional counsel to
the Seller, are called "Selling Expenses." The Company will pay all Registration
Expenses in connection with the registration statement under Section 11. Selling
Expenses in connection with each registration statement under Section 11 shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares sold by the Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the 1933 Act pursuant to Section 11, the Company will, to the extent
permitted by law, indemnify and hold harmless the Seller, each officer of the
Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
19
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 gross 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 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the 1933 Act in any case in which either (i)
a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 11.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the ▇▇▇▇
▇▇▇) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
20
11.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third (3rd) business
day being 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 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(e) 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 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. Transfer fees shall be the responsibility of the Seller.
(b) In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime Broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(c) The Company understands that a delay in the delivery of the
Unlegended Shares pursuant to Section 11 hereof later than 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 120% of the Purchase Price of such Common
Stock and Warrant Shares ("Unlegended Redemption Amount"). The amount of the
aforedescribed liquidated damages that have accrued or paid for the twenty day
period prior to the receipt by the Subscriber of the Unlegended Redemption
Amount shall be credited against the Unlegended Redemption Amount. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand.
(d) In addition to any other rights available to a Subscriber,
if the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Agreement, within seven (7) business days after the Unlegended
Shares Delivery Date and the Subscriber purchases (in an open market transaction
or otherwise) shares of common stock to deliver in satisfaction of a sale by
such Subscriber of the shares of Common Stock which the Subscriber was entitled
21
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(e) and the Company is required to
deliver such Unlegended Shares pursuant to Section 11.7(e), the Company may not
refuse to deliver Unlegended Shares based on any claim that such Subscriber or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or enjoining delivery
of such Unlegended Shares or exercise of all or part of said Warrant shall have
been sought and obtained and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 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 one year after the Actual
Effective Date, the Subscribers shall be given not less than five (5) business
days prior written notice of any proposed sale by the Company of its common
stock or other securities or debt obligations, except in connection with (i)
full or partial consideration in connection with a strategic merger,
consolidation or purchase of substantially all of the securities or assets of
corporation or other entity, (ii) as has been described in the Reports or Other
Written Information filed with the Commission or delivered to the Subscribers
prior to the Closing Date, (iii) in connection with settlement with vendors or
creditors of the Company, and (iv) pursuant to any stock option or stock
incentive plan to officers, directors and employees of the Company (but not to
consultants) (collectively the foregoing are "Excepted Issuances"). The
Subscribers who exercise their rights pursuant to this Section 12(a) shall have
the right during the five (5) 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 five (5) business days following the notice of modification,
whichever is longer, to exercise such right.
(b) Favored Nations Provision. Other than the Excepted
Issuances, if at any time Notes are outstanding the Company shall offer, issue
or agree to issue any common stock or securities convertible into or exercisable
for shares of common stock (or modify any of the foregoing which may be
outstanding) to any person or entity at a price per share or conversion 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 holding Notes and/or
Shares, then the Company shall issue, for each such occasion, additional shares
of Common Stock to each Subscriber so that the average per share purchase price
of the shares of Common Stock issued to the Subscriber (of only the Common Stock
or Warrant Shares still owned by the Subscriber) is equal to such other lower
22
price per share and the Conversion Price and Warrant Exercise Price shall
automatically be reduced to such other lower price per share. The average
Purchase Price of the Shares and average exercise price in relation to the
Warrant Shares shall be calculated separately for the Shares and Warrant Shares.
The foregoing calculation and issuance shall be made separately for Shares
received upon conversion 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-a-vis such
additional common shares shall be, respectively, the sixtieth (60th) and one
hundred and twentieth (120th) 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
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 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.
(c) Maximum Exercise of Rights. In the event the exercise of the
rights described in Sections 12(a) and 12(b) would result in the issuance of an
amount of common stock of the Company that would exceed the maximum amount that
may be issued to a Subscriber calculated in the manner described in Section 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 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.
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: Mobile Reach
International, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇., #▇▇▇, ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, CEO, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇, with a
copy by telecopier only to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP, The
Chrysler Building, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, telecopier number:
(▇▇▇) ▇▇▇-▇▇▇▇, and (ii) if to the Subscribers, to: the one or more addresses
and telecopier numbers indicated on the signature pages hereto, with an
additional copy by telecopier only to: Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇.
23
(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 either
party shall be assigned by that party without prior notice to and the written
consent of the other party.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(d) Law Governing this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. The parties and the individuals executing this
Agreement and other agreements referred to herein or delivered in connection
herewith on behalf of the Company agree to submit to the jurisdiction of such
courts and waive trial by jury. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof 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 14(d) 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.
(f) Independent Nature of Subscribers. The Company acknowledges that
the obligations of each Subscriber under the Transaction Documents are several
and not joint with the obligations of any other Subscriber, and no Subscriber
shall be responsible in any way for the performance of the obligations of any
other Subscriber under the Transaction Documents. The Company acknowledges that
the decision of each Subscriber to purchase Securities has been made by such
Subscriber independently of any other Subscriber and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
24
(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 SB-2 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.
(g) Equitable Adjustment. The Securities and the purchase prices of
Securities shall be equitably adjusted to offset the effect of stock splits,
stock dividends, and distributions of property or equity interests of the
Company to its shareholders.
[THIS SPACE INTENTIONALLY LEFT BLANK]
25
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.
MOBILE REACH INTERNATIONAL, INC.
A Delaware Corporation
By:
--------------------------------
Name:
Title:
Dated: April _____, 2005
--------------------------------------- -------------------------- -------------
SUBSCRIBER PURCHASE PRICE WARRANTS
ISSUABLE ON
CLOSING DATE
--------------------------------------- -------------------------- -------------
----------------------------------
(Signature)
--------------------------------------- -------------------------- -------------
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit A Form of Warrant
Exhibit B Form of Escrow Agreement
Exhibit C Form of Legal Opinion
Exhibit D Form of Public Announcement or Form 8-K
Schedule 4(a) Other Written Information