SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "AGREEMENT"), dated as of November ___,
2004, by and among Datascension, Inc., a Nevada corporation (the "COMPANY"),
and the subscribers identified on the signature page hereto (each a
"SUBSCRIBER" and collectively "SUBSCRIBERS").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("REGULATION D") as promulgated by the United States Securities and Exchange
Commission (the "COMMISSION") under the Securities Act of 1933, as amended (the
"1933 ACT").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to One Million Eight Hundred and Seventy-Five Thousand Dollars
($1,875,000) (the "PURCHASE PRICE") of principal amount of promissory notes of
the Company ("NOTE" or "NOTES") convertible into shares of the Company's common
stock, $.001 par value (the "COMMON STOCK") at a per share conversion price
equal to $0.30, and share purchase warrants (the "WARRANTS") in the form
attached hereto as EXHIBIT A, to purchase shares of Common Stock (the "WARRANT
SHARES"). The Notes, shares of Common Stock issuable upon conversion of the
Notes (the "SHARES"), the Warrants and the Warrant Shares are collectively
referred to herein as the "SECURITIES"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as EXHIBIT B (the "ESCROW AGREEMENT").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Closing. Subject to the satisfaction or waiver of the terms
and conditions of this Agreement, on the "CLOSING DATE" (as defined in Section
13(b) hereof), 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. The
Closing Date shall be the date that subscriber funds representing the net
amount due the Company from the Purchase Price of the Offering is transmitted
by wire transfer or otherwise to or for the benefit of the Company.
2. Security Interest. The Subscribers will be granted a
security interest in all the assets of the Company to be memorialized in a
"SECURITY AGREEMENT", a form of which is annexed hereto as EXHIBIT C. The
Subscribers will also be granted security interest in all the assets of
Datascension International, Inc., a Nevada corporation, and wholly-owned
subsidiary of the Company ("INTERNATIONAL") to be memorialized in a security
agreement substantially similar to the Security Agreement. International will
also provide to the Subscribers a "GUARANTY" substantially in the form annexed
hereto as EXHIBIT D. The Company will execute such other agreements, documents
and financing statements to be filed at the Company's expense with such
jurisdictions, states and counties designated by the Subscribers. The Company
will also execute all such documents reasonably necessary in the opinion of
Subscriber to memorialize and further protect the security interest described
herein. The Subscribers will appoint a Collateral Agent to represent them
collectively in connection with the security interest to be granted in the
assets of the Company and International. The appointment will be pursuant to a
"COLLATERAL AGENT AGREEMENT", a form of which is annexed hereto as EXHIBIT E.
3. Warrants. On the Closing Date, the Company will issue and
deliver Warrants to the Subscribers. Fifty (50) Warrants will be issued for
each one hundred (100) Shares which would be issued on the Closing Date
assuming the complete conversion of the Notes issued on the Closing Date at the
Conversion Price in effect on the Closing Date. The per Warrant Share exercise
price to acquire a Warrant Share upon exercise of a Warrant shall be $0.30.
The Warrants shall be exercisable until five (5) years after the Issue Date of
the Warrants.
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 December 31, 2003 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 (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 Common Stock 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 hedging transactions with third parties, which may in turn engage in
short sales of the Securities in the course of hedging the position they assume
and the Subscriber may also enter into short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their
short or other positions or otherwise settle short sales or other transactions,
or loan or pledge the Securities, or interests in the Securities, to third
parties that in turn may dispose of these Securities.
(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 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
DATASCENSION, 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
DATASCENSION, 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
DATASCENSION, 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.
(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. Except as set forth
in the Disclosure Schedule (attached hereto as ATTACHMENT 1) and the Reports
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 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, Security Agreement to which the Company is
a party, the Security Agreement to which International is a party, the
Guaranty, and Collateral Agent Agreement, and any other agreements delivered
together with this Agreement or in connection herewith (collectively
"TRANSACTION DOCUMENTS") have been duly authorized, executed and delivered by
the Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights generally and to general principles of
equity. The Company has full corporate power and authority necessary to enter
into and deliver the Transaction Documents and to perform its obligations
thereunder.
(d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described on SCHEDULE 5(D).
(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.
(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 timely filed all reports and
other materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) No Market Manipulation. The Company 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.
(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 December 31, 2003 and which, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect,
other than as set forth in SCHEDULE 5(Q).
(r) No Undisclosed Events or Circumstances. Since December
31, 2003, 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 SCHEDULE 5(S). Except
as set forth on SCHEDULE 5(D), there are no options,
warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving
any right to subscribe for any shares of capital stock of
the Company or any of its Subsidiaries. All of the
outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully
paid and nonassessable.
(t)Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby
and recognize that the issuance of the Securities will
have a potential dilutive effect on the equity holdings of
other holders of the Company's equity or rights to receive
equity of the Company. The board of directors of the
Company has concluded, in its good faith business
judgment, that the issuance of the Securities is in the
best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Shares upon
conversion of the Notes, and the Warrant Shares upon
exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of
the Company or parties entitled to receive equity of the
Company.
(u)No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise, between
the Company and the accountants and lawyers formerly or
presently employed by the Company, including but not
limited to disputes or conflicts over payment owed to such
accountants and lawyers.
(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 F. The
Company will provide, at the Company's expense, such other legal opinions in
the future as are reasonably necessary for the issuance and resale of the
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
pursuant to an effective registration statement.
7.1. Conversion of Note.
(a) Upon the conversion of a Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action,
including obtaining and delivering, an opinion of counsel to assure that the
Company's transfer agent shall issue stock certificates in the name of
Subscriber (or its nominee) or such other persons as designated by Subscriber
and in such denominations to be specified at conversion representing the number
of shares of common stock issuable upon such conversion. The Company warrants
that no instructions other than these instructions have been or will be given
to the transfer agent of the Company's Common Stock and that, unless waived by
the Subscriber, the Shares will be free-trading, and freely transferable, and
will not contain a legend restricting the resale or transferability of the
Shares provided the Shares are being sold pursuant to an effective registration
statement covering the Shares or are otherwise exempt from registration.
(b) Subscriber will give notice of its decision to exercise
its right to convert the Note or part thereof by telecopying an executed and
completed Notice of Conversion (a form of which is annexed as EXHIBIT A to the
Note) to the Company via confirmed telecopier transmission or otherwise
pursuant to Section 13(a) of this Agreement. The Subscriber will not be
required to surrender the Note until the Note has been fully converted or
satisfied. Each date on which a Notice of Conversion is telecopied to the
Company in accordance with the provisions hereof shall be deemed a CONVERSION
DATE. The Company will itself or cause the Company's transfer agent to
transmit the Company's Common Stock certificates representing the Shares
issuable upon conversion of the Note to the Subscriber via express courier for
receipt by such Subscriber within three (3) business days after receipt by the
Company of the Notice of Conversion (such 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.
(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, later than two
business days after the Delivery Date or later than the Mandatory Redemption
Payment Date (as hereinafter defined) could result in economic loss to the
Subscriber. As compensation to the Subscriber for such loss, the Company
agrees to pay (as liquidated damages and not as a penalty) to the Subscriber
for late issuance of Shares in the form required pursuant to Section 7.1 hereof
upon Conversion of the Note in the amount of $100 per business day after the
Delivery Date for each $10,000 of Note principal amount being converted of the
corresponding Shares which are not timely delivered. The Company shall pay any
payments incurred under this Section in immediately available funds upon
demand. Furthermore, in addition to any other remedies which may be available
to the Subscriber, in the event that the Company fails for any reason to effect
delivery of the Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Subscriber will be entitled to revoke all or part
of the relevant Notice of Conversion or rescind all or part of the notice of
Mandatory Redemption by delivery of a notice to such effect to the Company
whereupon the Company and the Subscriber shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that the liquidated damages described above shall be payable through the date
notice of revocation or rescission is given to the Company.
(d) 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.
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
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. Redemption. The Note and Warrants shall not be redeemable
or callable except as described in the Note.
8. Broker/Legal Fees.
(a) Broker's Fee. The Company on the one hand, and each
Subscriber (for himself only) on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions. The Company represents that there are no
parties entitled to receive fees, commissions, or similar payments in
connection with the Offering.
(b) Due Diligence Fee. The Company will pay a due
diligence fee equal to ten percent (10%) of the Purchase Price to Ghillie
Finanz, AG ("DUE DILIGENCE FEE"). The Due Diligence Fee will be payable out of
funds held pursuant to the Escrow Agreement.
(c) Legal Fees. The Company shall pay to Grushko &
▇▇▇▇▇▇▇, P.C., a fee of $30,000 ("LEGAL FEES") as reimbursement for services
rendered to the Subscribers in connection with this Agreement and the purchase
and sale of the Notes and Warrants (the "OFFERING") and acting as Escrow Agent
for the Offering. The Legal Fees will be payable out of funds held pursuant to
the Escrow Agreement.
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 and will be the Principal Market.
(c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Securities to the Subscribers and promptly provide
copies thereof to Subscriber.
(d) Reporting Requirements. From the date of this
Agreement and until 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 three (3) years after the Closing
Date. Until the earlier of the resale of the Common Stock and the Warrant
Shares by each Subscriber or 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 timely file a Form D with respect to the Securities if
required under Regulation D and to provide a copy thereof to each Subscriber
promptly after such filing.
(e) Use of Proceeds. The proceeds of the Offering will be
employed by the Company for the purposes set forth on SCHEDULE 9.1(E) hereto.
A deviation of more than 10% of any single stated use of proceeds or a
deviation in the aggregate of more than 25% will be an Event of Default under
the Note. Except as set forth on SCHEDULE 9.1(E), the Purchase Price may not
and will not be used for accrued and unpaid officer and director salaries,
payment of financing related debt, redemption of outstanding notes or equity
instruments of the Company nor non-trade obligations outstanding on a Closing
Date. A portion of the proceeds will be paid by the Escrow Agent directly from
escrow on the Closing Date to the parties and for the purposes set forth on
SCHEDULE 9.1(E).
(f) Reservation. Prior to the Closing Date, 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.
(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 first 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 G.
(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 on
SCHEDULE 11.1 hereto, 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
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.
(q) Limited Standstill. The Company will deliver to the
Subscribers on or before the Closing Date and enforce the provisions of
irrevocable lockup agreements ("LIMITED STANDSTILL AGREEMENTS") in the forms
annexed hereto as EXHIBIT H, with the parties identified on SCHEDULE 9.1(Q)
hereto.
(r) Investment. Until all the Notes have been fully
satisfied, the Company agrees that it will not directly or indirectly sell or
spin-ff, nor encumber, hypothecate or suffer a lien to be placed on any equity
of any subsidiary of the Company or assets of any subsidiary of the Company
without the consent of Subscribers holding not less that sixty-five (65%) of
outstanding Note principal.
9.2. Covenants of the Subsidiaries. The Company makes the same
covenants contained in Section 9.1(g) through 9.1(l) on behalf of each of its
Subsidiaries as if such covenants were made by the Subsidiaries.
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend the Subscribers, the Subscribers' officers, directors,
agents, Affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the
Subscriber or any such person which results, arises out of or is based upon (i)
any material misrepresentation by Company or breach of any warranty by Company
in this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company hereunder, or any other
agreement entered into by the Company and Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, Affiliates, control persons against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
such Subscriber in this Agreement or in any Exhibits or Schedules attached
hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
such Subscriber of any covenant or undertaking to be performed by such
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers, relating hereto.
(c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any Transaction Document or other
agreement delivered in connection herewith be greater in amount than the dollar
amount of the net proceeds actually received by such Subscriber upon the sale
of Registrable Securities (as defined herein).
(d) The procedures set forth in Section 11.6 shall apply to
the indemnification set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing one hundred
and 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 Sections
11.1(i) and 11.1(ii), Registrable Securities shall not include (A) Securities
which are registered for resale in an effective registration statement, (B)
included for registration in a pending registration statement, or (C) which
have been issued without further transfer restrictions after a sale or transfer
pursuant to Rule 144 under the 1933 Act. Upon the receipt of such request, the
Company shall promptly give written notice to all other record holders of the
Registrable Securities that such registration statement is to be filed and
shall include in such registration statement Registrable Securities for which
it has received written requests within ten (10) days after the Company gives
such written notice. Such other requesting record holders shall be deemed to
have exercised their demand registration right under this Section 11.1(i).
(ii) If the Company at any time proposes to register any of
its securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms ▇-▇, ▇-▇ or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "SELLER" or "SELLERS"). In the event
that any registration pursuant to this Section 11.1(ii) shall be, in whole or
in part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the Company shall notify
the Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 11.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account and the Company actually
does file such other registration statement, such written request shall be
deemed to have been given pursuant to Section 11.1(ii) rather than Section
11.1(i), and the rights of the holders of Registrable Securities covered by
such written request shall be governed by Section 11.1(ii).
(iv) 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 thirty (30) days
after the Closing Date (the "FILING DATE"), and cause to be declared effective
within ninety (90) days after the sooner of the Filing Date, or within ninety
(90) days after the actual date of filing of the Registration Statement (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 the Notes and all of the Warrant
Shares issuable pursuant to this Agreement upon exercise of the Warrants.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 in the Registration
Statement except as disclosed on SCHEDULE 11.1. 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 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 the Registrable Securities copies of all
filings and Commission letters of comment and notify Subscribers and Grushko &
▇▇▇▇▇▇▇, P.C. (by telecopier and by email to ▇▇▇▇▇▇▇▇▇@▇▇▇.▇▇▇) within one (1)
business day after (i) notice that the Commission has no comments or no further
comments on the Registration Statement, and (ii) the declaration of
effectiveness of the registration statement, (failure to timely provide notice
as required by this Section 11.2(a) shall be a material breach of the Company's
obligation and an Event of Default as defined in the Notes and a Non-
Registration Event as defined in Section 10.4 of this Agreement);
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective until such registration statement has been effective for a period of
two (2) years, and comply with the provisions of the 1933 Act with respect to
the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the Sellers' intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Sellers, at the Company's expense, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Sellers shall
request in writing, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) if applicable, list the Registrable Securities covered
by such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify the Sellers 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 Sellers, and any attorney, accountant or other agent retained by the
Seller or underwriter, all publicly available, non-confidential financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each registration
described in this Section 11, each Seller will furnish to the Company in
writing such information and representation letters with respect to itself and
the proposed distribution by it as reasonably shall be necessary in order to
assure compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company and the Subscribers
agree that the Sellers will suffer damages if the Registration Statement is not
filed by the Filing Date and not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i)
or 11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof,
and it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, if (A) the Registration Statement is not filed on or
before the Filing Date, (B) is not declared effective on or before the
Effective Date, (C) the Registration Statement is not declared effective within
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 the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to two percent (2%) for each thirty (30) days or 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 85% of the average of the five
(5) lowest closing bid prices of the Common Stock as reported by Bloomberg L.P.
for the twenty (20) trading days preceding the first day of each thirty (30)
day or shorter period for which Liquidated Damages are payable. 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 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 statements therein not misleading, and will reimburse
the Company and each such officer, director, underwriter and controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information pertaining to such Seller, as such, furnished in writing to the
Company by such Seller specifically for use in such registration statement or
prospectus, and provided, further, however, that the liability of the Seller
hereunder shall be limited to the net proceeds actually received by the Seller
from the sale of Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 11.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 11.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in and, to the extent it shall wish, to assume
and undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
Section 11.6(c) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In order to provide for just and equitable contribution
in the event of joint liability under the 1933 Act in any case in which either
(i) a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 11.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 11.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of the Seller or controlling person of the Seller in circumstances for which
indemnification is not provided under this Section 11.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities sold by it pursuant to such registration statement; and (z) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the ▇▇▇▇ ▇▇▇) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third (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 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 seven (7)
business days prior written notice of any proposed sale by the Company of its
common stock or other securities or debt obligations, except in connection with
(i) full or partial consideration in connection with a strategic merger,
consolidation or purchase of substantially all of the securities or assets of
corporation or other entity, and (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 (collectively the foregoing are "EXCEPTED
ISSUANCES"). The Subscribers who exercise their rights pursuant to this
Section 12(a) shall have the right during the seven (7) business days following
receipt of the notice to purchase such offered common stock, debt or other
securities in accordance with the terms and conditions set forth in the notice
of sale in the same proportion to each other as their purchase of Notes in the
Offering. In the event such terms and conditions are modified during the
notice period, the Subscribers shall be given prompt notice of such
modification and shall have the right during the seven (7) business days
following the notice of modification, whichever is longer, to exercise such
right.
(b) Offering Restrictions. Until the end of the Exclusion
Period, the Company will not issue any equity, convertible debt or other
securities convertible into common stock or equity of the Company without the
prior written consent of the Subscriber, which consent may be withheld for any
reason.
(c) 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 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.
(d) Option Plan Restrictions. The only officer, director,
employee and consultant stock option or stock incentive plan currently in
effect or contemplated by the Company has been submitted to the Subscribers.
No other plan will be adopted nor may any options or equity not included in
such plan be issued for so long as any sum is outstanding under the Note.
(e) Maximum Exercise of Rights. In the event the exercise
of the rights described in Sections 12(a) and 12(c) 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:
Datascension, Inc., ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President and CEO, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇, with
a copy by telecopier only to: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇▇▇▇ & Associates,
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, telecopier: (▇▇▇) ▇▇▇-▇▇▇▇,
and (ii) if to the Subscribers, to: the one or more addresses and telecopier
numbers indicated on the signature pages hereto, with an additional copy by
telecopier only to: Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇.
(b) 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").
(c) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor
the Subscribers have relied on any representations not contained or referred to
in this Agreement and the documents delivered herewith. No right or
obligation of the Company shall be assigned without prior notice to and the
written consent of the Subscribers.
(d) Counterparts/Execution. This Agreement may be
executed in any number of counterparts and by the different signatories hereto
on separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. This Agreement may be executed by facsimile signature and
delivered by facsimile transmission.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to 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.
(f) Specific Enforcement, Consent to Jurisdiction. The
Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to one or more
preliminary and final injunctions to prevent or cure breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be entitled
by law or equity. Subject to Section 13(e) hereof, each of the Company,
Subscriber and any signator hereto in his personal capacity hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction in New York of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Independent Nature of Subscribers. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that the decision of each Subscriber to
purchase Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the Registration Statement and (ii) review by, and
consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company
acknowledges that each Subscriber shall be entitled to independently protect
and enforce its rights, including without limitation, the rights arising out
of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience
of the Company and not because Company was required or requested to do so by
the Subscribers. The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
(h) Post-Stock Split. The Conversion Price and other
figures employed herein contemplate the effectiveness of a ten for one (10:1)
reverse stock split of the Company's Common Stock to be effected prior to the
Closing Date.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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.
DATASCENSION, INC.
a Nevada corporation
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
By:_________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President & CEO
Dated: November _____, 2004
SUBSCRIBER NOTE PRINCIPALWARRANTS
LONGVIEW EQUITY FUND, LP $525,000 875,000
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
______________________________________
(Signature)
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Investment Advisor
SUBSCRIBER NOTE PRINCIPALWARRANTS
LONGVIEW FUND, LP $775,000 1,291,667
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
/s/ S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
______________________________________
(Signature)
By: S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Investment Advisor
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
DATASCENSION, INC.
a Nevada corporation
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
By:_________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President & CEO
Dated: November _____, 2004
SUBSCRIBER NOTE PRINCIPALWARRANTS
LONGVIEW INTERNATIONAL EQUITY FUND, LP $225,000 375,000
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
______________________________________
(Signature)
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Investment Advisor
SUBSCRIBER NOTE PRINCIPALWARRANTS
ALPHA CAPITAL AKTIENGESELLSCHAFT $350,000 583,333
▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, Lichtenstein
Fax: ▇▇▇-▇▇-▇▇▇▇▇▇▇▇
______________________________________
(Signature)
By:
ST OF EXHIBITS AND SCHEDULES
Attachment 1 Disclosure Schedule
Exhibit A Form of Warrant
Exhibit B Escrow Agreement
Exhibit C Security Agreement
Exhibit D Guaranty
Exhibit E Collateral Agent Agreement
Exhibit F Form of Legal Opinion
Exhibit G Form of Public Announcement or Form 8-K
Exhibit H Limited Standstill Agreement
Schedule 5(d) Additional Issuances
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 9.1(e) Use of Proceeds
Schedule 9.1(q) Limited Standstill Providers
Schedule 11.1 Other Securities to be Registered
#
EXHIBIT H
LIMITED STANDSTILL AGREEMENT
This AGREEMENT (the "Agreement") is made as of the ____ day of November,
2004, by the signators hereto (each a "Holder"), in connection with his
ownership of shares of Datascension, Inc., a Nevada corporation (the
"Company").
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which consideration are hereby acknowledged, Holder agrees as
follows:
1. BACKGROUND.
a. Holder is the beneficial owner of the amount of shares of the
Common Stock, $.001 par value, of the Company ("Common Stock") designated on
the signature page hereto.
▇. ▇▇▇▇▇▇ acknowledges that the Company has entered into or will
enter into agreements with subscribers to the Company's Promissory Notes
convertible into Common Stock ("Notes") and Warrants (the "Subscribers"), for
the sale of an aggregate of up to $1,875,000 of Notes and Warrants to the
Subscribers (the "Offering"). Holder understands that, as a condition to
proceeding with the Offering, the Subscribers have required, and the Company
has agreed to assist the Subscribers in obtaining, an agreement from the Holder
to refrain from selling any securities of the Company from the date of the
Subscription Agreement until the end of the Exclusion Period as defined in the
Subscription Agreement (the "Restriction Period"), except as described below.
2. SHARE RESTRICTION.
a. Holder hereby agrees that during the Restriction Period, the
Holder will not sell or otherwise dispose of any shares of Common Stock or any
options, warrants or other rights to purchase shares of Common Stock or any
other security of the Company which Holder owns or has a right to acquire as of
the date hereof, other than in connection with an offer made to all
shareholders of the Company in connection with merger, consolidation or similar
transaction involving the Company. Holder further agrees that the Company is
authorized to and the Company agrees to place "stop orders" on its books to
prevent any transfer of shares of Common Stock or other securities of the
Company held by Holder in violation of this Agreement. The Company agrees not
to allow to occur any transaction inconsistent with this Agreement.
b. Any subsequent issuance to and/or acquisition by Holder of
Common Stock or options or instruments convertible into Common Stock will be
subject to the provisions of this Agreement.
c. Notwithstanding the foregoing restrictions on
transfer, the Holder may, at any time and from time to time during the
Restriction Period, transfer the Common Stock (i) as bona fide gifts or
transfers by will or intestacy, (ii) to any trust for the direct or indirect
benefit of the undersigned or the immediate family of the Holder, provided that
any such transfer shall not involve a disposition for value, (iii) to a
partnership which is the general partner of a partnership of which the Holder
is a general partner, provided, that, in the case of any gift or transfer
described in clauses (i), (ii) or (iii), each donee or transferee agrees in
writing to be bound by the terms and conditions contained herein in the same
manner as such terms and conditions apply to the undersigned. For purposes
hereof, "immediate family" means any relationship by blood, marriage or
adoption, not more remote than first cousin. Additionally, provided an Event
of Default as described in the Note has not occurred, the Holder will be
permitted to sell shares of Common Stock during the Exclusion Period based on
the following schedule:
AFTER SUBSCRIBERS HAVE CONVERTED EACH HOLDER MAY SELL THE FOLLOWING
OR RECEIVED THE PERCENTAGE OF PERCENT OF THE AMOUNT OF SHARES
NOTE PRINCIPAL DESCRIBED BELOW INDICATED ON THE SIGNATURE PAGE
20% 1/2%
30% 1/2%
40% 1%
50% 1%
60% 1%
70% 2%
80% 2%
90% 2%
3. MISCELLANEOUS.
a. All references to share amounts herein relate to Common Stock
after giving effect to a one for ten reverse split effectuated by the Company
at or about ________.
b. At any time, and from time to time, after the signing of this
Agreement Holder will execute such additional instruments and take such action
as may be reasonably requested by the Subscribers to carry out the intent and
purposes of this Agreement.
c. This Agreement shall be governed, construed and enforced in
accordance with the laws of the State of New York, except to the extent that
the securities laws of the state in which Holder resides and federal securities
laws may apply.
d. Any dispute regarding this Agreement shall be adjudicated
exclusively in the State, Civil or Federal courts located in New York, New
York.
e. This Agreement contains the entire agreement of the Holder
with respect to the subject matter hereof.
f. This Agreement shall be binding upon Holder, its legal
representatives, successors and assigns.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
Holder has executed this Agreement as of the day and year first above written.
HOLDER:
________________________________
(Signature of Holder)
________________________________
(Print Name of Holder)
________________________________
Number of Shares of Common Stock
Beneficially Owned
COMPANY:
DATASCENSION, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
By:___________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President & CEO