EXHIBIT 10.43
SUBSCRIPTION AGREEMENT
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THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of February
29, 2008, by and among BigString Corporation, a Delaware corporation (the
"Company"), and the subscribers identified on the signature page hereto (each a
"Subscriber" and collectively the "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "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 such
Subscribers, as provided herein, and such Subscribers, in the aggregate, shall
purchase (i) Seven Hundred Thousand Dollars ($700,000) (the "Purchase Price") of
principal amount of convertible promissory notes of the Company ("Note" or
"Notes"), a form of which is annexed hereto as Exhibit A, which Notes are
convertible into shares of the Company's common stock, $.0001 par value (the
"Common Stock"), at a fixed conversion price of $0.15 per share (the "Conversion
Price"), as such Conversion Price may be adjusted as provided for herein and in
the Note, and (ii) share purchase warrants (the "Warrants") in the form attached
hereto as Exhibit B, to purchase up to 2,333,333 shares of the Company's Common
Stock (the "Warrant Shares"). The Notes, shares of Common Stock issuable upon
conversion of the Notes (the "Shares"), the Warrants and the shares issuable
upon exercise of the Warrants are collectively referred to herein as the
"Securities."; and
WHEREAS, the Purchase Price to be paid by the Subscribers and the Notes
and the Warrants to be issued by the Company as provided herein 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 C (the "Escrow
Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement, the Company and the Subscribers hereby
agree as follows:
1. Closing Date. The "Closing Date" shall be the date that the Purchase
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Price is transmitted by wire transfer or otherwise credited to or for the
benefit of the Company. The consummation of the transactions contemplated herein
shall take place at the offices of Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, upon the satisfaction or waiver of all
conditions to closing set forth in this Agreement. Subject to the satisfaction
or waiver of the terms and conditions of this Agreement, on the Closing Date,
each Subscriber shall purchase and the Company shall sell to each Subscriber a
Note in the principal amount designated on the signature page hereto for the
portion of the Purchase Price indicated thereon, and Warrants as described in
Section 2 of this Agreement.
2. Warrants. On the Closing Date, the Company will issue and deliver a
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Warrant to each Subscriber. The number of Warrant Shares available for purchase
under each Warrant shall
equal the product of (i) 0.50 multiplied by (ii) the quotient of (a) the
principal amount of such Subscriber's Note, divided by (b) the Conversion Price.
The number of Warrant Shares eligible for purchase by each Subscriber is set
forth in the signature page of this Agreement. The aggregate number of Warrant
Shares eligible for purchase by such Subscribers is 2,333,333, subject to
adjustment as provided for herein and in the Warrants. The exercise price to
acquire a Warrant Share upon exercise of a Warrant shall be $0.15. The Warrants
shall be exercisable until five (5) years after the issue date of the Warrants.
Each holder of the Warrants is granted the registration rights set forth in this
Agreement. The Warrant exercise price and number of Warrant Shares issuable upon
exercise of the Warrants shall be equitably adjusted to offset the effect of
stock splits, stock dividends, and similar events, and as otherwise described in
the Warrant.
3. Calendar Days. All references to "days" in the Transaction Documents
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(as hereinafter defined) shall mean calendar days unless otherwise stated. The
terms "business days" and "trading days" shall mean days that the New York Stock
Exchange is open for trading for three or more hours. Time periods shall be
determined as if the relevant action, calculation or time period were occurring
in New York City.
4. Subscriber's Representations and Warranties. As of the Closing Date,
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each Subscriber hereby represents and warrants to and agrees with the Company
only as to such Subscriber that:
(a) Organization and Standing of the Subscribers. If such
Subscriber is an entity, such Subscriber is a corporation, partnership or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Such Subscriber has the requisite
power and authority to enter into and perform this Agreement and the other
Transaction Documents and to purchase the Notes and Warrants being sold to it
hereunder. The execution, delivery and performance of this Agreement and the
other Transaction Documents by such Subscriber and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its board of directors, stockholders,
partners, members, as the case may be, is required. This Agreement and the other
Transaction Documents have been duly authorized, executed and delivered by such
Subscriber and constitutes, or shall constitute when executed and delivered, a
valid and binding obligation of such Subscriber enforceable against such
Subscriber in accordance with the terms thereof.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation by such
Subscriber of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Subscriber's
charter documents or bylaws or other organizational documents or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Subscriber is a party or by which its
properties or assets are bound, or result in a violation
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of any law, rule, or regulation, or any order, judgment or decree of any court
or governmental agency applicable to such Subscriber or its properties (except
for such conflicts, defaults and violations as would not, individually or in the
aggregate, have a material adverse effect on such Subscriber). Such Subscriber
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement and the
other Transaction Documents or to purchase the Securities in accordance with the
terms hereof, provided that for purposes of the representation made in this
sentence, such Subscriber is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Information on Company. Such Subscriber has been furnished with
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or has had access at the ▇▇▇▇▇ Website of the Commission to the Company's Form
10-KSB for the year ended December 31, 2006 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, Forms 8-K, and other reports
and filings made with the Commission and made available at the ▇▇▇▇▇ website
(hereinafter referred to collectively as the "Reports"). Such Subscriber has had
an opportunity to ask questions and receive answers from representatives of the
Company. In addition, such Subscriber has received in writing from the Company
such other information concerning its operations, financial condition and other
matters as such Subscriber has requested in writing identified thereon as OTHER
WRITTEN INFORMATION (such other information is collectively, the "Other Written
Information"), and considered all factors such Subscriber deems material in
deciding on the advisability of investing in the Securities.
(e) Information on Subscriber. Such Subscriber is, and will be at
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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 such 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. Such Subscriber
has the authority and is duly and legally qualified to purchase and own the
Securities. Such 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 such Subscriber is accurate.
(f) Purchase of Notes and Warrants. On the Closing Date, such
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Subscriber will purchase the Notes and Warrants as principal for its own account
for investment only and not with a view toward, or for resale in connection
with, the public sale or any distribution thereof.
(g) Compliance with Securities Act. Such Subscriber understands and
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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 such Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent
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disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. Subject to compliance with applicable
securities laws and provided that a net short position in the Shares and Warrant
Shares is not created, such Subscriber may enter into lawful hedging
transactions with respect to the Company's securities, otherwise such Subscriber
will not conduct any short sales as such term is defined in Rule 3b-3 of the
Securities Exchange Act of 1934, as amended (the "1934 Act").
(h) Shares Legend. The Shares and the Warrant Shares shall bear the
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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 BIGSTRING CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED."
(i) Warrants Legend. The Warrants shall bear the following or
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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
BIGSTRING CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(j) Notes Legend. The Notes shall bear the following legend:
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"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
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REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO BIGSTRING CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED."
(k) Communication of Offer. The offer to sell the Securities was
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directly communicated to such Subscriber by the Company. At no time was such
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(l) Restricted Securities. Such Subscriber understands that the
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Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act, or unless an exemption from registration is available.
Notwithstanding anything to the contrary contained in this Agreement, such
Subscriber may transfer (without restriction and without the need for an opinion
of counsel) the Securities to its Affiliates (as defined below) provided that
each such Affiliate is an "accredited investor" under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this Agreement. For
the purposes of this Agreement, an "Affiliate" of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity. Affiliate
includes each Subsidiary of the Company. For purposes of this definition,
"control" means the power to direct the management and policies of such person
or firm, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
(m) No Governmental Review. Such Subscriber understands that no
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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.
(n) Correctness of Representations. Such Subscriber represents as
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to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Subscriber otherwise notifies
the Company prior to the Closing Date shall be true and correct as of the
Closing Date.
(o) Survival. The foregoing representations and warranties shall
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survive the Closing Date.
5. Company Representations and Warranties. The Company represents and
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warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company and each of its Subsidiaries is
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a corporation or other entity duly incorporated or organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization and has the requisite corporate power to own its properties and to
carry on its business as presently conducted. The
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Company and each of its Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction where the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure to so qualify
would not have a Material Adverse Effect (as defined below) on the Company. For
purposes of this Agreement, a "Material Adverse Effect" on the Company shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company and its Subsidiaries taken as
a whole. For purposes of this Agreement, "Subsidiary" means, with respect to any
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entity at any date, any corporation, limited or general partnership, limited
liability company, trust, estate, association, joint venture or other business
entity of which more than 25% of (i) the outstanding capital stock having (in
the absence of contingencies) ordinary voting power to elect a majority of the
board of directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. All the Company's Subsidiaries as of the
Closing Date and the Company's ownership interest in such Subsidiaries are set
forth on Schedule 5(a) hereto.
(b) Outstanding Stock. All issued and outstanding shares of capital
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stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable.
(c) Authority; Enforceability. This Agreement, the Note, the
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Warrants, and the Escrow Agreement, and any other agreements delivered together
with this Agreement or in connection herewith (collectively, the "Transaction
Documents") have been duly authorized, executed and delivered by the Company
and/or its Subsidiaries and are valid and binding agreements of the Company and
its Subsidiaries enforceable against them 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
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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 its Subsidiaries or other equity interest in the Company except as
described on Schedule 5(d). The Common Stock of the Company on a fully diluted
basis outstanding as of the last Business Day preceding the Closing Date is set
forth on Schedule 5(d).
(e) Consents. No consent, approval, authorization or order of any
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court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its Affiliates, the OTC Bulletin Board (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. The Transaction Documents and the Company's
performance of its obligations thereunder has been approved by the Company's
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board of directors. As of the Closing Date, the Company will have obtained the
consent required from subscribers to the Company's notes and warrants which were
issued May 1, 2007 ("Prior Offering").
(f) No Violation or Conflict. Assuming the representations and
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warranties of such Subscribers in Section 4 are true and correct and except as
set forth on this Schedule 5(f), neither the issuance and sale of the Securities
nor the performance by the Company of its obligations under this Agreement and
all other Transaction Documents entered into by the Company relating thereto by
the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or over the
properties or assets of the Company or any of its Affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other instrument to which the Company or any of its Affiliates is a
party, by which the Company or any of its Affiliates is bound, or to which any
of the properties of the Company or any of its Affiliates is subject, or (D) the
terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its Affiliates is a party except the
violation, conflict, breach, or default of which would not have a Material
Adverse Effect; or
(ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company or any of
its Affiliates except as described herein; or
(iii) result in the activation of any anti-dilution rights or a
reset or repricing of any debt, security or other instrument issued or issuable
by the Company, nor result in the acceleration of the due date of any obligation
of the foregoing except in connection with the Prior Offering or with respect to
the Company's Series A Preferred Stock; or
(iv) result in the triggering of any piggy-back registration
rights of any person or entity holding securities of the Company or having the
right to receive securities of the Company.
(g) The Securities. The Securities upon issuance, conversion and
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exercise:
(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon transfer under
the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and on
the date of issuance of the Shares upon conversion of the Notes and the Warrant
Shares and upon exercise of the Warrants, the Shares and Warrant Shares will be
duly and validly issued, fully
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paid and nonassessable and if registered pursuant to the 1933 Act and resold
pursuant to an effective registration statement will be free trading and
unrestricted;
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal liability
by reason of being such holders; and
(v) assuming the representations and warranties of such
Subscribers as set forth in Section 4 hereof are true and correct, will not
result in a violation of Section 5 under the 1933 Act.
(h) Litigation. There is no pending or, to the best knowledge of
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the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its Affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under the Transaction
Documents. Except as disclosed in the Reports or in the schedules hereto, there
is no pending or, to the best knowledge of the Company, basis for or threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any of its
Affiliates which litigation if adversely determined would have a Material
Adverse Effect.
(i) Reporting Company. The Company is a publicly-held company
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subject to reporting obligations pursuant to Section 13 of the 1934 Act and has
a class of common stock registered pursuant to Section 12(g) of the 1934 Act.
Pursuant to the provisions of the 1934 Act, the Company has timely filed all
reports and other materials required to be filed thereunder with the Commission
during the preceding twelve months.
(j) No Market Manipulation. The Company and its Affiliates have not
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taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Securities or affect the price at which the Securities may be issued or
resold.
(k) Information Concerning Company. The Reports and Other Written
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Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other Written
Information or in the Schedules hereto, there has been no Material Adverse Event
relating to the Company's business, financial condition or affairs not disclosed
in the Reports. The Reports including the financial statements therein, and
Other Written Information do not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, taken as a whole, not misleading in light of the
circumstances when made.
(l) Stop Transfer. The Company has not and will not issue any stop
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transfer order or other order impeding the sale, resale or delivery of any of
the Securities, except as may
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be required by any applicable federal or state securities laws and unless
contemporaneous notice of such instruction is given to the Subscribers.
(m) Defaults. The Company is not in violation of its certificate or
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articles of incorporation or bylaws. Except as described on Schedule 5(q), the
Company is (i) not in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect, (ii) not in default with respect to any order of any
court, arbitrator or governmental body or subject to or party to any order of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, and (iii) not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.
(n) Not an Integrated Offering. Neither the Company, nor any of its
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Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the OTC Bulletin Board ("Bulletin Board") which would impair the exemptions
relied upon in this Offering or the Company's ability to timely comply with its
obligations hereunder. Neither the Company nor any of its Subsidiaries will take
any action or steps that would cause the offer or issuance of the Securities to
be integrated with other offerings which would impair the exemptions relied upon
in this Offering or the Company's ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities, which would impair the exemptions relied upon in this Offering or
the Company's ability to timely comply with its obligations hereunder.
(o) No General Solicitation. Neither the Company, nor any of its
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Affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale
of the Securities.
(p) Listing. The Common Stock is quoted on the Bulletin Board under
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the symbol BSGC.OB. The Company has not received any oral or written notice that
the Common Stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that the Common Stock does not meet all requirements for the
continuation of such quotation and the Company satisfies all the requirements
for the continued quotation of the Common Stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities or
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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,
2006 and which, individually or in the aggregate, would
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reasonably be expected not to have a Material Adverse Effect, except as
disclosed on Schedule 5(q).
(r) No Undisclosed Events or Circumstances. Since December 31,
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2006, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has been so
publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and the issued and outstanding
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capital stock of the Company as of the date of this Agreement and the Closing
Date (not including the Securities) are set forth on Schedule 5(d). Except as
set forth on Schedule 5(d), there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company or any of its Subsidiaries.
(t) Dilution. The Company's executive officers and directors
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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 and its shareholders. 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 stockholders of the Company or parties entitled to
receive equity of the Company.
(u) No Disagreements with Accountants and Lawyers. There are no
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disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers, nor have there been
any such disagreements during the two (2) years prior to the Closing Date.
(v) DTC Status. The Company's transfer agent is a participant in
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and the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company transfer
agent is set forth on Schedule 5(v) hereto.
(w) Investment Company. Neither the Company nor any Affiliate is an
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"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(x) Foreign Corrupt Practices. Neither the Company, nor to the
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knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
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foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(y) Solvency. Based on the financial condition of the Company as of
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the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to be paid
on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; and (ii) the current
cash flow of the Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid.
(z) Subsidiary Representations. The Company makes each of the
--------------------------
representations contained in Sections 5(a), (b), (d), (f), (h), (k), (m), (q),
(r), (s), (u), (w), (x) and (y) of this Agreement, as same relate to each
Subsidiary of the Company; provided that with respect to the Company's former
wholly-owned subsidiary, Email Emissary, Inc., which has been dissolved, the
Company makes no representation or warranties other than that such subsidiary
has no material assets or liabilities and did not conduct any active business
operations during 2007.
(AA) Company Predecessor. All representations made by or relating
-------------------
to the Company of a historical or prospective nature and all undertakings
described in Sections 9(g) through 9(l) shall relate and refer to the Company,
its predecessors, and the Subsidiaries.
(BB) Correctness of Representations. The Company represents that
------------------------------
the foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and unless the Company otherwise notifies the
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date.
(CC) Survival. The foregoing representations and warranties shall
--------
survive the Closing Date.
6. Regulation D Offering/Legal Opinion. 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 such
Subscribers from the Company's legal counsel in the form annexed hereto as
Exhibit D 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 the Subscribers. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Notes pursuant to an effective registration statement, Rule
144 under the 1933 Act or an exemption from registration.
11
7.1 Conversion of Note.
------------------
(a) Upon the conversion of a Note or part thereof as provided for
in Section 2.1(a) of the Note, 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 a Subscriber (or its permitted nominee) or such
other persons as designated by such Subscriber and in such denominations to be
specified at conversion representing the number of shares of Common Stock
issuable upon such conversion. The Company warrants that no instructions other
than these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that the certificates representing such shares shall
contain no legend other than the usual 1933 Act restriction from transfer
legend. Examples of such legends are provided for in Section 4 of this
Agreement. If and when a Subscriber sells the Shares, assuming (i) a
registration statement including such Shares is effective and the prospectus, as
supplemented or amended, contained therein is current and (ii) such Subscriber
or its agent confirms in writing to the transfer agent that such Subscriber has
complied with the prospectus delivery requirements, the restrictive legend can
be removed and the Shares will be free-trading, and freely transferable. In the
event that the Shares are sold in a manner that complies with an exemption from
registration, the Company will promptly instruct its counsel to issue to the
transfer agent an opinion permitting removal of the legend (indefinitely, if in
accordance with the relevant provisions of Rule 144 of the 1933 Act).
(b) Subscriber will give notice of its decision to exercise its
right to convert the Note, or part thereof as provided for in Section 2.1(a) of
the Note 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 such Subscriber
via express courier for receipt by such Subscriber within three (3) business
days after receipt by the Company of the Notice of Conversion (such fifth day
being the "Delivery Date"). In the event the Shares are electronically
transferable, then delivery of the Shares must be made by electronic transfer
provided request for such electronic transfer has been made by such Subscriber
and such Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation, the
prospectus delivery requirements. A Note representing the balance of the Note
not so converted will be provided by the Company to a Subscriber if requested by
such Subscriber, provided such Subscriber delivers the original Note to the
Company. In the event that a Subscriber elects not to surrender a Note for
reissuance upon partial payment or conversion of a Note, such Subscriber hereby
indemnifies the Company against any and all loss or damage attributable to a
third-party claim in an amount in excess of the actual amount then due under the
Note.
(c) The Company understands that a delay in the delivery of the
Shares in the form required pursuant to Section 7.1 hereof, or the Mandatory
Redemption Amount described in Section 7.2 hereof, respectively after the
Delivery Date or the Mandatory Redemption Payment Date (as hereinafter defined)
could result in economic loss to a Subscriber. As
12
compensation to such Subscriber for such loss, the Company agrees to pay (as
liquidated damages and not as a penalty) to such 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 such 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, such
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
such Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that the liquidated damages
described above shall be payable through the date notice of revocation or
rescission is given to the Company.
(d) The Company agrees and acknowledges that despite the pendency
of a not yet effective registration statement which includes for registration
the Securities, the Subscriber is permitted to and the Company will issue to the
Subscriber Shares upon conversion of the Note and Warrant Shares upon exercise
of the Warrants. Such Shares will, if required by law, bear the legends
described in Section 4 above and if the requirements of Rule 144 under the 1933
Act are satisfied be immediately resalable thereunder.
7.2 Mandatory Redemption at Subscriber's Election. In the event (a) the
---------------------------------------------
Company is prohibited from issuing Shares, (b) fails to timely deliver Shares on
a Delivery Date, (c) upon the occurrence of any other Event of Default (as
defined in the Note or in this Agreement); any of the foregoing that is not
cured during any applicable cure period and an additional twenty (20) days
thereafter, or (d) upon a Change in Control (as defined below), then at such
Subscriber's election, the Company must pay to such Subscriber ten (10) business
days after request by such Subscriber, at such Subscriber's election, a sum of
money determined by (i) multiplying up to the outstanding principal amount of
the Note designated by such Subscriber by 100%, or (ii) multiplying the number
of Shares otherwise deliverable upon conversion of an amount of Note principal
and/or interest designated by such Subscriber (with the date of giving of such
designation being a "Deemed Conversion Date") at the Conversion Price that would
be in effect on the Deemed Conversion Date by the highest closing price of the
Common Stock on the Principal Market for the period commencing on the Deemed
Conversion Date until the day prior to the receipt of the Mandatory Redemption
Payment, whichever is greater; together with accrued but unpaid interest thereon
and any other sums arising and outstanding under the Transaction Documents
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by such Subscriber within ten (10) business days after request
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding. "Change in Control" shall mean (i) the Company no longer
having a class of shares publicly traded or listed on a Principal Market (as
hereinafter defined), (ii) the Company becoming a Subsidiary of another entity
or merging into or with another entity, (iii) if ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇ beneficially
owns and holds at any time after the Closing Date less than ten percent (10%) of
the Company's Common stock, or (iv) the sale, lease, license or transfer of
substantially all the assets of the Company and its Subsidiaries.
13
7.3 Maximum Conversion. A 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 (a) the number of
shares of Common Stock beneficially owned by such Subscriber and its Affiliates
on a Conversion Date, and (b) 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 such 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 1934 Act
and Regulation 13d-3 thereunder. Subject to the foregoing, such Subscriber shall
not be limited to aggregate conversions of only 4.99% and aggregate conversions
by such Subscriber may exceed 4.99%. The Subscriber may increase the permitted
beneficial ownership amount up to 9.99% upon and effective after 61 days prior
written notice to the Company. The Subscriber may allocate which of the equity
of the Company deemed beneficially owned by such Subscriber shall be included in
the 4.99% amount described above and which shall be allocated to the excess
above 4.99%.
7.4 Injunction Posting of Bond. In the event a Subscriber shall elect
--------------------------
to convert a Note or part thereof, the Company may not refuse conversion or
exercise based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of such Note shall have been sought and
obtained by the Company or at the Company's request or with the Company's
assistance, and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 120% of the outstanding principal and interest of
the Note, or aggregate purchase price of the Shares which are sought to be
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber's favor.
7.5 Buy-In. In addition to any other rights available to a Subscriber,
------
if the Company fails to deliver to such Subscriber such shares issuable upon
conversion of a Note by the Delivery Date and if after seven (7) business days
after the Delivery Date such Subscriber or a broker on such Subscriber's behalf,
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Subscriber of the Common Stock which
such Subscriber was entitled to receive upon such conversion (a "Buy-In"), then
the Company shall pay in cash to such Subscriber (in addition to any remedies
available to or elected by such Subscriber) the amount by which (A) such
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 such
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 to such
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to such Subscriber in respect of
the Buy-In.
14
7.6 Adjustments. The Conversion Price, Warrant exercise price and the
-----------
number of Shares issuable upon conversion of the Notes and Warrant Shares
issuable upon exercise of the Warrants shall be equitably adjusted and as
otherwise described in this Agreement, the Notes and Warrants.
7.7 Redemption. The Note shall not be redeemable or callable except as
----------
described in the Note. The Warrants shall not be callable or redeemable.
7.8 Mandatory Conversion. Unless an Event of Default (or an event that
--------------------
with the passage of time or the giving of notice could become an Event of
Default (as such term is defined in the Notes)) has occurred and has not been
timely cured, then commencing after the effective date of a registration
statement contemplated by Section 11.1 hereof, the Company will have the option
by written notice to such Subscribers ("Notice of Mandatory Conversion") of
compelling such Subscribers to convert part or all of the outstanding and unpaid
principal of their Notes into Shares at the Conversion Price then in effect
("Mandatory Conversion"). The Notice of Mandatory Conversion may only be given,
if at all, within five (5) business days after the Company has received the net
proceeds from an underwritten public offering of the Company's equity securities
in the gross amount of not less than $30,000,000 at a per share equivalent price
of not less than the Conversion Price in effect on the final closing of such
public offering ("Mandatory Conversion Conditions" and such public offering
being the "Qualified Offering"). The date the Notice of Mandatory Conversion is
given is the "Mandatory Conversion Date." The Notice of Mandatory Conversion
shall specify the aggregate principal amount of the Notes which is subject to
Mandatory Conversion. Mandatory Conversion Notices must be given proportionately
to all Subscribers of Notes. A Notice of Mandatory Conversion may not be given
unless a registration statement (as contemplated in Section 11.1 of this
Agreement) is effective for the unrestricted public resale of the Securities for
each of the twenty (20) trading days preceding the Mandatory Conversion Date and
through the date the conversion shares are delivered to the Subscriber. The
amount of Note principal included in a Notice of Mandatory Conversion shall be
reduced to an amount that would not cause a Subscriber to exceed the limitation
described in Section 7.3 of this Agreement. Each Mandatory Conversion Date shall
be a deemed Conversion Date and the Company will be required to deliver the
Shares issuable pursuant to a Mandatory Conversion Notice in the same manner and
time period as described in Section 7.1(b) of this Agreement.
8. Finder/Legal Fees.
-----------------
(a) Finder. The Company on the one hand, and each Subscriber (for
himself, herself or itself only) on the other hand, agrees 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 and each Subscriber represents
that there are no parties entitled to receive fees, commissions, or similar
payments in connection with the Offering (as such term is defined below) arising
out of such party's actions except as described on Schedule 8.
15
(b) Legal Fees. The Company shall pay to Grushko & ▇▇▇▇▇▇▇, P.C., a
----------
cash fee of $20,000 ("Legal Fees"), of which $5,000 has been paid, 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").
The Legal Fees and reimbursement for estimated UCC searches and filing fees
(less any amounts paid prior to a Closing Date), and estimated printing and
shipping costs for the closing statements to be delivered to Subscribers, will
be payable on the Closing Date out of funds held pursuant to the Escrow
Agreement. The total amount of reimbursements shall not exceed $1,000 unless any
such reimbursement in excess of such amount shall be pre-approved in writing by
the Company.
9. Covenants of the Company. The Company covenants and agrees with the
------------------------
Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers, within
-----------
twenty-four hours after it receives notice of issuance by the Commission, any
state securities commission or any other regulatory authority of any stop order
or of any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) Listing/Quotation. The Company shall promptly secure the
-----------------
quotation or listing of the Shares and Warrant Shares upon the Principal Market
each national securities exchange, or automated quotation system upon which they
are or become eligible for quotation or listing (subject to official notice of
issuance) and shall maintain same so long as any Warrants are outstanding. The
Company will maintain the quotation or listing of its Common Stock on the
American Stock Exchange, Nasdaq Capital Market, Nasdaq Global Select Market,
Nasdaq Global Market, the Bulletin Board, or New York Stock Exchange (whichever
of the foregoing is at the time the principal trading exchange or market for the
Common Stock (the "Principal Market")), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market, as applicable. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market. As of the date
of this Agreement and the 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 the
Subscribers.
(d) Filing Requirements. From the date of this Agreement and until
-------------------
the last to occur of (i) two (2) years after the Closing Date, (ii) until all
the Shares have been resold or transferred by all the Subscribers pursuant to a
registration statement or pursuant to Rule 144(b)(1)(i), or (iii) the Notes are
no longer outstanding (the date of such latest occurrence being the "End Date"),
the Company will (A) cause its Common Stock to continue to be registered under
Section 12(b) or 12(g) of the 1934 Act, (B) comply in all respects with its
reporting and
16
filing obligations under the 1934 Act, (C) voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act, if the Company is not subject to such
reporting requirements, and (D) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until the End Date. Until the End Date, the Company
will continue the listing or quotation of the Common Stock on a Principal Market
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to timely file a Form D with respect to the Securities if required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing.
(e) Use of Proceeds. The proceeds of the Offering must be employed
---------------
by the Company for general corporate purposes and working capital. 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 or non-trade obligations outstanding on a
Closing Date. For so long as any Notes are outstanding, the Company will not
prepay any financing related debt obligations nor redeem any equity instruments
of the Company without the prior consent of the Subscribers.
(f) Reservation. Prior to the Closing, the Company undertakes to
-----------
reserve, pro rata, on behalf of each holder of a Note or Warrant, from its
--------
authorized but unissued Common Stock, a number of common shares equal to 100% of
the amount of Common Stock necessary to allow each holder of a Note to be able
to convert all such outstanding Notes and reserve the amount of Warrant Shares
issuable upon exercise of the Warrants. Failure to have sufficient shares
reserved pursuant to this Section 9(f) at any time shall be a material default
of the Company's obligations under this Agreement and an Event of Default under
the Note.
(g) Taxes. From the date of this Agreement and until the End Date,
-----
the Company will promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefore.
(h) Insurance. From the date of this Agreement and until the End
---------
Date, the Company will keep its assets which are of an insurable character
insured by financially sound and reputable insurers against loss or damage by
fire, explosion and other risks customarily insured against by companies in the
Company's line of business, in amounts sufficient to prevent the Company from
becoming a co-insurer and not in any event less than one hundred percent (100%)
of the insurable value of the property insured less reasonable deductible
amounts; and the Company will maintain, with financially sound and reputable
insurers, insurance against other hazards and risks and liability to persons and
property to the extent and in the manner
17
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement and until
-----------------
the End Date, the Company will keep records and books of account in which
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 End Date, the Company shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to the
conduct of its business or to its properties or assets.
(k) Intellectual Property. From the date of this Agreement and
---------------------
until the End Date, the Company shall maintain in full force and effect its
corporate existence, rights and franchises and all licenses and other rights to
use intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for value.
(l) Properties. From the date of this Agreement and until the End
----------
Date, the Company will keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a Material Adverse
Effect.
(m) Confidentiality/Public Announcement. From the date of this
-----------------------------------
Agreement and until the End Date, the Company agrees that except in connection
with a Form 8-K or any registration statement filed in connection herewith or as
otherwise required in connection with any other filing required to be made with
the Commission, it will not disclose publicly or privately the identity of the
Subscribers unless expressly agreed to in writing by a Subscriber, only to the
extent required by law and then only upon five days prior notice to Subscriber.
In any event and subject to the foregoing, the Company shall file a Form 8-K or
make a public announcement describing the Offering not later than the fourth
business day after the Closing Date. In the Form 8-K or public announcement, the
Company will specifically disclose the amount of Common Stock outstanding
immediately after the Closing. A form of the proposed Form 8-K or public
announcement to be employed in connection with the Closing is annexed hereto as
Exhibit E.
(n) Non-Public Information. The Company covenants and agrees that
----------------------
except for schedules and exhibits to this Agreement which information thereon
will be publicly disclosed within four (4) business days after the Closing Date,
neither it nor any other person acting on its behalf will at any time provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
18
(o) Additional Negative Covenants. So long as the Notes are
-----------------------------
outstanding, without the consent of the Subscribers, the Company will not and
will not permit any of its Subsidiaries to directly or indirectly:
(i) create, incur, assume or suffer to exist any pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, mortgage, security deed or deed of trust, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Uniform Commercial
Code or comparable law of any jurisdiction) (each, a "Lien") upon any of its
property, whether now owned or hereafter acquired except for: (i) the Excepted
Issuances (as defined in Section 12 hereof, (ii) (a) Liens imposed by law for
taxes that are not yet due or are being contested in good faith and for which
adequate reserves have been established in accordance with generally accepted
accounting principles; (b) carriers', warehousemen's, mechanics', material
men's, repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more than 30
days or that are being contested in good faith and by appropriate proceedings;
(c) pledges and deposits made in the ordinary course of business in compliance
with workers' compensation, unemployment insurance and other social security
laws or regulations; (d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature, in each case in the ordinary
course of business; (e) Liens created with respect to the financing of the
purchase of property in the ordinary course of the Company's business up to the
amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a "Permitted Lien") and (iii)
indebtedness for borrowed money which is not senior or pari passu in right of
payment to the payment of the Notes or distribution of the Company's assets;
(ii) amend its certificate of incorporation, by-laws or its
charter documents so as to adversely affect any rights of the Subscribers;
(iii) repay, repurchase or offer to repay, repurchase or
otherwise acquire or make any dividend or distribution in respect of any of its
Common Stock, preferred stock, or other equity securities other than to the
extent permitted or required under the Transaction Documents;
(iv) prepay or redeem any financing related debt or past due
obligations outstanding as of the Closing Date;
(v) engage in any transactions with any officer, director,
employee or any Affiliate (excluding a Subsidiary) of the Company, including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer,
director, or
19
any such employee has a substantial interest or is an officer, director, trustee
or partner, in each case in excess of $100,000 other than (i) for payment of
salary and bonuses or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company, (iii) for other employee
benefits, including stock option agreements under any stock option plan of the
Company, and (iv) pursuant to existing contractual agreements; or
(vi) the Company agrees to provide Subscribers not less than
ten (10) days notice prior to becoming obligated to or effectuating a Permitted
Lien or Excepted Issuance.
(p) Further Registration Statements. Except for a registration
-------------------------------
statement filed on behalf of such Subscribers pursuant to Section 11 of this
Agreement, or in connection with the Prior Offering, or Qualified Offering, the
Company will not, without the consent of such Subscribers, file with the
Commission or with state regulatory authorities any registration statements or
amend any already filed registration statement to increase the amount of Common
Stock registered therein, or reduce the price of which such Common Stock is
registered therein, including but not limited to Forms S-8, until the expiration
of the "Exclusion Period", which shall be defined as the sooner of (i) a
registration statement contemplated pursuant to Section 11.1 having been current
and available for use in connection with the resale of all of the Securities for
a period of ninety (90) days, or (ii) six (6) months from the Closing Date;
provided the Company meets the requirements of Rule 144(b)(l)(i) of the 1933
Act. The Exclusion Period will be tolled or reinstated, as the case may be,
during the pendency of an Event of Default as defined in the Note.
(q) Blackout. The Company undertakes and covenants that, until the
--------
end of the Exclusion Period, the Company will not enter into any acquisition,
merger, exchange or sale or other transaction or fail to take any action that
could have the effect of delaying the effectiveness of any pending registration
statement or causing an already effective registration statement to no longer be
effective or current for a period of twenty (20) or more days in the aggregate
during any three hundred and sixty-five (365) day period.
(r) Equity Line Restrictions/Option Plans. For so long as the Notes
-------------------------------------
are outstanding, except for the Excepted Issuances, the Company will not enter
into any equity line of credit or similar agreement, nor issue nor agree to
issue any floating or variable priced equity linked instruments nor any of the
foregoing or equity with price reset rights. The only officer, director,
employee and consultant stock option or stock incentive plan currently in effect
or contemplated by the Company is described on Schedule 5(d).
(s) Lockup Agreements. The Company will deliver to the Subscribers
-----------------
on or before the Closing Date and enforce the provisions of irrevocable lockup
agreements ("Lockup Agreements") in the forms annexed hereto as Exhibit F, with
the parties identified on Schedule 9.1(s).
(t) Seniority. Except for Permitted Liens and as otherwise provided
---------
for herein, until the Notes are fully satisfied or converted, the Company shall
not grant nor allow any security interest to be taken in the assets of the
Company or any Subsidiary; nor issue any debt, equity or other instrument which
would give the holder thereof directly or indirectly, a right in
20
any assets of the Company or any Subsidiary, superior to any right of the holder
of a Note in or to such assets.
(u) DTC Program. At all times that Notes or Warrants are
-----------
outstanding, the Company will employ as the transfer agent for the Common Stock,
Shares and Warrant Shares a participant in the Depository Trust Company
Automated Securities Transfer Program.
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 the Company or breach of any warranty by the Company in this Agreement or in
any Exhibits or Schedules attached hereto, or other Transaction Documents
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 Transaction
Documents 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 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 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 Transaction Documents 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 Transaction Documents 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
Securities.
(d) The procedures set forth in Section 11.6 of the Subscription
Agreement ("Prior Subscription Agreement") employed in the Prior Offering shall
apply to the indemnification set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants to the holders of
-------------------
the Securities the same registration rights granted to the Subscribers to the
Prior Offering as described in and related to Section 11.1(ii) of the Prior
Subscription Agreement. The Subscribers are granted the same notice remedies,
indemnification, liquidated damages and rights granted to the Subscribers to the
Prior Offering in connection with such registration rights and assume the same
obligations to the Company as such other subscribers under Section 11.1(ii) of
the Prior Subscription Agreement. Notwithstanding this Section 11.1, no
provisions regarding demand registration
21
rights contained in the Prior Subscription Agreement shall be applicable to the
holders of the Securities or otherwise incorporated herein.
11.2. Delivery of Unlegended Shares.
-----------------------------
(a) Within three (3) business days (such third business day being
the "Unlegended Shares Delivery Date") after the business day on which the
Company has received (i) a notice that Shares or Warrant Shares or any other
Common Stock held by a Subscriber have been sold pursuant to the registration
statement described in Section 11.1 or Rule 144 under the 1933 Act, (ii) a
representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable and if required, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber's broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4(i) above (the
"Unlegended Shares"); and (z) cause the transmission of the certificates
representing the Unlegended Shares together with a legended certificate
representing the balance of the submitted Shares certificate, if any, to the
Subscriber at the address specified in the notice of sale, via express courier,
by electronic transfer or otherwise on or before the Unlegended Shares Delivery
Date.
(b) In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and such 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 11.2 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 such
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 11.2
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to the greater of (i) the actual purchase
price of such Shares or Warrant Shares, or (ii) the highest closing price of the
Common Stock during the aforedescribed thirty day period and the denominator of
which is the lowest conversion price during such thirty day period ("Unlegended
Redemption Amount"). The Company shall pay any payments incurred under this
Section in immediately available funds upon demand.
22
(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 a Subscriber or a broker on such Subscriber's behalf,
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Subscriber of the shares of Common
Stock which such Subscriber was entitled to receive from the Company (a
"Buy-In"), then the Company shall pay in cash to such Subscriber (in addition to
any remedies available to or elected by such Subscriber) the amount by which (A)
such 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 such Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to such Subscriber in respect of the Buy-In.
(e) In the event a Subscriber shall request delivery of Unlegended
Shares as described in Section 11.2 or Warrant Shares upon exercise of Warrants
and the Company is required to deliver such Unlegended Shares pursuant to
Section 11.2 or the Warrant Shares pursuant to the Warrants, the Company may not
refuse to deliver Unlegended Shares or Warrant Shares based on any claim that
such Subscriber or any one associated or affiliated with such Subscriber has
been engaged in any violation of law, or for any other reason, unless, an
injunction or temporary restraining order from a court, on notice, restraining
and or enjoining delivery of such Unlegended Shares or exercise of all or part
of said Warrant shall have been sought and obtained by the Company or at the
Company's request or with the Company's assistance, and the Company has posted a
surety bond for the benefit of such Subscriber in the amount of 120% of the
amount of the aggregate purchase price of the Common Stock and Warrant Shares
which are subject to the injunction or temporary restraining order, which bond
shall remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Subscriber to the
extent Subscriber obtains judgment in Subscriber's favor.
11.3. In the event commencing one hundred and eighty-one (181) days
after the Closing Date, a Subscriber is not permitted to resell any of the
Shares or Warrant Shares without any restrictive legend or if such sales are
permitted but subject to volume limitations or further restrictions on resale as
a result of the unavailability to Subscriber of Rule 144(b)(1)(i) under the 1933
Act or any successor rule (a "144 Default"), for any reason except for
Subscriber's status as an Affiliate or "control person" of the Company, then the
Company shall pay such Subscriber as liquidated damages and not as a penalty an
amount equal to two percent (2%) for each thirty (30) days (or such lesser
pro-rata amount for any period less than thirty (30) days) thereafter of the
purchase price of the Shares and Warrant Shares owned by such Subscriber during
the pendency of the 144 Default. Liquidated Damages that accrue pursuant to
Section 11.4 of the Prior Subscription Agreement and liquidated damages that
accrue pursuant to this Section 11.3 for contemporaneous periods shall be
payable only in connection with the higher of such
23
amounts (and not both of such amounts) as shall have accrued. Liquidated damages
shall not be payable pursuant to this Section 11.3 in connection with Shares and
Warrant Shares for such times as such Shares and Warrant Shares may be sold by
the holder thereof without restriction pursuant to Section 144(b)(1)(i) of the
1933 Act.
12. (a) Right of First Refusal. Subject to the rights of the holders of
----------------------
the Company's Series A Preferred Stock as existing and described in the Reports
as of the Closing Date and without any amendment or enlargement thereof and the
rights of the Subscribers to the Prior Offering, until one year after the Second
Closing Date (which period shall be tolled during the pendency of an Event of
Default that is not cured during any applicable cure period), the Subscribers
shall be given not less than seven (7) business days prior written notice of any
proposed sale by the Company of its Common Stock or other securities or equity
linked debt obligations, except in connection with (i) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of corporation or
other entity which holders of such securities or debt are not at any time
granted registration rights, (ii) the Company's issuance of securities in
connection with strategic license agreements and other partnering arrangements
so long as such issuances are not for the purpose of raising capital and, (iii)
the Company's issuance of Common Stock or the issuances or grants of options to
purchase Common Stock pursuant to stock option plans and employee stock purchase
plans described on Schedule 5(d) hereto, and (iv) as a result of the exercise of
Warrants or conversion of Notes which are granted or issued pursuant to this
Agreement (collectively the foregoing are "Excepted Issuances"). The Subscribers
who exercise their rights pursuant to this Section 12(a) shall have the right
during the seven (7) business days following receipt of the notice to purchase
some or all of 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. A
Subscriber may elect to purchase less than the maximum amount purchasable by
such Subscriber in which event other Subscribers who have fully exercise their
rights pursuant to this Section 12(a) may elect during the following additional
seven (7) days to purchase in proportion to their initial Note purchase
hereunder the amounts not purchased by the Subscribers who did not purchase the
maximum amount otherwise available to them. In the event such terms and
conditions are modified during the notice period, the Subscribers shall be given
prompt notice of such modification and shall have the right during the seven (7)
business days following the notice of modification to exercise such right.
(b) Favored Nations Provision. Other than in connection with the
-------------------------
Excepted Issuances, if at any time the Notes or Warrants are outstanding, the
Company shall offer, issue or agree to issue any Common Stock or securities
convertible into or exercisable for shares of Common Stock (or modify any of the
foregoing which may be outstanding) to any person or entity at a price per share
or conversion or exercise price per share which shall be less than the
Conversion Price in respect of the Shares, or if less than the Warrant exercise
price in respect of the Warrant Shares, without the consent of each Subscriber,
then the Company shall issue, for each such occasion, additional shares of
Common Stock to each Subscriber so that the average per share purchase price of
the shares of Common Stock issued to such Subscriber (of only the Common Stock
or Warrant Shares still owned by such Subscriber) is equal to such other lower
price per share and the Conversion Price and Warrant exercise price shall
automatically be reduced to such other lower price. The average Purchase Price
of the Shares and average
24
exercise price in relation to the Warrant Shares shall be calculated separately
for the Shares and Warrant Shares. The foregoing calculation and issuance shall
be made separately for Shares received upon conversion of the Notes and
separately for Warrant Shares. The delivery to such 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. For purposes of
the issuance and adjustment described in this paragraph, the issuance of any
security of the Company carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in the issuance of the additional shares of Common Stock upon the
sooner of the agreement to or actual issuance of such convertible security,
warrant, right or option and again at any time upon any subsequent issuances of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the Conversion Price or Warrant exercise
price in effect upon such issuance. The rights of such Subscriber set forth in
this Section 12 are in addition to any other rights such Subscriber has pursuant
to this Agreement, the Note, any Transaction Document, and any other agreement
referred to or entered into in connection herewith. The Subscriber is also given
the right to elect to substitute any term or terms of any other offering in
connection with which such Subscriber has rights as described in Section 12(a),
for any term or terms of the Offering in connection with Securities owned by
Subscriber as of the date the notice described in Section 12(a) is required to
be given to Subscriber.
(c) Maximum Exercise of Rights. In the event the exercise of the
--------------------------
rights described in Sections 12(a) or 12(b) would or could result in the
issuance of an amount of Common Stock of the Company that would exceed the
maximum amount that may be issued to a Subscriber calculated in the manner
described in Section 7.3 of this Agreement, then the issuance of such additional
shares of Common Stock of the Company to such Subscriber will be deferred in
whole or in part until such time as such Subscriber is able to beneficially own
such Common Stock without exceeding the applicable maximum amount set forth
calculated in the manner described in Section 7.3 of this Agreement. The
determination of when such Common Stock may be issued shall be made by each
Subscriber as to only such Subscriber.
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 overnight 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), (b) on the first business day following the date
deposited with an overnight courier service with charges prepaid,
25
or (c) on the third business day following the date of mailing pursuant to
subpart (a)(ii) above, or upon actual receipt of such mailing, whichever shall
first occur. The addresses for such communications shall be: (i) if to the
Company, to: BigString Corporation, ▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, President and Chief Executive Officer, telecopier: (732)
741-2842, with a copy by telecopier only to: ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.,
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Esq., telecopier: (▇▇▇) ▇▇▇-▇▇▇▇, and (ii) if to a Subscriber, to: the one or
more addresses and telecopier numbers indicated on the signature pages hereto,
with an additional copy by telecopier only to: Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier: (▇▇▇) ▇▇▇-▇▇▇▇.
(b) Entire Agreement; Assignment. This Agreement and other
----------------------------
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
the Company shall be assigned without prior notice to and the written consent of
the Subscribers. A Subscriber shall promptly provide the Company with written
notice of the assignment or delegation of any of its rights or obligations under
this Agreement.
(c) Counterparts/Execution. This Agreement may be executed in any
----------------------
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(d) Law Governing this Agreement. This Agreement shall be governed
----------------------------
by and construed in accordance with the laws of the State of New Jersey without
regard to conflicts of laws principles that would result in the application of
the substantive laws of another jurisdiction. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the civil or state courts of New Jersey or in the
federal courts located in the State of New Jersey. The parties and the
individuals executing this Agreement and other agreements referred to herein or
delivered in connection herewith on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction. To the extent
---------------------------------------------
permitted by law, the Company and Subscriber acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to one or more preliminary and final injunctions to prevent or cure breaches of
the
26
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity. Subject to Section 13(d) hereof, each of
the Company, Subscriber and any signator hereto in his or her personal capacity
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction in New York of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Nothing
in this Section shall affect or limit any right to serve process in any other
manner permitted by law.
(f) Independent Nature of Subscribers. The Company acknowledges
---------------------------------
that the obligations of each Subscriber under the Transaction Documents are
several and not joint with the obligations of any other Subscriber, and no
Subscriber shall be responsible in any way for the performance of the
obligations of any other Subscriber under the Transaction Documents. The Company
acknowledges that each Subscriber has represented that the decision of each
Subscriber to purchase Securities has been made by such Subscriber independently
of any other Subscriber and independently of any information, materials,
statements or opinions as to the business, affairs, operations, assets,
properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company which may have been made or given by any
other Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in a registration statement and (ii) review by, and
consent to, such registration statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
(g) Damages. In the event a Subscriber is entitled to receive any
-------
liquidated damages pursuant to the Transactions, such Subscriber may elect to
receive the greater of actual damages or such liquidated damages.
(h) Consent. As used in the Agreement, "consent of the Subscribers"
-------
or similar language means the consent of holders of not less than 70% of the
total of the Shares issued and issuable upon conversion of outstanding Notes
owned by Subscribers on the date consent is requested.
27
(i) Equal Treatment. No consideration shall be offered or paid to
---------------
any person to amend or consent to a waiver or modification of any provision of
the Transaction Documents unless the same consideration is also offered and paid
to all the Subscribers and their permitted successors and assigns.
(j) Maximum Payments. Nothing contained herein or in any document
----------------
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum rate 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
rate shall be credited against amounts owed by the Company to a Subscriber and
thus refunded to the Company.
(m) Captions: Certain Definitions. The captions of the various
-----------------------------
sections and paragraphs of this Agreement have been inserted only for the
purposes of convenience; such captions are not a part of this Agreement and
shall not be deemed in any manner to modify, explain, enlarge or restrict any of
the provisions of this Agreement. As used in this Agreement the term "person"
------
shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
(n) Severability. In the event that any term or provision of this
------------
Agreement shall be finally determined to be superseded, invalid, illegal or
otherwise unenforceable pursuant to applicable law by an authority having
jurisdiction and venue, that determination shall not impair or otherwise affect
the validity, legality or enforceability: (i) by or before that authority of the
remaining terms and provisions of this Agreement, which shall be enforced as if
the unenforceable term or provision were deleted, or (ii) by or before any other
authority of any of the terms and provisions of this Agreement.
(o) Successor Laws. References in the Transaction Documents to
--------------
laws, rules, regulations and forms shall also include successors to and
functionally equivalent replacements of such laws, rules, regulations and forms.
A successor rule to 144(b)(1)(i) shall include any rule that would be available
to a non-Affiliate of the Company for the sale of Common Stock not subject to
volume restrictions and after a six month holding period.
28
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.
BIGSTRING CORPORATION
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
Dated: February 29, 2008
--------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PRICE AND NOTE PRINCIPAL
--------------------------------------------------------------------------------
ALPHA CAPITAL ANSTALT $250,000.00
▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Vaduz, Lichtenstein
Fax: ▇▇▇-▇▇-▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
(Signature)
By: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------------------------------------------------
WARRANT SHARES
833,333
---------------------------------
29
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.
BIGSTRING CORPORATION
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
Dated: February 29, 2008
--------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PRICE AND NOTE PRINCIPAL
--------------------------------------------------------------------------------
WHALEHAVEN CAPITAL FUND LIMITED $250,000.00
c/o FWS Capital Ltd.
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇-▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
(Signature)
By: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, CFO
--------------------------------------------------------------------------------
WARRANT SHARES
833,333
---------------------------------
30
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)
--------------------------------------------
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.
BIGSTRING CORPORATION
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
Dated: February 29, 2008
--------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PRICE AND NOTE PRINCIPAL
--------------------------------------------------------------------------------
EXCALIBUR SMALL CAP OPPORTUNITIES LP $200,000.00
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------
(Signature)
By: ▇▇▇▇▇▇ ▇▇▇▇▇, EVP/Portfolio Manager
--------------------------------------------------------------------------------
WARRANT SHARES
666,667
---------------------------------
31
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Note
Exhibit B Form of Warrant
Exhibit C Escrow Agreement
Exhibit D Form of Legal Opinion
Exhibit E Form of Lockup Agreement
Schedule 5(a) Subsidiaries
Schedule 5(d) Additional Issuances / Capitalization
Schedule 5(f) Conflicts
Schedule 5(q) Undisclosed Liabilities
Schedule 5(v) Transfer Agent
Schedule 8 Finder's Fee
Schedule 9(s) Lockup Agreement Providers
32
EXHIBIT B
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 UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BIGSTRING CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase _______
shares of Common Stock of
BigString Corporation (subject
to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 2008-001 Issue Date: February 29, 2008
BIGSTRING CORPORATION, a corporation organized under the laws of the
State of Delaware (the "Company"), hereby certifies that, for value received,
_____________, with an address of ______________________, or its assigns (the
"Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company at any time after the Issue Date until 5:00 p.m., E.S.T on the fifth
anniversary of the Issue Date (the "Expiration Date"), up to _______________
fully paid and nonassessable shares of Common Stock at a per share exercise
price of $0.15. The aforedescribed exercise price per share, as adjusted from
time to time as herein provided, is referred to herein as the "Exercise Price."
The number and character of such shares of Common Stock and the Exercise Price
are subject to adjustment as provided herein. The Company may reduce the
Exercise Price without the consent of the Holder. The Company may reduce the
Exercise Price without the consent of the Holder. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in that certain
Subscription Agreement (the "Subscription Agreement"), dated as of February 29,
2008, entered into by the Company and the initial Holder of this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include BigString Corporation and any
corporation which shall succeed or assume the obligations of BigString
Corporation hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$0.0001 par value per share, as authorized on the date of the Subscription
Agreement, and (b) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
(d) The term "Warrant Shares" shall mean the Common Stock issuable upon
exercise of this Warrant.
1. Exercise of Warrant.
-------------------
1.1. Number of Shares Issuable upon Exercise. From and after the
---------------------------------------
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
-------------
Holder hereof by delivery of this Warrant an original or facsimile copy of the
form of subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and delivery within two days thereafter of payment, in
cash, wire transfer or by certified or official bank check payable to the order
of the Company, in the amount obtained by multiplying the number of shares of
Common Stock for which this Warrant is then exercisable by the Exercise Price
then in effect. The original Warrant is not required to be surrendered to the
Company until it has been fully exercised.
1.3. Partial Exercise. This Warrant may be exercised in part (but
----------------
not for a fractional share) by the Holder hereof by delivery, an original or
facsimile copy of the Subscription Form duly executed by such Holder and
payment, in cash, wire transfer or by certified or official bank check payable
to the order of the Company. The amount payable by the Holder on such partial
exercise shall be the amount obtained by multiplying (a) the number of whole
shares of Common Stock designated by the Holder in the Subscription Form by (b)
the Exercise Price then in effect. On any such partial exercise provided the
Holder has surrendered the original Warrant, the Company, at its expense, will
forthwith issue and deliver to or upon the order of the Holder hereof a new
Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may request, the whole
number of shares of Common Stock for which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common
-----------------
Stock as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the NASDAQ Global Market, NASDAQ Global Select Market, the NASDAQ
Capital Market, the New York Stock Exchange or the American Stock Exchange, LLC,
then the closing or last sale price, respectively, reported for the last
business day immediately preceding the Determination Date;
2
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ Global Market, NASDAQ Global Select Market, the NASDAQ Capital
Market or the American Stock Exchange, Inc., but is traded in the
over-the-counter market, then the average of the closing bid and ask prices
reported for the last business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below and Section 3.1, if
the Company's Common Stock is not publicly traded, then as the Holder and the
Company agree, or in the absence of such an agreement, by arbitration in
accordance with the rules then standing of the American Arbitration Association,
before a single arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided; or
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
----------------------
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
---------------------------
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall, to the extent
permitted by applicable law, have all the powers and duties of a warrant agent
(as hereinafter described) and shall accept, in its own name for the account of
the Company or such successor person as may be entitled thereto, all amounts
otherwise payable to the Company or such successor, as the case may be, on
exercise of this Warrant pursuant to this Section 1.
1.7 Delivery of Stock Certificates, etc. on Exercise. The Company
------------------------------------------------
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter ("Warrant Share Delivery Date"),
the Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the Holder
hereof, or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct in compliance with applicable securities laws, a
certificate or certificates for the number of duly and validly issued, fully
paid and nonassessable shares of Common Stock (or Other Securities) to which
such Holder shall be entitled on such exercise, plus, in lieu of any fractional
share to which such Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share of
3
Common Stock, together with any other stock or other securities and property
(including cash, where applicable) to which such Holder is entitled upon such
exercise pursuant to Section 1 or otherwise. The Company understands that a
delay in the delivery of the Warrant Shares after the Warrant Share Delivery
Date could result in economic loss to the Holder. As compensation to the Holder
for such loss, the Company agrees to pay (as liquidated damages and not as a
penalty) to the Holder for late issuance of Warrant Shares upon exercise of this
Warrant the amount of $100 per business day after the Warrant Share Delivery
Date for each $10,000 of Exercise Price of Warrant Shares for which this Warrant
is exercised 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
Holder, in the event that the Company fails for any reason to effect delivery of
the Warrant Shares by the Warrant Share Delivery Date, the Holder may revoke all
or part of the relevant Warrant exercise by delivery of a notice to such effect
to the Company whereupon the Company and the Holder shall each be restored to
their respective positions immediately prior to the exercise of the relevant
portion of this Warrant, except that the liquidated damages described above
shall be payable through the date notice of revocation or rescission is given to
the Company.
1.8 Buy-In. In addition to any other rights available to the
------
Holder, if the Company fails to deliver to a Holder the Warrant Shares as
required pursuant to this Warrant, within seven (7) business days after the
Warrant Share Delivery Date and the Holder or a broker on the Holder's behalf,
purchases (in an open market transaction or otherwise) shares of common stock to
deliver in satisfaction of a sale by such Holder of the Warrant Shares which the
Holder was entitled to receive from the Company (a "Buy-In"), then the Company
shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (A) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate Exercise Price of the Warrant Shares
required to have been delivered 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 Holder purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of Exercise
Price of Warrant Shares to have been received upon exercise of this Warrant, the
Company shall be required to pay the Holder $1,000, plus interest. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
2. Cashless Exercise.
-----------------
(a) If a registration statement (as described in Section 11 of the
Subscription Agreement) (the "Registration Statement") is effective and the
Holder may sell its shares of Common Stock upon exercise hereof pursuant to the
Registration Statement, this Warrant may be exercisable in whole or in part for
cash only as set forth in Section 1 above. If the Registration Statement is not
available, then commencing one year after the Issue Date, payment upon exercise
may be made at the option of the Holder either in (i) cash, wire transfer or by
certified or official bank check payable to the order of the Company equal to
the applicable aggregate Exercise Price, (ii) by delivery of Common Stock
issuable upon exercise of the Warrants in accordance with Section (b) below or
(iii) by a combination of any of the foregoing
4
methods, for the number of Common Stock specified in such form (as such exercise
number shall be adjusted to reflect any adjustment in the total number of shares
of Common Stock issuable to the holder per the terms of this Warrant) and the
holder shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully-paid and non-assessable shares of Common Stock (or Other
Securities) determined as provided herein.
(b) Subject to the provisions herein to the contrary, if the Fair
Market Value of one share of Common Stock is greater than the Exercise Price (at
the date of calculation as set forth below), in lieu of exercising this Warrant
for cash, the holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion thereof being cancelled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Subscription Form in which event the Company shall issue
to the holder a number of shares of Common Stock computed using the following
formula:
X=Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be
issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the average Fair Market Value of a share of
Common stock for the five (5) trading days
immediately prior to (but not including) the
Exercise Date
B= Exercise Price (as adjusted to the date of
such calculation)
For purposes of Rule 144 promulgated under the 1933 Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
---------------------------------------------------------
3.1. Reorganization, Consolidation, Merger, etc. In case at any
------------------------------------------
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including
5
cash) to which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 4.
3.2. Dissolution. In the event of any dissolution of the Company
-----------
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, New York, as trustee for the
Holder of the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
---------------------
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 Share Issuance. Until the Expiration Date, if the Company shall
--------------
issue any Common Stock except for the Excepted Issuances (as defined in the
Subscription Agreement), prior to the complete exercise of this Warrant for a
consideration less than the Exercise Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Exercise Price shall be reduced to such other lower price for then outstanding
Warrants. For purposes of this adjustment, the issuance of any security or debt
instrument of the Company carrying the right to convert such security or debt
instrument into Common Stock or of any warrant, right or option to purchase
Common Stock shall result in an adjustment to the Exercise Price upon the
issuance of the above-described security, debt instrument, warrant, right, or
option if such issuance is at a price lower than the Exercise Price in effect
upon such issuance 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 Exercise Price in effect upon such
issuance. The reduction of the Exercise Price described in this Section 3.4 is
subject to the provisions of, and in addition to the other rights of the Holder
described in, the Subscription Agreement.
4. Extraordinary Events Regarding Common Stock. In the event that the
-------------------------------------------
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Exercise Price by a fraction, the
6
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Exercise Price then in effect. The
Exercise Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof, be entitled to receive shall be adjusted to
a number determined by multiplying the number of shares of Common Stock that
would otherwise (but for the provisions of this Section 4 be issuable on such
exercise by a fraction of which (a) the numerator is the Exercise Price that
would otherwise (but for the provisions of this Section 4 be in effect, and (b)
the denominator is the Exercise Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
-----------------------------
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of this Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of this Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
-----------------------------------------------------------
Financial Statements. The Company will at all times reserve and keep available,
--------------------
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
-------------------------------
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor"). On the
surrender for exchange of this Warrant, with the Transferor's endorsement in the
form of Exhibit B attached hereto (the "Transferor Endorsement Form") and
together with an opinion of counsel reasonably satisfactory to the Company that
the transfer of this Warrant will be in compliance with applicable securities
laws, the Company will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face of the Warrant so
surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such
7
loss, theft or destruction of this Warrant, on delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of this
Warrant, the Company at its expense, twice only, will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The Holder of this Warrant has been granted
-------------------
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference.
10. Maximum Exercise. The Holder shall not be entitled to exercise this
----------------
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (a) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (b) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common Stock
on such date. For the purposes of 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 Holder shall not be limited to aggregate exercises which
would result in the issuance of more than 4.99%. The restriction described in
this paragraph may be waived, in whole or in part, upon sixty-one (61) days
prior notice from the Holder to the Company to increase such percentage to up to
9.99%, but not in excess of 9.99%. The Holder may decide whether to convert a
Note or exercise this Warrant to achieve an actual 4.99% or up to 9.99%
ownership position as described above, but not in excess of 9.99%.
11. Warrant Agent. The Company may, by written notice to the Holder of
-------------
the Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing
Common Stock (or Other Securities) on the exercise of this Warrant pursuant to
Section 1, exchanging this Warrant pursuant to Section 7, and replacing this
Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. Transfer on the Company's Books. Until this Warrant is transferred
-------------------------------
on the books of the Company, the Company may treat the registered Holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. 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 (a) personally served, (b) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(c) delivered by reputable overnight courier service with charges prepaid, or
(d) 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 (i) 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
8
normal business hours where such notice is to be received), (ii) on the first
business day following the date deposited with an overnight courier service with
charges prepaid, or (iii) on the third business day following the date of
mailing pursuant to subpart (b) above, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be: if
to the Company, to: BigString Corporation, ▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇, Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, President and Chief Executive Officer, telecopier:
(▇▇▇) ▇▇▇-▇▇▇▇, with a copy by telecopier only to: ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
P.C., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Esq., telecopier: (▇▇▇) ▇▇▇-▇▇▇▇, and (ii) if to the Holder, to the
address and telecopier number listed on the first paragraph of this Warrant,
with a copy by telecopier only to: Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇.
14. Miscellaneous. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of New Jersey without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Warrant shall be brought only
in the state courts of New Jersey or in the federal courts located in the State
of New Jersey. The parties to this Warrant hereby irrevocably waive any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens. The Company and Holder 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 Warrant 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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
9
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
BIGSTRING CORPORATION
By:
--------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
10
Exhibit A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: BIGSTRING CORPORATION
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____) (the "Warrant"), hereby irrevocably elects to purchase (check
applicable box):
___ ________ shares of the Common Stock covered by the Warrant; or
___ the maximum number of shares of Common Stock covered by the Warrant pursuant
to the cashless exercise procedure set forth in Section 2 of the Warrant.
The undersigned herewith makes payment of the full Exercise Price for such
shares at the price per share provided for in the Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2 of the Warrant, to
exercise the Warrant with respect to the maximum number of shares of Common
Stock purchasable pursuant to the cashless exercise procedure set forth in
Section 2 of the Warrant.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is ____________________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the Warrant shall be
made pursuant to registration of the Common Stock covered by the Warrant under
the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an
exemption from registration under the Securities Act.
Dated:___________________ ___________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
___________________________________
___________________________________
(Address)
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Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned transferor (the
"Transferor") hereby sells, assigns, and transfers unto the person(s) named
below under the heading "Transferees" the right represented by the attached
Warrant (No. _____) (the "Warrant") to purchase the percentage and number of
shares of Common Stock of BIGSTRING CORPORATION to which the Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person attorney to transfer its respective right on the books of BIGSTRING
CORPORATION with full power of substitution in the premises.
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Transferees Percentage Transferred Number Transferred
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[TRANSFEROR]
Dated: ______________, ___________ _____________________________
(Signature must conform to
name of Holder as specified
on the face of the Warrant)
Signed in the presence of:
___________________________________ _____________________________
(Signature) _____________________________
(address)
___________________________________
(Print Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
Dated: ______________, ___________ _____________________________
(Signature)
Signed in the presence of:
_____________________________
(Print Name)
___________________________________
(Signature)
_____________________________
___________________________________ _____________________________
(Print Name) (address)
12