Exhibit 10.8
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▇▇▇▇▇▇ Financial Corp.
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This offering consists of $441,000 of the Company's 5 Year Convertible
Debentures convertible into the
Company's Common Stock.
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SUBSCRIPTION AGREEMENT
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SUBSCRIPTION PROCEDURES
Convertible Debentures of ▇▇▇▇▇▇ Financial Corp.(the "Company") are being
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offered (the "Debentures"). This offering is being made in accordance with the
exemptions from registration provided for under Section 4(2) of the Securities
Act of 1933, as amended (the "1933 Act") and Rule 506 of Regulation D
promulgated under the 1933 Act.
In order to purchase Debentures, each subscriber must complete and execute
a questionnaire (the "Questionnaire") and a subscription agreement (the
"Subscription Agreement"). In addition, the Holder, as defined herein, must make
a payment for the amount being purchased directly to the Company. All
subscriptions are subject to acceptance by the Company, which shall not occur
until the Company has returned the signed Company Signature Page.
The Questionnaire is designed to enable the Holder to demonstrate the
minimum legal requirements under federal and state securities laws to purchase
the Debentures. The Signature Page for the Questionnaire and the Subscription
Agreement contain representations relating to the subscription and should be
reviewed carefully by each subscriber.
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to thirty percent (30%) of any dividends paid by the
Company. In order to eliminate or reduce such withholding tax you must submit a
properly executed I.R.S. Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States) or I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate),
claiming exemption from withholding or eligibility for treaty benefits in the
form of a lower rate of withholding tax on interest or dividends.
Payment of the full subscription amount will be made by wire transfer by
Dutchess Private Equities Fund, II, LP (the "Holder") on or prior to the closing
per the wire instructions that will be established. In the event of a
termination of the offering or the rejection of a subscription, subscription
funds will be returned by the Company without interest or charges.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUBSCRIPTION AGREEMENT
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To: ▇▇▇▇▇▇ Financial Corp.
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This Subscription Agreement is made between ▇▇▇▇▇▇ Financial Corp., a
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Delaware corporation (the "Company"), and the undersigned prospective Holder
(the "Holder") who is subscribing hereby for the Company's convertible
debentures (the "Debentures") on December 23, 2005 and February 20, 2006. This
subscription is submitted to you in accordance with and subject to the terms and
conditions described in this Subscription Agreement, together with any Exhibits
thereto, relating to an offering (the "Offering") of Four Hundred and Forty-one
Thousand dollars ($441,000) of Debentures. The Offering is limited to accredited
Investors and is made in accordance with the exemptions from registration
provided for under Section 4(2) of the 1933 Act and Rule 506 of Regulation D
promulgated under the 1933 Act ("Regulation D").
Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Debenture Registration Rights
Agreement, the Debenture Agreement, the Security Agreement and Warrant Agreement
(collectively, the "Transaction Documents").
1. SUBSCRIPTION.
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(a) The closing shall be deemed to have occurred on the December 23,
2005 and February 20, 2006 (the "Closing Date" or a "Closing"). The Company
shall pay twelve percent (12%) annual coupon on the unpaid principal amount of
this Debenture (the "Debenture") at such times and in such amounts as outlined
in the Debenture Agreement.
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased, the Debentures so purchased will be forwarded by the
Company to the Holder or its broker, as listed on the signature page, and the
name of the Holder will be registered on the Debenture transfer books of the
Company as the record owner of such Debentures.
(c) As long as the Holder owns the Debenture, the Holder shall have the
right, but to change the terms for the balance of the Debenture it then holds,
to match the terms of any other offering of securities made by the Company.
(d) The Holder has funded two hundred and twenty thousand dollars
($220,000) on December 23, 2006 and an additional two hundred and twenty-one
thousand dollars ($221,000) on February 20, 2006.
(e) The Holder will be granted a security interest in all of the Company's
and its Subsidiaries' assets, currently owned or hereinafter acquired, (as
defined in Schedule 3(a) of this Agreement), as more fully set forth in the
Security Agreement between the Company and the Holder of this date.
2. REPRESENTATIONS AND WARRANTIES OF THE HOLDER.
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The Holder hereby represents and warrants to, and agrees with, the Company
as follows:
(a) The Holder has been furnished with, and has carefully read the
applicable form of Debenture Registration Rights Agreement, and the Debenture
and is familiar with and understands the terms of the Offering. With respect to
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tax and other economic considerations involved in his investment, the Holder is
not relying on the Company. The Holder has carefully considered and has, to the
extent the Holder believes such discussion necessary, discussed with the Holder
's professional legal, tax, accounting and financial advisors the suitability of
an investment in the Company, by purchasing the Debentures, for the Holder 's
particular tax and financial situation and has determined that the investment
being made by the Holder is a suitable investment for the Holder.
(b) The Holder acknowledges that all documents, records, and books
pertaining to this investment which the Holder has requested, have been made
available for inspection, or the Holder has had access thereto.
(c) The Holder has had a reasonable opportunity to ask questions of and
receive answers from a person or persons acting on behalf of the Company
concerning the Offering, and if such opportunity was taken, then all such
questions have been answered to the full satisfaction of the Holder.
(d) The Holder will not sell, or otherwise dispose of the Debentures or
the Common Stock issued upon conversion of the Debentures without registration
under the 1933 Act or applicable state securities laws or compliance with an
exemption therefrom including but not limited to: Rule 144A, 144 (k),
promulgated under the Securities Act of 1933 (herein after referred to as an
"Exemption"). The Debentures have not been registered under the 1933 Act or
under the securities laws of any state. Resales of the Common Stock underlying
the Debentures or issued in payment of accrued interest on the Debentures are to
be registered by the Company pursuant to the terms of the Debenture Registration
Rights Agreement incorporated herein and made a part hereof.
(e) The Holder recognizes that an investment in the Debentures involves
substantial risks, including loss of the entire amount of such investment.
Further, the Holder has carefully read and considered the schedules attached
hereto.
(f) The Holder acknowledges that each certificate representing the
Debentures (and the shares of Common Stock issued upon conversion of the
Debentures, unless registered or with an Exemption) or in payment of interest on
the Debentures shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
If the Holder sends a Notice of Conversion (See Exhibit A attached hereto),
and provided a registration statement under the Securities Act of 1933 is in
effect as to the sale, then in such event the Company shall have its transfer
agent send Holder the appropriate number of shares of Common Stock without
restrictive legends (other than a legend referring to the resale registration
and prospectus delivery requirements) and not subject to stop transfer
instructions.
(g) If this Subscription Agreement is executed and delivered on behalf
of a corporation or legal entity other than a natural person: (i) such
corporation or other entity has the full legal right and power and all authority
and approval required (a) to execute and deliver, or authorize execution and
delivery of this Subscription Agreement and all other Transaction Documents
executed and delivered by or on behalf of such corporation in connection with
the purchase of the Debentures, and (b) to purchase and hold the Debentures; and
(ii) the signature of the party signing on behalf of such corporation or entity
is binding upon such corporation.
(h) The Holder is not subscribing for the Debentures as a result of, or
pursuant to, any advertisement, article, notice or other communication published
in any newspaper, magazine or similar media or broadcast over television or
radio or presented at any seminar or meeting.
(i) The Holder is purchasing the Debentures for its own account for
investment, and not with a view toward the resale or distribution thereof,
except pursuant to sales registered or exempted from registration under the 1933
Act. The Holder has not offered or sold any portion of the Debentures being
acquired nor does the Holder have any present intention of dividing the
Debentures with others or of selling, distributing or otherwise disposing of any
portion of the Debentures either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or non-occurrence of any
predetermined event or circumstance in violation of the 1933 Act provided,
however, that by making the representations herein, the Holder does not agree to
hold any of the Debentures for any minimum or other specific term and reserves
the right to dispose of the Debentures at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act. The
Holder is neither an underwriter of, nor a dealer in, the Debentures or the
Common Stock issuable upon conversion thereof or upon the payment of interest
thereon and is not participating in the distribution or resale of the Debentures
or the Common Stock issuable upon conversion or exercise thereof.
(j) The Holder or the Holder's representatives, as the case may be, has
such knowledge and experience in financial, tax and business matters so as to
enable the Holder to utilize the information made available to the Holder in
connection with the Offering to evaluate the merits and risks of an investment
in the Debentures and to make an informed investment decision with respect
thereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Holder that:
a. Organization and Qualification. The Company and its "SUBSIDIARIES"
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(which for purposes of this Subscription Agreement means any entity in which the
Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the respective jurisdictions of their incorporation, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Both the Company and its Subsidiaries are duly
qualified to do business and are in good standing in every jurisdiction in which
their ownership of property or the nature of the business conducted by them
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Subscription Agreement, "MATERIAL ADVERSE EFFECT" means any
material adverse effect on the business, properties, assets, operations, results
of operations, financial condition or prospects of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined in Section 3(b) below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
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The Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents, and to issue the
Debentures in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation the reservation for issuance and the issuance of the Debentures
pursuant to this Subscription Agreement, have been duly and validly authorized
by the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors, or its shareholders, (iii) the
Transaction Documents have been duly and validly executed and delivered by the
Company, and (iv) the Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.
c. Capitalization. As of the date hereof, the authorized capital stock
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of the Company consists of 100,000,000 shares of Common Stock, of which as of
the date hereof, approximately 13,837,220 shares are issued and outstanding.
All of such outstanding shares have been, or upon issuance will be, validly
issued and are fully paid for and nonassessable. Except as disclosed in
Schedule 3(c) which is attached hereto and made a part hereof (i) no shares of
the Company's capital stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding shares of capital stock, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the as otherwise set forth in the
Transaction Documents), (v) there are no outstanding securities of the Company
or any of its Subsidiaries which contain any redemption or similar provisions,
and there are no contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to redeem a
security of the Company or any of its Subsidiaries, (vi) there are no securities
or instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Subscription
Agreement, (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement, and (viii)
there is no dispute as to the class of any shares of the Company's capital
stock. The Company has furnished to the Holder, or the Holder has had access
through ▇▇▇▇▇ to, true and correct copies of the Company's Articles of
Incorporation, as in effect on the date hereof (the "ARTICLES OF
INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS ').
d. Issuance of Debentures. A sufficient number of Debentures
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issuable pursuant to this Subscription Agreement, but not more than 4.99% of the
shares of Common Stock outstanding as of the date hereof (if, and only if, the
Company becomes listed on Nasdaq or the American Stock Exchange), has been duly
authorized and reserved for issuance pursuant to this Subscription Agreement.
Upon issuance in accordance with this Subscription Agreement, the Debentures
will be validly issued, fully paid for and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof. In the event the
Company cannot register a sufficient number of shares of Common Stock, due to
the remaining number of authorized shares of Common Stock being insufficient,
the Company will use its best efforts to register the maximum number of shares
it can based on the remaining balance of authorized shares and will use its best
efforts to increase the number of its authorized shares as soon as reasonably
practicable.
e. No Conflicts. The execution, delivery and performance of the
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Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree, including United States federal and state securities laws and
regulations and the rules and regulations of the principal securities exchange
or trading market on which the Common Stock is traded or listed (the "Principal
Market"), applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 3(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any
governmental authority or agency, regulatory or self-regulatory agency, or
court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Subscription Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
3(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. The Company has filed all
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reports, schedules, forms, statements and other documents required to be filed
by it with the Securities and Exchange Commission ("SEC") pursuant to the
reporting requirements of the Securities and Exchange Act of 1934 ("1934 Act")
(all of the foregoing filed since the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Holder or its representatives, or
they have had access through ▇▇▇▇▇, to true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, and are not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Holder which is not included in the SEC Documents, including,
without limitation, information referred to in Section 3(d) of this Subscription
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein, in the light of the
circumstance under which they are or were made, and are not misleading.
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g) or
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the SEC Documents filed at least thirty (30) days prior to the date hereof,
there has been no change or development in the business, properties, assets,
operations, financial condition, results of operations or prospects of the
Company or its Subsidiaries which has had or reasonably could have a Material
Adverse Effect. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company or its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. Except as set forth in the Company's SEC
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filings, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the executive officers of Company or any
of its Subsidiaries, threatened against or affecting the Company, the Common
Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, in
which an adverse decision could have a Material Adverse Effect.
i. Acknowledgment Regarding the Purchase of Debentures. The Company
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acknowledges and agrees that the Holder is acting solely in the capacity of an
arm's length investor with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Holder is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by the Holder
or any of its respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to the Holder's purchase of the Debentures. The Company
further represents to the Holder that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. Intentionally omitted.
k. Employee Relations. Neither the Company nor any of its Subsidiaries
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is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
l. Intellectual Property Rights. All patents, patent applications,
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trademark registrations and applications for trademark registration held by the
Company are owned free and clear of all mortgages, liens, charges or
encumbrances whatsoever. No licenses have been granted with respect to these
items and the Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service ▇▇▇▇ registrations, trade secret or other similar rights of
others, and, except as set forth on Schedule 3(l), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service ▇▇▇▇ registrations, trade secret or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual property.
m. Environmental Laws. The Company and its Subsidiaries (i) are in
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compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses, and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
n. Title. The Company and its Subsidiaries have good and marketable
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title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(n) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
o. Insurance. The Company and each of its Subsidiaries are insured by
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insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
p. Regulatory Permits. The Company and its Subsidiaries have in full
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force and effect all certificates, approvals, authorizations and permits from
the appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
q. Internal Accounting Controls. The Company and each of its
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Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
r. No Materially Adverse Contracts. Neither the Company nor any of its
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Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
s. Tax Status. The Company has filed all federal and state income tax
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returns, as required and the Company and each of its Subsidiaries has made or
filed all United States federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
The Company represents that there are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim.
t. Certain Transactions. Except as set forth in the SEC Documents
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filed at least ten days prior to the date hereof and except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
u. Dilutive Effect. The Company understands and acknowledges that the
----------------
number of shares of Common Stock issuable upon purchases pursuant to this
Subscription Agreement will increase in certain circumstances including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines following the effective date of the registration statement
covering the Common Stock underlying the Debentures (the "Effective Date"). The
Company's executive officers and directors have studied and fully understand the
nature of the transactions contemplated by this Subscription Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Subscription Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
v. Additional Financings. The Company shall not, directly nor indirectly,
---------------------
without the prior written consent of Holder which shall not be unreasonably
withheld, offer, sell, grant any option to purchase, or otherwise dispose of (or
announce any offer, sale, grant or any option to purchase or other disposition)
any of its Common Stock or securities convertible into Common Stock, or file any
registration statement, including those on Form S-8 for any securities, except
for a bona fide employee benefit plan (a "SUBSEQUENT FINANCING"), in either case
ending on the earlier to occur of (i) 360 (three hundred and sixty ) days after
the effective date of the registration statement covering resale of the shares
of Common Stock underlying the Debentures (the "Effective Date") or (ii) the
date on which the full Face Amount, accrued interest and penalties, if any, on
the Debentures have been paid ("Lock Up Period").
During the twelve (12) month period following Closing, or if there is any
outstanding balance on the Debentures, the Holder shall retain a first right of
refusal for any additional financings. The Company must submit to the Holder a
duly authorized term sheet of the financing and the Holder may elect, in writing
within five (5) days, to exercise its right to finance the Company upon the same
terms and conditions, as set forth in the Debenture Agreement. In the event the
Holder does not elect to complete such financing within such period, the Company
may proceed with the proposed third-party financing on the same terms and
conditions as contained in the notice to Holder.
▇. ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Compliance. The Company hereby acknowledges that they are
---------------------------
current with the requirement of ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 ("Sarbox"), and will
remain compliant with Sarbox and its rules and regulations for reporting
requirements in the time frame required by Sarbox, and any updates to deadlines
imposed by Sarbox.
x. Code of Ethics. The Company has adopted a Code of Ethics and has filed the
----------------
Code with the SEC.
y. No Disagreements with Accountants, Auditors 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, auditors and lawyers
formerly or presently used by the Company, including but not limited to disputes
or conflicts over payment owed to such accountants, auditors or lawyers.
z. Investment Company. Neither the Company nor any Affiliate is an "investment
-------------------
company" within the meaning of the Investment Company Act of 1940.
aa. Company Predecessor.All representations made by or relating to the Company
---------------------
of a historical nature and all undertaking described herein shall relate and
refer to the Company, its predecessors, and the Subsidiaries.
4. COVENANTS OF THE COMPANY
---------------------------
a. Best Efforts. The Company shall use its best efforts timely to
-------------
satisfy each of the conditions to be satisfied by it as provided in this
Subscription Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense, make all
--------
filings and reports relating to the offer and sale of the Debentures and the
Common Stock underlying the Debentures as required under the applicable
securities or "Blue Sky" laws of such states of the United States as specified
by the Holder or as required by law.
c. Reporting Status. Until the earlier of (i) the date that the Holder
----------------
may sell all of the Common Stock underlying the Debentures acquired pursuant to
this Subscription Agreement without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto), or (ii) the date on which
the Holder shall have sold all the Common Stock underlying the Debentures, the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as a reporting company
under the 1934 Act.
d. Use of Proceeds. The Company shall use the entire proceeds from
----------------
this Debenture exclusively to further the growth and interest of the Company.
Any other use of the funds contemplated herein, shall be considered a breach of
contract and an event of Default.
e. Conditions to Closing.The Company shall sign and be in compliance
------------------------
with the Transaction Documents with the Holder.
f. Financial Information. The Company agrees to make available to the
----------------------
Holder via ▇▇▇▇▇ or other electronic means the following: (i) within five (5)
business days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any Current
Reports on Form 8-K and any Registration Statements or amendments filed pursuant
to the 1933 Act; (ii) on the same day as the release thereof, facsimile copies
of all press releases issued by the Company or any of its Subsidiaries, (iii)
copies of any notices and other information made available or given to the
shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders and (iv) within two (2) calendar
days of filing or delivery thereof, copies of all documents filed with, and all
correspondence sent to, the Principal Market, any securities exchange or market,
or the National Association of Securities Dealers, Inc.
g. Reservation of Common Stock. Subject to the following sentence, the
---------------------------
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Common Stock underlying the Debentures.
In the event that the Company determines that it does not have a sufficient
number of authorized shares of Common Stock to reserve and keep available for
issuance, the Company shall use its best efforts to increase the number of
authorized shares of Common Stock by seeking shareholder approval for the
authorization of such additional shares. The Holder shall have the right to
reasonably determine the amount of shares to be re-registered such as are
necessary to satisfy the terms of the Agreement.
h. Listing. The Company shall promptly secure the listing of all of
-------
the Common Stock underlying the Debentures upon the Principal Market and each
other national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, such listing. The Company shall maintain the
Common Stock's authorization for quotation on the Principal Market, unless the
Holder and the Company agree otherwise. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market
(excluding suspensions of not more than one trading day resulting from business
announcements by the Company). The Company shall promptly provide to the Holder
copies of any notices it receives from the Principal Market regarding the
continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section.
i. Transactions With Affiliates. During the Lock-Up Period, set forth
-----------------------------
in Section 3 (v), the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, shareholders who beneficially own five percent (5%) or
more of the Common Stock, or affiliates or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a five percent (5%) or more beneficial interest (each
a "RELATED PARTY") during the Lock Up Period; except for (i) customary
employment arrangements and benefit programs on reasonable terms (including
changes currently under discussion with the Company's Board of Directors
concerning the compensation, to be payable in stock, of the Chairman of the
Board), (ii) any agreement, transaction, commitment or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (iii) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a five percent (5%) or more equity interest in that person or entity,
(ii) has five percent (5%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
j. Corporate Existence. The Company shall use its commercially
--------------------
reasonable best efforts to preserve and continue the corporate existence of the
Company.
k. Notice of Certain Events Affecting Registration. The Company shall
------------------------------------------------
promptly notify Holder upon the occurrence of any of the following events in
respect of a registration statement or related prospectus covering the Common
Stock underlying the Debentures: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the registration statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of any registration statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Common Stock underlying the Debentures for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
registration statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of a registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate, and the Company
shall promptly make available to the Holder any such supplement or amendment to
the related prospectus.
l. Indemnification. In consideration of the Holder's execution and
----------------
delivery of this Agreement and the Debenture Registration Rights Agreement and
acquiring the Debentures hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Holder and all of its shareholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Debentures, (v) the status of the Holder as an investor in the Company,
except, in the case of any of such clauses, insofar as any such Indemnified
Liability was attributable to gross negligence, willful misconduct or any
illegal activity on the part of Holder and, in the case of clause, (v) only,
insofar as any such Indemnified Liability was attributable to an untrue
statement, alleged untrue statement, omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Holder which is specifically intended by the Holder for use in
the preparation of any Registration Statement, preliminary prospectus or
prospectus. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The indemnity provisions contained herein
shall be in addition to any cause of action or similar rights the Holder may
have, and any liabilities to which the Holder may be subject. Notwithstanding
the foregoing, the Company shall have no indemnification responsibility in the
event Holder fails to timely notify the Company of a claim or potential claim
for which indemnification is sought, but only to the extent the Company is
prejudiced thereby. The Company shall have the right to control the defense of
any such claim and the Holder shall not consent to any settlement of any such
claim without the prior written consent of the Company (which shall not be
unreasonably withheld or delayed). The Holder shall provide indemnification
comparable in scope and coverage to the Company and corresponding related
persons in respect of any Indemnified Liability if and to the extent
attributable to gross negligence, willful misconduct or any illegal activity on
the part of the Holder, and shall be obligated to reimburse the Company and such
persons to the same extent as the Company's reimbursement obligations under
Section 4(m) below.
m. Reimbursement. If (i) the Holder, other than by reason of its gross
-------------
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if the Holder is impleaded in any
such action, proceeding or investigation by any person, or (ii) the Holder,
other than by reason of its gross negligence or willful misconduct or by reason
of its trading of the Common Stock in a manner that is illegal under the
federal securities laws, becomes involved in any capacity in any action,
proceeding or investigation brought by the SEC against or involving the Company
or in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if the Holder is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse the Holder for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which the Holder is a named party, the Company
will pay to the Holder the charges, as reasonably determined by the Holder, for
the time of any officers or employees of the Holder devoted to appearing and
preparing to appear as witnesses, assisting in preparation for hearings, trials
or pretrial matters, or otherwise with respect to inquiries, hearing, trials,
and other proceedings relating to the subject matter of this Subscription
Agreement. The reimbursement obligations of the Company under this section shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any affiliates of Holder that are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees, attorneys, accountants, auditors and controlling
persons (if any), as the case may be, of Holder and any such affiliate, and
shall be binding upon and inure to the benefit of any successors of the Company,
Holder and any such affiliate and any such person.
n. Transfer Agent. The Company covenants and agrees that, in the event
----------------
that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to the Maturity Date (as defined in the
Debenture Agreement), the Company shall immediately appoint a new transfer agent
and shall require that the new transfer agent execute and agree to be bound by
the terms of the Irrevocable Transfer Agent Instructions (as defined herein).
The Company shall be up to date with all payments to the transfer agent, and
continue to pay transfer agent as outlined in the Irrevocable Transfer Agent
Agreement.
5. OPINION LETTER/BOARD RESOLUTION
---------------------------------
Prior to or on the Closing Date the Company shall deliver to the Holder an
opinion letter signed by counsel for the Company in the form attached hereto as
Exhibit D.
If so requested by the Holder, the Company shall instruct counsel to write
a 144 opinion letter provided the necessary paperwork has been submitted and the
Exemption applies (as defined in the Debenture Agreement). If the Company's
counsel fails to provide a Rule 144 opinion letter in a timely manner, then the
Company shall: (a) pay the Investor's counsel to write said Rule 144 opinion
letter; and (b) instruct the designated transfer agent to accept and rely upon
the Rule 144 Opinion letter. Also, prior to or on the Closing Date, the
Company shall deliver to the Holder a signed Board Resolution authorizing this
Offering, which shall be attached hereto as Exhibit E.
6. DELIVERY INSTRUCTIONS; FEES
-----------------------------
The Debentures being purchased hereunder shall be delivered the Holder on
the Closing Date at which time funds will be wired to the Company and the
Debentures will be delivered to the Holder, per the Holder's instructions.
7. UNDERSTANDINGS.
--------------
The Holder understands, acknowledges and agrees as follows:
a. No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures or the Company.
b. The representations, warranties and agreements of the Holder and the
Company contained herein shall be true and correct in all material respects on
and as of the date of the sale of the Debentures as if made on and as of such
date and shall survive the execution and delivery of this Subscription Agreement
and the purchase of the Debentures.
c. In making an investment decision, the Holder is relying on its own
examination of the Company and the terms of the Offering, including the merits
and risks involved. The shares have not been recommended by any federal or
state securities commission or regulatory authority. Furthermore, the foregoing
authorities have not confirmed the accuracy or determined the adequacy of this
document. Any representation to the contrary is a criminal offense.
d. The Offering is intended to be exempt from registration by virtue of
Section 4(2) of the 1933 Act and the provisions of Regulation D thereunder,
which is in part dependent upon the truth, completeness and accuracy of the
statements made by the undersigned herein and in the Questionnaire.
e. It is understood that in order not to jeopardize the Offering's
exempt status under Section 4(2) of the 1933 Act and Regulation D, the Holder
may, at a minimum, be required to fulfill the investor suitability requirements
thereunder.
f. The shares may not be resold except as permitted under the
securities act and applicable state securities laws, pursuant to registration or
exemption therefrom. Holder should be aware that they will be required to bear
the financial risks of this investment for an indefinite period of time.
8. DISPUTES SUBJECT TO ARBITRATION GOVERNED BY MASSACHUSETTS LAW.
---------------------------------------------------------------------
a. All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
9. MISCELLANEOUS.
-------------
a. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Subscription Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ Financial Corp
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Holder:
At the address listed in the Questionnaire.
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
a. All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
b. Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked or canceled,
except by an instrument in writing signed by the party effecting the same
against whom any change, discharge or termination is sought.
c. Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by facsimile transmission: (i) if to the Company, at it's executive
offices, or (ii) if to the Holder, at the address for correspondence set forth
in the Questionnaire, or at such other address as may have been specified by
written notice given in accordance with this paragraph.
d. This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the Commonwealth of
Massachusetts, as such laws are applied by Massachusetts courts to agreements
entered into, and to be performed in, Massachusetts by and between residents of
Massachusetts, and shall be binding upon the undersigned, the undersigned's
heirs, estate and legal representatives and shall inure to the benefit of the
Company and its successors. If any provision of this Subscription Agreement is
invalid or unenforceable under any applicable statue or rule of law, then such
provisions 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 provision hereof that may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
e. This Agreement shall not be assignable.
f. This Subscription Agreement, together with Exhibits A, B, C, D, and
E attached hereto and made a part hereof, constitute 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 hereto.
g. This Subscription Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Execution and delivery of this Subscription Agreement by exchange of facsimile
copies bearing the facsimile signature of a party shall constitute a valid and
binding execution and delivery of this Subscription Agreement by such party.
Such facsimile copies shall constitute enforceable original documents.
h. When in this Agreement or the Transaction Documents, reference is
made to any party, such reference shall be deemed to include the successors,
assigns, heirs and legal representatives of such party. No party hereto may
transfer any rights under this Agreement or the Transaction Documents, unless
the transferee agrees to be bound by, and comply with all of the terms and
provision of this Agreement and the Transaction Documents, as if an original
signatory hereto on the date hereof.
10. RESERVED.
11. WAIVER.
The Holder's delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants shall
not waiver, affect, or diminish any right of the Holder under this Agreement to
demand strict compliance and performance herewith. Any waiver by the Holder of
any Event of Default shall not waive or affect any other Event of Default,
whether such Event of Default is prior or subsequent thereto and whether of the
same or a different type. None of the undertakings, agreements and covenants of
the Company contained in this Agreement, and no Event of Default, shall be
deemed to have been waived by the Holder, nor may this Agreement be amended,
changed or modified, unless such waiver, amendment, change or modification is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Holder.
12. NO ORAL AGREEMENTS
This Written Agreement and the accompanying Transaction Documents represent
the FINAL AGREEEMENTS between the Company and the Holders and may not be
contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties; there are no unwritten oral agreements among the
parties.
13. PRIOR SUBSCRIPTION AGREEMENT
The execution and delivery of this Agreement shall void the Subscription
Agreement dated December 23, 2005 between the Company and the Holder.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
▇▇▇▇▇▇ Financial Corp.
------------------------
QUESTIONNAIRE
The information contained in this Questionnaire is being furnished in order
to determine whether the undersigned's subscription to purchase the Debentures
described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned understands, however, that the Company may
present this Questionnaire to such parties as it deems appropriate if called
upon to establish that the proposed offer and sale of the Securities is exempt
from registration under the 1933 Act, as amended. Further, the undersigned
understands that the offering is required to be reported to the Securities and
Exchange Commission, and to various state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY THE COMPANY, THE
UNDERSIGNED MUST COMPLETE FORM W-9.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES.
1. The undersigned: (a) has total assets in excess of $5,000,000;
(b) was not formed for the specific purpose of acquiring the securities; and (c)
has its principal place of business in ___________.
2. The undersigned is a natural person whose individual net worth*
or joint net worth with his or her spouse exceeds $1,000,000.
3. The undersigned is a natural person who had an individual
income* in excess of $200,000 in each of the two most recent years and who
reasonably expects an individual income in excess of $200,000 in the current
year. Such income is solely that of the undersigned and excludes the income of
the undersigned's spouse.
4. The undersigned is a natural person who, together with his or
her spouse, has had a joint income* in excess of $300,000 in each of of the two
most recent years and who reasonably expects a joint income in excess of
$300,000 in the current year.
* For purposes of this Questionnaire, the term "net worth" means the excess
of total assets over total liabilities. In determining "income", an investor
should add to his or her adjusted gross income any amounts attributable to
tax-exempt income received, losses claimed as a limited partner in any limited
partnership, deductions claimed for depletion, contributions to ▇▇▇ or ▇▇▇▇▇
retirement plan, alimony payments and any amount by which income from long-term
capital gains has been reduced in arriving at adjusted gross income.
5. The undersigned is:
(a) a bank as defined in Section 3(a)(2) of the 1933 Act; or
(b) a savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the 1933 Act whether acting in its individual or fiduciary
capacity; or
(c) a broker or dealer registered pursuant to Section 15 of the 1934
Act; or
(d) an insurance company as defined in Section 2(13) of the 1933 Act;
or
(e) An investment company registered under the Investment Company Act
of 1940 or a business development company as defined in Section 2(a)(48) of the
Investment Company Act of 1940; or
(f) a small business investment company licensed by the U.S. Small
Business Administration under Section 301 (c) or (d) of the Small Business
Investment Act of 1958; or
X 6. The undersigned is an entity in which all of the equity owners
are accredited investors.
II. HOLDER INFORMATION.
Name of Entity ___Dutchess Private Equities Fund, II, L.P._
----------------------------------------------
Person's Name ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Title:_Managing Member
----------------- ----------------
State of Organization ____Delaware___________________
------------
Principal Business Address ___50 Commonwealth Ave__
City, State, Zip Code ______Boston, MA 02116__________
------------------
Taxpayer Identification Number _PROVIDE____________________
- Phone __▇▇▇-▇▇▇-▇▇▇▇________ Fax ___▇▇▇-▇▇▇-▇▇▇▇___
------------ ---------------
Send Correspondence to:
____________50 Commonwealth Ave, Suite 2__________
---------------------------------
____________Boston, MA 02116____________________
------------------
_______________________________________________
▇▇▇▇▇▇ Financial Corp.
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SIGNATURE PAGE
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Your signature on this Signature Page evidences your agreement to be bound
by the Questionnaire, Subscription Agreement and Debenture Registration Rights
Agreement.
1. The undersigned hereby represents that (a) the information contained
in the Questionnaire is complete and accurate and (b) the undersigned will
notify the Company immediately if any material change in any of the information
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occurs prior to the acceptance of the undersigned's subscription and will
promptly send the Companywritten confirmation of such change.
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2. The undersigned signatory hereby certifies that he/she has read and
understands the Subscription Agreement and Questionnaire, and the
representations made by the undersigned in the Subscription Agreement and
Questionnaire are true and accurate.
$441,000 February 20, 2006
______________________________ ________________________
Amount of Debentures being purchased Date
Dutchess Private Equities Fund II, LP
By: _________________________________
(Signature)
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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(Please Type or Print)
Title: Managing Member,
Dutchess Capital Management, LLC;
General Partner to:
Dutchess Private Equities Fund, LP and Dutchess Private Equities Fund II,
LP
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(Please Type or Print)
COMPANY ACCEPTANCE PAGE
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This Subscription Agreement accepted and agreed
to this 20th day of February, 2006.
By ▇▇▇▇▇▇ Financial Corp. and duly authorized to sign on behalf of the Company:
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By__________________________________
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, CEO
LIST OF EXHIBITS
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EXHIBIT A Notice of Conversion
EXHIBIT B Debenture Registration Rights Agreement
EXHIBIT C Debenture Agreement
EXHIBIT D Opinion of Company's Counsel
EXHIBIT E Board Resolution
LIST OF SCHEDULES
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Schedule 3(a) Subsidiaries
Schedule 3(c) Capitalization
Schedule 3(e) Conflicts
Schedule 3(g) Material Changes
Schedule 3(h) Litigation
Schedule 3(l) Intellectual Property
Schedule 3(n) Liens
Schedule 3(t) Certain Transactions
Exhibit A
NOTICE OF CONVERSION
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(To be Executed by the Registered Owner in order to Convert Debenture)
TO: ▇▇▇▇▇▇ FINANCIAL CORP.
The undersigned hereby irrevocably elects, as of ________________, to
convert $________________ of its convertible debenture (the "Debenture") into
Common Stock of ▇▇▇▇▇▇ Financial Corp. (the "Company") according to the
conditions set forth in the Debenture issued by the Company.
Date of Conversion________________________________________________
Applicable Conversion Price________________________________________
Number of Debentures Issuable upon this Conversion_______________________
Name(Print)_ Dutchess Private Equities Fund, II, LP_____
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▇▇▇▇▇▇▇______________▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇ 02116_________
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Phone_____▇▇▇-▇▇▇-▇▇▇▇_____________ Fax________▇▇▇-▇▇▇-▇▇▇▇___________
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By:_______________________________________
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EXHIBIT D OPINION OF COMPANY'S COUNSEL
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Holders of [Company] [Describe Securities] _______________, 2006
Re: ▇▇▇▇▇▇ Financial Corp.
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Ladies and Gentlemen:
As counsel to ▇▇▇▇▇▇ Financial Corp. (the "Company"), we are familiar with
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its Articles of Incorporation and Bylaws and with the corporate proceedings
taken by it in connection with the proposed issuance and sale of convertible
debentures (the "Securities") pursuant to the related Subscription Agreement
(including all Exhibits and Appendices thereto) (collectively the "Agreements").
We have been furnished with copies, certified or otherwise identified to
our satisfaction, of the Agreements, and have examined such other documents,
agreements and records as we deemed necessary to render the opinions set forth
below.
In conducting our examination, we have assumed the following: (i) that
each of the Agreements has been executed by each of the parties thereto in the
same form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and accuracy
of all documents submitted to us as originals, and the conformity to originals
of all documents submitted to us as copies, (iii) that each of the Agreements
has been duly and validly authorized, executed and delivered by the party or
parties thereto other than the Company, and (iv) that each of the Agreements
constitutes the valid and binding agreement of the party or parties thereto
other than the Company, enforceable against such party or parties in accordance
with the Agreements' terms.
Based upon the subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to own its properties and conduct
its business as presently conducted.
2. The authorized capital stock of the Company consists of -_______
shares of Common Stock, $.10 par value per share, ("Common Stock").
3. To our knowledge, (i)the Company's equity securities are not
registered under Section 12(b) or Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and (ii) the Company is required to
file reports with the Securities and Exchange Commission pursuant to Section
15(d) of the Exchange Act.;
4. When duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities [and any Common Stock to be issued upon the conversion of the
Securities] as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5 The Company has the requisite corporate power and authority to enter
into the Subscription Agreement and to sell and deliver the Securities and the
Common Stock to be issued upon the conversion of the Securities as described in
the Agreements; each of the Agreements has been duly and validly authorized by
all necessary corporate action by the Company to our knowledge, no approval of
any governmental or other body is required for the execution and delivery of
each of the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, public policy,
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other laws affecting creditors rights generally, and except as to compliance
with federal, state, and foreign securities laws, as to which no opinion is
expressed;
6. Neither the execution, delivery and performance of the Subscription
Agreement and Securities by the Company and the performance of its obligations
thereunder do not and will not constitute a breach or violation of any of the
terms and provisions of, or constitute a default under or conflict with or
violate any provision of (i) the Company's Certificate of Incorporation or
By-Laws, (ii) any indenture, mortgage, deed of trust, agreement or other
instrument to which the Company is party or by which it or any of its property
is bound, (iii) any applicable statute or regulation or as other, (iv) or any
judgment, decree or order of any court or governmental body having jurisdiction
over the Company or any of its property.
7. To the best of our knowledge, there is no pending or threatened
litigation, investigation or other proceedings against the Company.
8. The Company complies with the eligibility requirements for the use
of Form SB-2, under the Securities Act of 1933, as amended.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of New York and the Delaware General Corporation Law and does not
include an interpretation or statement concerning the laws of any other state or
jurisdiction. Insofar as the enforceability of the Subscription Agreement and
Securities may be governed by the laws of other states, we have assumed that
such laws are identical in all respects to the laws of the State of New York.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Subscription Agreement and
Securities and may not be relied upon by any other person or entity or for any
other purpose without our prior consent.
Very truly yours,
By: _____________________
SCHEDULE 3(a) SUBSIDIARIES
Name State of Incorporation EIN
________ ________________ ________
SCHEDULE 3(c) CAPITALIZATION
SCHEDULE 3(e) CONFLICTS
SCHEDULE 3(g) MATERIAL CHANGES
SCHEDULE 3(h) LITIGATION
none, except as disclosed in the company's sec filings.
SCHEDULE 3(l) INTELLECTUAL PROPERTY
NONE
SCHEDULE 3(n) LIENS
SCHEDULE 3(t) CERTAIN TRANSACTIONS